andMr. Moore asked the Minister for Finance if a decision has yet been taken on the reported proposals of the Building Societies Association whereby a more permanent method of relieving the burden on borrowers might be devised.
Ceisteanna—Questions. Oral Answers (Resumed). - Building Society Proposals.
36.
As recently announced the Government have decided to maintain, for a further period, the subsidy to building societies which was introduced in May, 1973 at an annual cost to the Exchequer of £2 million. This subsidy enables the societies to reduce interest to borrowers to a rate 1¼ per cent below what it would otherwise be. Building societies and their depositors also enjoy valuable tax concessions. These are:—
(a) exemption from corporation profits tax—the White Paper on Company Taxation proposes to give this statutory sanction.
(b) interest free of tax in the hands of shareholders and depositors.
(c) a composite rate of income tax payable by the societies in respect of interest paid to their shareholders and depositors on investments up to £15,000. This rate is only 70 per cent of the standard rate.
(d) for purposes of sur-tax assessments interest paid to shareholders and depositors is based on the tax free amounts and not as in other cases on the gross amounts.
I have decided that the grant of the further concessions requested by the association would not be warranted.
Let me, first of all, thank the Minister for his comprehensive reply. Has the Minister received any proposals from the Building Societies Association that they would do something themselves in this respect? There was some report published on this; they have submitted something to the Minister.
I think the report to which the Deputy is referring is one which I saw myself in the newspapers to the effect that they had made representations that they, of their own volition, would do something. At the time the report was published nothing had been received by the Minister for Finance. Subsequently the Minister for Finance received a request that certain further tax concessions be given but there was no proposal at all that the building societies themselves would do anything. The situation is not simple. If you give further advantageous treatment to any particular credit agency, it means that you draw away money from some other agency. The result is that you only start off unnecessary and undesirable movements of money from one agency to another. These concessions the building societies are getting are greater than are given to any other agency that collects money, and I think in the circumstances we would not be warranted in giving any more at this stage.
The Minister is aware that it is the borrowers who get the concessions, not the building societies? Is he satisfied that there is no necessity to increase these concessions in view of the rising cost of money?
Of course, the cost of money is rising. In fact, the cost of money is 4 per cent higher than it was this time last year, but we are not immune to this international disease of high interest rates; there are some international agencies which are saying the rates of interest should be even higher. At a meeting of the Council of Ministers in the EEC recently a new 11th commandment was being urged upon us, that interest rates should be high. I protested vehemently that this was quite unsuitable to Ireland's requirements or, indeed, to the requirements of any developing country. We are endeavouring to keep the interest rates as low as possible, and this will continue to be our policy. As I say, the building societies—when I say "building societies" I mean the movement—enjoy concessions. These concessions work to the benefit of the investor who is getting a real return of 12.3 per cent on the money lent with a building society, and the borrowers are getting benefit also because of this and also because of the subsidy.
Having regard to the effect to which the withdrawal of this subsidy will have on intending borrowers, can the Minister say if he has any other scheme in mind whereby he can give compensatory support to them in the matter of housing?
It would be wrong to assume that the subsidy is going to be withdrawn at any particular stage. We have said that the situation is being carefully watched all the time. The great desire we all have is for interest rates to fall. If interest rates fell to the level at which they were last year, it would be difficult to justify the continuation of the subsidy at all. However, the situation will be looked at from time to time, and we shall give such help as we believe is warranted by the situation.
May I also mention, because I think it is often overlooked, that the majority of borrowers from building societies are subject to income tax and the interest they pay on their borrowings is set off against their income tax liability. Therefore, they do not have to carry the full rate of interest. The Exchequer comes to their assistance.
Arising out of the reply——
Please, Deputy. I have allowed a debate on this matter and the Deputy comes in at the heel of the hunt and expects the Chair to permit it. I have allowed the matter to be debated for the past ten minutes. If the Deputy wishes to put a very brief question I shall permit it.
Is the Minister aware that the Minister who answered the previous question indicated that he was not in a position to continue this subsidy, that he needed £2 million to do so and that such money was not available and, the Minister has now said, that there is no indication that the subsidy will not be continued?
I think the Deputy misunderstood what the Minister for Local Government said. He said that were he to provide further assistance of the kind that was being sought it would cost £6 million. The Government decision in relation to the subsidy is that it is being continued for the time being and that the situation will be reviewed from time to time. That continues to be the position.