asked the Minister for the Environment the effect of the recent 5 per cent increase in VAT on building and construction output in 1985.
Ceisteanna—Questions. Oral Answers. - VAT on Building and Construction Output.
12.
It is difficult to estimate the precise effect on construction output in 1985 of the increase in the building services rate of VAT because of the boost to private housing demand likely to flow from the increase of £1,000 in the amount of the new house grant, and the substantial amount of building work not affected by the VAT increase in the commercial, industrial, agricultural and semi-State sectors. Also, information is not available on the extent to which contractors may pass on the increased VAT charge in the form of higher prices or the extent to which total demand for construction work may be affected. Overall, I would estimate that if the total effect of the VAT increase will be to reduce the volume of construction output in 1985, it will be by a very marginal amount, say 1 per cent below the level that would otherwise have been reached.
Would the Minister agree that it is not satisfactory that he is not in a position to indicate to the House what the direct effect will be of the 5 per cent increase in VAT on building in 1985? Is he aware of estimates others have had to make in view of the reluctance on the part of the Government to give information in this matter? Is he aware of estimates by others that there will be a reduction of between 2,000 and 3,000 housing units per annum arising from increased costs resulting from the 5 per cent increase in VAT? Surely he must agree that with an extra take of 5 per cent from the capital provided by the State there will have to be a direct reduction in the amount of building activity. The reduction could be as much as £60 million when one calculates the additional 5 per cent. No additional moneys have been injected by the Government to compensate for this increase, other than the increase in the new house grant from £1,000 to £2,000 which will have a minimal effect. On what facts is the Minister basing his statement that a boost to private housing demand will result from measures the Government have taken, when all the indications in the marketplace are that there is a disastrous slump in the market and in house construction?
I would contend that the reduction in the standard rate of VAT from 35 per cent to 23 per cent and the reduction in VAT on concrete blocks from 23 to 10 per cent will reduce the cost of building work carried out by direct labour units in the public authorities and by private individuals. This will result in an offsetting increase in the volume of construction output in 1985. In addition the effect of the VAT increase on the demand for new private houses will be largely offset by the increased grant to first-time buyers.
What percentage of first-time buyers qualify for new house grants? The Minister is trying to give the impression that all purchasers of new houses qualify for this grant. Is it not true that approximately 60 per cent qualify, while 40 per cent do not qualify? How can the increased grant offset the cost to those people who do not qualify?
I am suggesting that these changes will have a beneficial effect. The reduction in VAT overall will bring a generally beneficial effect to the whose economy. As a result of these benefits people may be in a better financial position to trade up in houses. The furnishing of houses is made easier by the reduction in VAT and this may offset some of the increase from 5 per cent to 10 per cent. It is not as black a picture as the Deputy wishes to make out. The figures coming to me do not reflect the dire situation he predicted as a result of the change in VAT.
I asked the Minister to give the facts on which he bases his assertion that there will be an increased demand for private housing and therefore a boost to private housing construction. This assertion is clearly against the trend in the market place and if he has information he should make it available to the House.
I will do so when I answer the next question.