Brendan Griffin (Kerry, Fine Gael)
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140. To ask the Minister for Finance his views on the contribution taxation policy is making to the cost of building and renting; and if he will make a statement on the matter. [55857/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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As outlined by my Department in its Tax Strategy Group Paper, Property-Related Tax Issues,which was published on 10 August last on the Department’s website, the root cause of pressures in the Irish housing market is one of insufficient supply.

The high levels of property price inflation that have been experienced are likely due to a combination of factors including under-supply, the release of post-COVID pent-up demand (including ’excess savings’), the strength of the labour market recovery and the war in Ukraine.

The key to resolving issues of access to housing in the property market, including affordability, is through the provision of increased supply. The Government announced Housing for All late last year: a multi-annual, multi-billion euro strategy to improve Ireland’s housing system and deliver more homes of all types whilst addressing pressures within the housing market.

As the Deputy will be aware, under the strategy, over 300,000 new homes will be built by 2030, including a projected 54,000 affordable homes for purchase or rent, over 90,000 social homes and 18,000 cost rental homes. The plan is backed up with a commitment of over €15.5 billion in funding. Some €12 billion in direct Exchequer funding will be made available up to 2025, with an additional €3.5 billion in funding generated through the Land Development Agency (LDA) and a further €5 billion funding generated through the Housing Finance Agency.

The Government’s Action Plan Update and Q3 Progress Report on Housing for All, which was published by the Department of the Taoiseach last week (2 November 2022), indicates that, while there are challenges, the plan is working.

Housing supply is increasing. Housing for All has a target of 24,600 homes to be delivered in 2022. The Government fully expects to meet this target. Indeed, more homes are expected to be built this year than in any year since 2009. The 2023 target is 29,000 homes.

While tax is included in the cost of construction, any policy to amend taxes on building houses should be treated with caution given Ireland’s past experience with tax incentives.

The Government has introduced a number of measures over the past year to support the cost of building in these challenging times. In the interest of safeguarding public projects that are already under construction and to mitigate the risks of significant losses being sustained by contractors, the Government introduced an “Inflation Co-operation Framework" earlier this year. The Framework addresses the impacts of exceptional inflation and supply chain disruption to public projects and the delivery of badly needed social housing.

It is also important to recognise that tax policy is already being used in many ways to support the supply of new homes and for people within the market.

Budget 2023 included various tax-related housing initiatives:

- The Help to Buy scheme was extended for two years.

- For tenants, a new rent tax credit was introduced valued at €500 per year to improve affordability. This will be aimed at those who do not get any other housing supports. This will apply from 2023 but will also be claimable in respect of rent paid in 2022.

- For landlords, in Budget 2023 the expenditure limit for deductible pre-letting expenses for landlords was doubled from €5,000 to €10,000 and the period for which a property must be vacant was halved from twelve months to six months. This is an important measure for landlords and its aim is to support landlords in continuing their important work in providing accommodation for renters.

- A Residential Zoned Land Tax has also been legislated for and will come into effect in 2024.

During the 2000s there were various property-based tax incentives that were discontinued after multiple reviews which highlighted the following issues;

- Deadweight loss arising from activity that would have occurred anyway.

- Cost to the exchequer.

- Equity concerns as the reliefs accrued to a small number of individuals.

- Narrowing of the tax base, and

- Reliefs act as a disincentive to seek productivity gains.

Using tax incentives to encourage construction risks making the mistakes of the past.

The Government will continue to monitor the situation while ensuring the focus remains on increasing the capacity of the sector and reducing costs of supply.