Vol. 507 No. 1
14 Mr. Durkan asked the Minister for Finance the plans, if any, he has to consider taxation or other measures with the objective of bringing house prices within the reach of persons with an annual income of £35,000; and if he will make a statement on the matter. [16121/99]
The rapid escalation in house prices over the past few years has presented difficulties, even for those prospective buyers who would normally be regarded as having good incomes. Last year the Government appointed a team of consultants to prepare a report on the housing market. The Government reacted speedily to the findings of this report into house prices by Peter Bacon and Associates and announced a number of measures aimed at addressing the sharp increase in house prices and restoring balance to the housing market. As part of these measures, I made a number of changes to the tax system and these were contained in the Finance (No. 2) Act, 1998. Earlier this year the Government commissioned Peter Bacon and Associates to review the effectiveness of the measures taken last year and to consider other recent developments in the housing sector.
In their second report, the consultants noted that there is widespread consensus that the Government actions taken last year have played a key role in achieving a slow-down in the rate of increase in house prices. They stated that the primary impact towards price stability has been achieved through reducing investor demand, promoting liquidity in the second-hand market, through the reforms of the stamp duty code, and implementing a strategy to address the problem which has been credible to the market.
In the Finance Bill, 1999, I acted promptly on a further recommendation contained in the consultants' second report. In response to difficulties identified by the consultants, I amended the conditions attaching to the special low rate of capital gains tax for development land where this is sold to form part of the supply of housing land. In order to avail of the low 20 per cent rate, the land need only be zoned residential under a county development plan.
I have said previously that the tax measures taken last year and the further amendment to the capital gains tax code contained in this year's Finance Act were only part of an overall balanced package of ongoing measures taken by the Government. There are a number of measures, which my colleagues, the Minister for the Environment and Local Government and the Minister of State with responsibility for housing and urban renewal have announced in this regard. These measures, which have been discussed at length inside and outside this House, are aimed at increasing the supply of housing as well as improving the affordability of house purchasing.
In short, what could be done in the short term under the tax code has been done and done promptly. Furthermore, tax measures have been put in place to encourage the increased supply of land for housing development to redress the imbalance between supply and demand in the housing market.
Given that the Minister is proceeding by way of tax credits, is there a possibility of allowing house purchasers with an income of under £35,000 a tax credit on the purchase of a house? Will he consider increasing the new house grant for first time buyers to £5,000? Does he agree that the new house grant should be linked to an applicant's income?
The Deputy has raised two questions. I am not sure how such a proposed tax credit system could incorporate and overcome the problems in this area.
I put forward those proposals to help the people concerned.
I do not know how we could adapt the tax system to provide for what the Deputy has proposed.
His second question concerned increasing the new house grant. I will have to give the Deputy a blunt answer to that question. I am certain my view is not shared by all Members of the House, all members of my party or, perhaps, by all members of the Government. I do not believe that increasing the new house grant would do anything to alleviate the burden on first time house purchasers. Past experience reveals that such money ends up in increased profits for the builder-developer – that is certain. That has been the case with grants, particularly housing grants, and successive Administrations have made mistakes in that regard. I have been of that view for a long time. That is my honest opinion on the Deputy's proposal to increase the new house grant, attractive as that proposal might seem initially. The Deputy's party may have made suggestions in that regard during a recent election campaign, but I did not agree with it then, nor did I agree with it in the past.
A measure the Minister took in the recent past was to reduce the level of CGT on development land. While I accept it is early to judge, is the Minister aware of any evidence of the effect that measure has had?
I do not have any empirical evidence at present, except that the changes I made regarding capital gains tax on development land seem to have brought problems in other regards, to which I referred at the finance committee. I received representations from some people concerning a local authority that wanted to buy a plot of land for use as a cemetery. The individual concerned does not want to sell his land to that local authority because he would face a capital gains tax bill of 40 per cent, whereas if he sold it for housing development he would only have to pay a capital gains tax bill of 20 per cent.
I do not have any evidence at present to say whether this measure has had a major or minor impact, except to say that from my experience people are aware of it and when they want to dispose of their land they want to get the best possible price and to pay the least amount of tax. I do not have any empirical evidence on this matter on file.
Will the Minister agree that the measures he has introduced to date have been a glorious failure? House prices and, in particular, the pressure young people are under should be treated almost as a national emergency. Has he any measures in mind to control the amount of money in the market, given that banks are shoveling out money to their customers? Does he agree that the Government has failed gloriously on the matter of gazumping?
The Finance (No. 2) Bill, 1998, was our response to the Bacon report and I introduced the various tax changes then. I said during the debate on that Bill that the measure was an attempt by the Government to distort the market. The Government was trying to balance supply and demand by dampening down demand and I said clearly at the time that it was a short-term measure. The market will only become rational when supply increases to meet demand, and we have discussed the reason supply and demand are out of kilter. As I have said previously, it is amazing that Deputies, not so much those from Deputy Stanton's party, who cry about housing shortages are stopping housing developments going ahead on zoned land in their own constituencies.
Written Answers follow Adjournment Debate.
