(Limerick East): I made some preliminary remarks on the Minister's policy on interest rates. I want now to refer to the precise implications of amendment No. 6.
I object to this section and if I had been in a position to vote against the section yesterday I would have done so. I put down this amendment first because there is an increase in income tax involved in the abolition of the 10 per cent mortgage interest relief. In the budget we put before the people as part of our election campaign, we committed ourselves to having no tax relief of any sort and to balancing the national accounts by means of expenditure cuts. The Minister's proposal increases income tax on anybody who has a mortgage. In the case of young people who are recently married and who have full mortgages of £29,000 or £30,000, it increases the amount of income tax they pay by £20 or £25 a week.
Secondly, I am opposed to it because it is the thin end of the wedge. I have seen proposals along the line of this one coming from the Department of Finance previously. Of course, all the relief will not be abolished in one fell swoop but once the precedent is established that the mortgage interest relief is vulnerable, I assure the House that next year the Minister will return with a proposal to bring the 90 per cent down to 60 per cent and the year after that it will be 30 per cent and before we know where we are mortgage interest relief will be abolished completely. There are other reliefs of a similar nature, for example, relief on insurance policies and on VHI insurance. The Minister's proposal is the thin end of the wedge introduced into this House in an incremental fashion. He will proceed, if he is Minister, over the next few years to totally remove mortgage interest relief and proceed from there to remove other reliefs in income tax as well.
Thirdly, I object to this proposal because it is unfair and discriminatory in that at a time when the Minister expects interest rates to decline, no benefit will accrue to the mortgagee because what one gains from declining interest rates, one loses by having the mortgage interest relief reduced. On a quick calculation I think interest rates on mortgages would have to fall by 1½ per cent before mortgage holders would break even and recover what they will lose by the reduction in the relief. All the headlines in the world informing people that their mortgages are coming down and that there will be substantial reductions in their payments to banks and building societies cut no ice at all when on the other hand their income tax is going up as a result of the removal of this relief.
We need to establish confidence in the building industry. The building industry were full of hope last year because they thought that, after an election which the Minister's party were predicted to win, happy days would be here again and the building industry would be stimulated by massive expenditure of capital. I understand a commitment was given by the Minister's party to spend a further £200 million and that VAT on building would be reduced from 10 per cent to 5 per cent. Instead of that, there has been a massive cut in the capital programme for the building industry. There has been no reduction in the VAT rate which applies to the building industry and a whole package of house grants, including the home improvement grants, have been abolished.
This will be a further blow to the building industry, because the mortgage interest relief is a mechanism which allows people to trade up. People on high gross incomes and on high marginal rates of tax find it in their intrests to trade up and this has stimulated the building industry in the past and will do so in future. I am sure the Minister will say that 10 per cent is neither here nor there, but if one gets a mortgage of £30,000 or £40,000 on the basis of 100 per cent tax relief and then one finds it reduced, one does not know the Minister's intentions for the future, one would think again before one traded up. This is a further nail in the coffin of the building industry.
When we take this with section 33 where the Minister is imposing 10 per cent extra tax on the profits which banks make on the home loan sector of their business, it is a further heavy imposition on the building industry. There will be no confidence in the House building industry as a result of this proposal. I know the Minister needs the money and that he has his sums done on the basis of getting £10 million from this measure. The amendment I am proposing will allow him to introduce this change and it will only apply to new mortgages and to borrowings and contracts entered into after 31 March 1987. Anybody who borrowed money to buy a house on the basis of 100 per cent mortgage tax relief, prior to the Minister's announcement, should in all fairness be allowed the full benefit of that 100 per cent tax relief.
That is a very unfair measure and another attack on the vulnerable sections. It affects particularly PAYE people and none of the PAYE allowances is indexed. There is no improvement in the tax position of PAYE workers. Here, anybody on PAYE income tax who has a home loan will have to pay extra income tax. Any benefit that might accrue from declining interest rates it totally cancelled by this measure. I would prefer to be voting against the section, but as we did not get to it yesterday for reasons known to everybody, I took the opportunity to express my views on this amendment and on the next amendment which I will be moving when we complete discussion on this.
