Vol. 633 No. 4
86 Mr. Bruton asked the Minister for Finance if he is satisfied regarding the structure of stamp duty, which greatly amplifies the growth of revenue from house buyers at times of rising house prices; and if he will make a statement on the matter. [10436/07]
The Government is very aware of the importance of the construction sector to the economy, as evidenced by the large numbers working in the area and the sums that come from it in taxation. With the sector directly responsible for 13.5% of total employment, Government policy should be aimed at supporting an important driver of economic activity.
The provision of adequate numbers of new houses has been a key policy priority in recent years. We have seen numbers of house completions increase to over 93,000 in 2006, up from 52,000 in 2001. We are now at a stage where housing demand is beginning to match housing supply, and that is reflected in the market, with a significant slowdown in property inflation. That is clear evidence that our housing policy is working well.
The stamp duty code applies a single rate to the full value of the property, where the rate applicable depends on the value of the property concerned. Given the growing market of recent years, it is not surprising that the yield from stamp duty has increased. However, such growth cannot be taken for granted in future. However, as the Deputy is no doubt aware, no stamp duty is paid on the vast majority of new houses bought by first-time buyers and other owner-occupiers.
Consideration of ways to improve the structure of the tax would have to have regard, among other things, to simplicity and cost. For example, the estimated cost of introducing a system whereby stamp duty would be applied on a marginal basis for houses priced above the current exemption thresholds, based on the full year 2006 yield, is €553 million — that is, more than 42% of the yield on residential property.
In particular, the Government wants to assist those who are trying to buy their first home. That is why I increased the exemption and reduced stamp duty rates for first-time buyers in budget 2005 and why I increased mortgage interest relief for first-time buyers in budget 2007, with benefits to those about to purchase and those who had purchased in the last seven years. By making these changes, I was able to assist first-time buyers directly without impacting on the overall market conditions.
This must be a key consideration in the continuing evaluation of policy in this area given the vital importance of the construction sector to the economy.
Stamp duty is a significant contributor to the Exchequer, which helps fund public services such as health and education, while keeping the direct tax burden low, thereby facilitating continued economic success which is of benefit to all taxpayers. It has helped us to reduce taxes on work and enterprise with clear benefits for the economy as a whole.
Would the Minister agree that a tax which accelerates so rapidly as house prices rise, is inequitable because of its extraordinary structure? Is the Minister aware that the amount of stamp duty collected in 2006 was fourfold that collected in 2002? Is he also aware that in 2002 the stamp duty paid on a typical house was 4% and came to €9,000, while now, just four years later, the corresponding figure is 7.5% with the average person paying €29,000? Would the Minister agree that the structure of this sort of tax, with such a sharp acceleration in take from many young families is unfair? It needs to be reformed so that the tax is equitable in the way it is applied and is also proofed against this extraordinary rollercoaster of huge surges when house prices rise.
The Deputy will be aware that the stamp duty code has applied a single rate to the full value of the property where the rate applicable depends on the value of the property concerned. That has been the nature of the tax since its inception. While there have been increases in the yield of this tax in recent years as a result of increased property prices, that is not something we can factor into future revenue yields either from that tax or the general Revenue take. Nor can we expect that market conditions, which have softened in recent times, will be renewed with the increased price inflation that would result.
When considering how to improve structures of taxes such as this, one must have regard, among other issues, to simplicity and cost. If the threshold issue was applied to current rates, the full cost of it would be over €550 million or 42% of the yield on residential property. We have been able to reduce the direct tax burden on income, which means there has been an increased contribution from capital taxes and stamp duties as a result. This must also be borne in mind.
I would like to ask the Minister a straight question. Does he believe it is fair that the exemption limit for first-time buyers is now 40% below the average house price in Dublin? The exemption limit for second-time buyers — many of whom are families trading up from smaller homes — is just 23% of the average house price in the capital. In a tax code that is supposed to be fair, what is the meaning of exemption thresholds that are set so far below the price at which anyone can buy a house? Does the Minister not recognise that those sort of thresholds are unfair because they have been left there for so long without taking account of what has happened in the market in the intervening years?
I changed the thresholds in budget 2005, increasing them considerably in respect of first-time buyers of second-hand houses. According to data available to the Department of the Environment, Heritage and Local Government, in the first half of 2006, over 50% of houses purchased by first-time buyers of second-hand properties in Dublin were valued at under €317,500 and were not liable for stamp duty. Those are the figures up to mid-2006, but statistics for the third quarter are not yet available. In terms of total Revenue take, it is important to recognise the significant changes we have made in income taxation. The contribution these taxes make to the Exchequer must also be taken into account.
87 Ms Burton asked the Minister for Finance his views on the risk posed to the Irish economy by continued high inflation; his further views on the resulting loss of competitiveness in the Irish economy and the significant number of redundancies particularly in traditional manufacturing jobs, and the fact that Ireland lags behind other EU member states on a number of indices including broadband provision; and if he will make a statement on the matter. [10252/07]
The prospects for the economy are favourable. Strong growth is expected this year with both GDP and GNP forecast to increase by 5.3%. With more than 2 million people now employed in the State and unemployment forecast to be under 4.5% this year, we are effectively at full employment. However, we recognise that clear challenges remain, which must be addressed if living standards are to continue to improve as they have done over the past ten years.
The Government is keenly aware of the importance of Ireland's competitiveness position concerning investment, exports and, hence, jobs. Inflation is one of the factors impacting on competitiveness. Competitiveness is also influenced by exchange rates, wage inflation, public spending growth and capital spending on infrastructure.
The annual rate of consumer price index, CPI, inflation was 4.8% in February, down from 5.2% in January. A better measure of underlying inflation is the EU comparable measure of inflation, the harmonised index of consumer prices or HICP. The HICP differs from the CPI in terms of coverage. The most notable difference is the exclusion of mortgage interest repayments from the HICP. Annual HICP inflation in Ireland was 2.6% in February, down from 2.9% in January. The recent pick-up in inflation was largely due to external developments over which the Government has no control — in particular, increased interest rates by the European Central Bank. This can be seen by the fact that the CPI, excluding mortgage interest payments, averaged 2.5% in the year to February. I am confident that inflation will moderate over the course of this year.
We all recognise that the Irish economy cannot compete on the same basis as in the past. To maintain and enhance competitiveness in the context of a higher-cost economy, a greater focus on productivity across all sectors of the economy is essential because in the long run, in a small economy like Ireland's, economic prosperity ultimately depends on our ability to sell goods and services abroad. Recognising this challenge, the Government has developed policies which are designed to help Ireland's competitiveness. Important policy issues in the medium term include developing our innovation potential, improving the regulatory environment, enhancing the human capital of the country, and developing our economic and technological infrastructure.
The Government will spend an average of 5.4% of GNP per year over the period 2007-13 on capital infrastructure under the new national development plan. We are also investing in education; our strategy for science, technology and innovation will support more science and technology graduates which businesses will need in the future.
The Government has also introduced incentives for research and development, which will also help us as we build towards a more knowledge-based economy. These initiatives will enhance our competitive position and allow us to produce goods and services more efficiently, while maintaining and improving our living standards.
While some jobs losses have recently been announced in exposed sectors of the economy, this Government has developed the conditions that created nearly 90,000 new jobs in the past year.
Additional information not given on the floor of the House.
Turning to the Deputy's reference to broadband, the provision of telecommunications services, including broadband, is a matter in the first instance for private sector companies. The role of Government is to implement regulatory and infrastructure policies to facilitate the provision of affordable, high quality telecommunications services by competing private sector service providers. Since October 2004, the number of broadband subscribers has increased from 63,000 to more than 500,000 by the end of 2006. Prices have also dropped and are in line with EU standards. There is no evidence to suggest broadband availability has been a negative factor for foreign or domestic investment. The Deputy should note that the Government has committed itself to ensuring that, in those parts of the country where the private sector is unable to justify the commercial provision of broadband connectivity, it will address it via a new scheme. When fully rolled out, that scheme will ensure that all reasonable requests for broadband from houses and premises in rural areas are met.
I am confident that the stable macro-economic environment this Government has created through the pursuit of sound public finances, will support the economy's competitiveness in the years ahead and will, in turn, provide the basis for achieving further economic and social policy objectives in the long term.
The policy initiatives the Minister has announced to improve competitiveness are too little too late. I do not know if the Minister has had a chance to read the annual reports of the National Competitiveness Council and Forfás. According to that data, Ireland performs poorly across a range of infrastructural areas, including energy, waste and broadband, to mention but three.
How does the Minister explain that the price of electricity was 15% below the European-15 average in 1996, whereas now, after ten years of this Government and on his watch, the price is 13% above the European average? Our share of the world merchandise trade has fallen from its peak in 2002.
Has the Minister had a chance to consider what the annual competitiveness report says about this Government's gross economic mismanagement? During the best years the Minister left the Government with many indicators facing downwards and 35,000 manufacturing jobs have been lost during the last five years. What does the Minister have to say to workers leaving factory jobs, including high-end jobs in companies such as Motorola and what does he say about the competitiveness challenge?
During the period referred to by the Deputy, 2002 to 2006, there was a reduction of 31,000 in manufacturing jobs but the economy created 250,000 jobs during the same period. The net benefit to the economy was in the region of 220,000 jobs and this is a significant indicator of overall competitiveness in the Irish economy. Ireland is still regarded as a suitable location for inward investment and new businesses in the indigenous sector due to increased demand, higher incomes, a bigger labour force, tax reforms and greater domestic demand. Other major European economies have been trying to create such a scenario for many years.
It is true that there has been turbulence in the energy markets relating to oil prices and so on. Independent regulators have been introduced to Irish utility markets that were previously monopolies. Competitive structures have come about through the appointment of regulators. Turbulence in the oil market has caused significant increases in electricity and gas prices and the regulator is examining ways to reduce the regulated price over a period, rather than leave it as it is.
Broadband coverage has increased from 63,000 to more than 500,000 subscribers since and prices have dropped in line with EU standards.
I will repeat the figures in this regard. In 1996, before the creation of the regulator, electricity prices here were 15% below the+European-15 average. The Government's attempt at regulation was supposed to benefit industrial, commercial and domestic consumers but since it began electricity prices have risen to 13% above the European average. Talk of regulators is well and good but the Government's actions in the field of energy have driven electricity prices ever higher and we are now at the top of the European table in this respect and at the bottom of the range on broadband.
I do not agree with the Deputy's comments and I have indicated the changes that are taking place regarding broadband. The reforms agreed by the Government in the White Paper on Energy are a further indication of our commitment to bring more competition to the market and ensure the consumer gets a better deal on price. The introduction of the independent regulation of utility markets is occurring against a background of price freezes and reductions compared to prices of up to a decade previously.
88 Caoimhghín Ó Caoláin asked the Minister for Finance his views on the possible impact on the economy of legislation currently before the US Senate to restrict US companies’ deferral of taxation on foreign earnings to revenues from products and services both rendered and sold or consumed in the foreign country in view of the fact that this legislation is predicted to have a dramatic impact on US foreign direct investment here. [10454/07]
First and foremost, I would like to assure the Deputy that Ireland continues to be an attractive location for US inward foreign investment based on a number of well known factors. Furthermore, Government policy continues to ensure that our strengths are maintained and promoted through, for example, increased spending in education and training and in overall investment in infrastructure under the National Development Plan 2007-2013.
While I am, of course, mindful of any international developments that could potentially impact on the level of foreign direct investment here, the Deputy will appreciate that the interpretation of specific foreign legislative provisions is a matter for the relevant authorities of the country concerned. That said, my understanding is that the legislation referred to by the Deputy, which was recently introduced in the US Senate, is aimed at locations considered as secretive offshore tax havens and not countries which are US tax treaty partners.
In this regard the Deputy will be interested to note that the double taxation treaty between Ireland and the US provides for a full exchange of taxpayer information between both countries.
Finally, I would like to assure the Deputy that, as is the normal case in such matters, a close watch is kept on any such developments.
Has the Government discussed these impending developments in US legislation with US authorities at any level? In the course of his recent visit to the United States did the Taoiseach refer to them in his conversations with President Bush or other key political players he met there?
The Minister has confirmed an awareness of developments in this regard in the United States and will keep a keen eye on them but are strategies to cushion the effect of the development described in my substantive question being considered by the Minister, his Department or Government? The Minister must agree that it is imperative we recognise the potential impact of such legislation and that we must not be unaware of the reality of the situation as it applies to many US based inward investors operating in this jurisdiction. In the region of 470 such employing entities exist in this economy with a workforce of approximately 92,000.
Will the Minister comment on some of the more negative views expressed by economists in periodicals and newspapers here regarding the expected effect of the passage of this legislation? Do such opinions encourage a proactive approach by Government to the matter to stave off the worst potential impacts of the legislation?
Does the Minister agree that the passage of this legislation will demonstrate that low corporation tax alone is a poor basis on which to promote this jurisdiction as an attractive location for inward investment from the United States and elsewhere? We need a broader basis to attract inward investment in the economy.
I first wish to welcome Deputy Ó Caoláin back to the House and wish him well in his recovery.
I thank the Minister.
We have transparent tax arrangements in this country. We have positive rates of taxation, 44 tax treaties in place, a system of full exchange of information and the proper regulation of activities to the highest standards. We maintain a low general corporation tax rate by ensuring a wide tax base and the careful, prudent management of public finances. We collect €6.7 billion per annum in corporation tax. This tax arises from profits based on activity and substance. To take the international financial services sector as a specific example, the latest industry figures indicate that more than 19,000 people are employed in the three core sectors of banking, funds and insurance. Our system is transparent — deliberately — in order that everyone can see the attractions and benefits to the State. Other countries often have high nominal rates of corporation tax which mask the true lower rate in deductions through deals with individual firms. The Irish system does not operate in this manner and is transparent.
Ireland is bound by the same state aid code of conduct and rules of the European Court of Justice as all European Union member states. The EU treaty contains specific rules on the provision by member states of aid to industry. The European Union also has a code of conduct, a political agreement designed to curb harmful competition in business taxation, which is similar to the process at OECD level. Ireland is fully in compliance with the code and the OECD process. Our track record shows that we act swiftly to amend regimes to close down abuses and if similar circumstances arise in the future, we will do so again.
Ireland abides by the arm's length principle in these matters. We expect companies operating here to observe this principle and we have endorsed it in our tax treaties. As I indicated, there is no question of the legislation to which the Deputy refers having a "dramatic impact on US FDI here" for the reasons I gave in my primary reply because both Bills contain a list of countries drawn from the IRS filings and regarded as tax havens. Ireland does not appear on either list for the good reasons I have given in my secondary reply.
Taking on board the Minister's comments and not wishing to join those who predict a worst case scenario, nevertheless, does he not agree that a responsible Government would recognise that, where a threat exists, it is incumbent on Government to exercise all the influence it can not only to cushion the effect on foreign direct investment in this jurisdiction and economy but particularly to take the initiative and create an impetus behind the indigenous player to level the playing field for the indigenous entrepreneur who comes up with an idea and will have a stake in the country through the most difficult times, as has been proven repeatedly, and will not opt at the first opportunity to move lock stock and barrel to a low wage economy overnight, many examples of which we have seen in the recent past?
This is not a low wage economy.
Of course it is not.
The Ahead of the Curve industrial policy review provided confirmation that we have small and big businesses. More than 800,000 members of the 2 million workforce are employed in small and medium size enterprises, the great majority of which are indigenous. I introduced proposals in the most recent budget to comprehensively overhaul the business expansion and seed capital schemes to ensure investment is directed into areas that will create entrepreneurship and more jobs and increase skills. The research and development tax credit is applicable to small companies and other businesses.
Although an important factor and one I will continue to defend, our low tax rate is not the only reason foreign direct investment is attracted here. The question of what attracts FDI to a particular country is a complex one and a range of factors explain the reason Ireland is attractive. They include our English speaking, skilled labour force, on which we continue to work and have a strategy to improve, a flexible market, ease of access and proximity to the European mainland, membership of the European Union and access to its markets, membership of the euro area, a pro-business outlook, political stability and social partnership.
89 Mr. Bruton asked the Minister for Finance if he has assessed the contributions from different sectors to consumer price growth in the past five years; and the implications this has for Government policy. [10196/07]
My Department assesses data produced by the Central Statistics Office on the contribution from different sectors to price growth. The CSO rebased in December 2001. The figures for the years 2002-06 show that consumer price inflation increased by approximately 12.5% over this period. Of this figure, it is estimated that approximately 10% is due to services sector price inflation, while 2.5% is due to goods inflation. It is important to note, however, that during this time the economy grew by 22% and 260,000 jobs were created.
Where it can, the Government is taking action to contain inflation by implementing responsible fiscal policies. For example, with the exception of an increase in indirect tax on tobacco in the 2007 budget, which was done for health reasons, indirect taxes have not been raised in the past three budgets. We have also reformed sectors such as the communications and insurance sectors and these are now showing low rates of inflation. The Government also removed the groceries order and data recently released by the Central Statistics Office show that this is beginning to have a moderating impact on food prices. I understand that the Minister for the Environment, Heritage and Local Government specifically requested that to support competitiveness in the economy and protect the interests of communities. Local authorities should exercise restraint in setting any increases in commercial rates and local charges in the context of their budgets for 2007.
We must also be aware that a number of important factors which influence inflation are outside Government control. For example, mortgage interest rates are set by the European Central Bank and mortgage interest added in the region of 2% to total CPI. Equally, energy prices in Ireland are set by independent regulators and reflect international market prices and other factors such as investment costs.
Goods are generally traded internationally and, as a result, goods inflation is kept low by international competition. However, services are largely non-tradable and the relatively high rate of services sector inflation is a cause for concern. The Competition Authority is undertaking a number of detailed studies of how competition is operating in specific sectors of the economy and the Government will pay close attention to the results of these studies. Areas such as the restaurant, hotel and licensed premises sectors are of particular concern as it is estimated that they contributed approximately 3% to overall inflation in the past five years. This highlights the need for pay and profit restraint in these sectors to reduce price pressures and we must ensure that the wage increases granted under the social partnership agreement, Towards 2016, are reflected in productivity gains.
In addition to the steps already outlined, the Government is taking a broad approach to dealing with inflation. We are investing heavily in public infrastructure, which will enhance our ability to produce goods and services more efficiently and, therefore, help keep inflation down on a continuing basis. The economic conditions fostered by the Government will support the economy's competitiveness and provide the basis for our continued future economic success.
I ask the Minister to comment on a few important features of inflation in the past five years. Is he aware that the prices of goods in the shops, once the old reliables of alcohol, fuel and tobacco are removed, have not increased in the past five years, whereas the prices of services priced or regulated by Government have increased by 40%? I note the Minister indicated that his colleague, the Minister for the Environment, Heritage and Local Government, has told the local authorities they must get their act together by reducing the burden imposed by commercial rates. Does he not agree that the first priority for Government in managing prices in its own sector is to get its act together? Does he accept that manufacturing, which has taken a price cut in the past five years, cannot survive if Government controlled sectors are so far out of line?
Will the Minister back up his statement that prices for products set by regulators are competitive when compared with prices in other countries? Gas is 50% more expensive and electricity much dearer than in the United Kingdom. On what grounds does he base the statement that the regulated prices set by the Minister and the regulators are competitive?
I do not set prices, they are set by the regulators. There is an independent regulatory sector. The specific characteristics of an island market of this size mean that the electricity and gas sectors differ from those of the United Kingdom and other countries. The Government's long-term strategy is to continue to reposition the economy towards the production of more knowledge intensive goods and services. As these tend to be less energy intensive, this development should help reduce our exposure to international energy price developments. The regulator must also take into account investment returns in terms of the nature of the market in which investment is being made. As I indicated, the size and island nature of our market must be taken into account in terms of the major utilities.
The impact of higher energy prices on the economy will ultimately be a function of how economic agents, including policymakers, react. In the past, higher energy prices resulted in higher wage demands and increases in public spending, both of which had a detrimental impact on economic performance. There is now a greater awareness that we cannot compensate ourselves for these increases. We are, therefore, coming from a position of insufficient competition in the marketplace in certain areas. The purpose of independent regulation of the market is to meet EU requirements and facilitate competition. Interconnection between North and South and east and west should open up possibilities to reduce inflation in these areas.
Has the Minister examined the statistics provided by the CSO which show that the Government regulated sectors have price increases of two and a half times the rate of the rest of Europe? These other European countries are experiencing the same oil price increases, interest rate rises and international pressures of competition. It is only prices regulated here, however, that show these hefty increases.
The Minister is disavowing any responsibility for this. Is he not aware that it is Ministers who set prices for rail and bus services, televisions licences, prescribed drugs, health insurance and so on? Many of the sectors in which the greatest increases have taken place are those where prices are directly set. Is the Minister not aware that the regulatory framework is set by the Government and that it is his responsibility to cure the deficiencies he has acknowledged in our regulatory framework?
I am not suggesting there are simply deficiencies in the regulatory framework. I am saying this is the discipline imposed on the market by the introduction of the independent regulatory framework. In the past, prices in these areas were regulated by Departments working through the commercial semi-State sector. All sides in this House long ago agreed that commercialisation of the semi-State sector is a requirement for our continued sustainable competitiveness.
Services inflation has added some 10% to overall inflation. It is a wide-ranging concept covering electricity, gas, telecommunications, alcoholic beverages consumed on licensed premises, meals out, housing, rent, mortgage interest repayments, insurance, public transport, entertainment and recreation, education, household services and miscellaneous services including child care, social protection and package holidays. Where inflation in health and education is running at close to 5% it should be noted that these sectors have relatively small weights in the basket of consumer goods and services and that their impact on overall inflation is relatively low. Many factors that influence health inflation, such as doctors' and dentists' fees, are outside Government control.
I said in my reply that the level of service inflation is a cause for concern and that we are working to deal it with as comprehensively as possible, recognising the changed structures of some of these markets and how they operate in Ireland.
90 Ms Burton asked the Minister for Finance his views on the fact that monthly mortgage repayments have increased by approximately €40 to €50 on a €300,000 variable mortgage as a result of the latest quarter point increase by the ECB on 8 March 2007; if he is aware that this is the seventh successive such increase since December 2005, that sub-prime mortgage holders are reported to be spending as much as 25% more a month servicing their mortgages than they did before interest rates started to rise; if he will implement measures to provide clear information for mortgage holders on the effect of projected future interest rate increases on their monthly payments; if his attention has further been drawn to the fact that the European Central Bank has indicated the likelihood of further interest rate rises; and if he will make a statement on the matter. [10253/07]
The level of interest rates is determined by the independent European Central Bank, ECB, in fulfilment of its mandate to secure price stability for the euro area as a whole. The impact of ECB interest rate changes on household incomes in Ireland is an important element of the context for the Government's overall economic and fiscal strategy. This strategy has successfully delivered sustained economic growth, record levels of employment, low unemployment and rising incomes. It is has also underpinned the achievement of a strong and responsible fiscal position within which significant tax and expenditure priorities have been achieved. It enables us to plan the delivery of a major programme of investment in our economic and social infrastructure under the National Development Plan 2007-2013.
Households currently experiencing higher mortgage repayments on account of rising interest rates benefit significantly from a range of supportive economic and financial factors, including, for example, low income tax rates and a relatively high savings rate in respect of which savers are increasingly benefiting from higher retail interest rates. The Finance Act 2007 gives effect to those measures I announced on budget day that are designed to sustain our economic performance and improve both take-home pay and the affordability of housing. These measures include a doubling in the ceiling for mortgage interest relief for first-time buyers as well as increases in relief for other mortgage holders.
The sub-prime mortgage market in Ireland is small and exists to serve a need for mortgage finance by borrowers who experience difficulty in accessing finance from mainstream lenders owing to an adverse credit record or difficulties in verifying income. Sub-prime borrowers tend to refinance their mortgage in the standard mortgage market once they have restored their credit record. The Consumer Credit Act 1995 requires information on key aspects of mortgage lending to be provided to borrowers on a mandatory basis. This includes, in particular, information on the impact of an increase of 1% in interest rates in the first year of the mortgage.
The Financial Regulator's consumer director provides extensive information to help consumers make informed choices regarding mortgage products. The consumer director's cost surveys, consumer guides and fact sheets assist consumers in shopping around for the best available mortgage deal. Major efforts have been made to raise the level of awareness of the importance of responsible borrowing behaviour. Against the backdrop of the rising trend in interest rates, the Financial Regulator has published information for consumers on the potential impact of these increases on different mortgage products.
Mortgage interest rates in Ireland remain low by historic standards. This reflects both the current level of ECB rates, which are lower than those prevailing in either the United States or the United Kingdom, and the increasingly competitive nature of the Irish mortgage market which ensures that margins on mortgage lending remain low. I am confident the economic and fiscal framework now in place is properly aligned to the current requirements of the economy and can adjust to potential changes in the financial environment over time.
The Minister referred three times today to the additional mortgage interest relief provided in the budget. Does he agree that the latest increase in mortgage interest rates, the seventh since December 2005, means the impact of the increase in mortgage relief has been fully absorbed for most mortgage holders? Welcome as the increased relief was, it is now effectively used up.
Has the Minister heard of the phrase "toxic debt", which is used widely in the United States in reference to the sub-prime market? It refers to the situation of a family that has borrowed heavily, usually initially for housing purposes, before proceeding to refinance its borrowing, perhaps to take in other short-term borrowings such as car loans and so on. With continuous increases in the rate of interest, the net result for such families is a growing unaffordability of the debt they have accumulated.
The Minister referred to the tables published by the Financial Regulator on various mortgage prices and products. Does he agree these tables are not easily readable for most people? Many families are exposed on remortgaging and credit card debt, with the latter currently running at some 13%. What is the Government doing to help people who are moving into the danger zone of toxic debt and who are particularly vulnerable to interest rate increases?
I do not accept that the increase in mortgage interest relief for first-time buyers has been wiped out by the ECB interest rate rises in recent months. It depends on the circumstances of the household concerned. In the case of a mortgage of €250,000 taken out for a typical loan period of 33 years for example, a 0.25% rise in interest rates results in an increased payment of some €38 per month. This compares with increased monthly tax relief of €53 for a married couple and some €67 for a single person. For a mortgage of €350,000 over 33 years, a 0.25% increase results in an increased repayment of €53 per month, compared with increased tax relief of €128 in the case of a married couple and €67 for a single person.
It was estimated at budget time that approximately 125,000 first-time buyers had interest payments of sufficient size to benefit from the increased level of relief. As interest rates have increased, it is likely that the numbers benefitting have also increased. I made my decision on this matter in a way that would help buyers and those who already have mortgages without affecting affordability via an increase in house price inflation. This was against a background of emerging evidence of a softening housing market. It was the right approach to take in the circumstances that pertained.
I have heard the term "toxic debt" in regard to sub-prime lending. It is a feature of the liberalised market in the United States where some companies have got into serious difficulties as a result of the sub-prime lending policies they have pursued. There is no evidence from the Financial Regulator that a similar situation exists here. The sub-prime mortgage market is relatively small. There is evidence that where people have regained credit with regard to how they are viewed as borrowers, they have moved from the sub-prime market back into the mainstream mortgage market.
I recall that when the Minister introduced the extra mortgage interest relief in the budget in December, he told us it would compensate for the increase in interest costs on a typical mortgage. Mortgage costs had risen in October and have gone up again since he made that announcement in December, and the bulk, if not all, of the extra interest relief has been absorbed by both interest rate increases. Will the Minister comment on that? Has he excluded the October increases from the effect on an average family? He seems to be playing with the statistics.
I am not playing with statistics, just dealing with the Deputy's assertions. The decision taken brought a direct benefit to people involved in the mortgage market, not just to prospective buyers but to those already in the mortgage market for the previous seven years, totalling 125,000 first-time buyers. In this way, the greatest possible benefit could be given to the greatest number of people requiring assistance.
The Deputy knows interest rate policy is the independent ambit of the ECB. We have seen a number of increases of 0.25% over the past 12 to 18 months. Further increases are not expected, but one cannot anticipate what the ECB may do. It must be acknowledged that we are operating in a historically low mortgage interest environment against a background of greater disposable income and higher income growth. The fact that there are so few defaults on mortgage commitments, albeit against a higher interest rate environment in recent times — while the overall interest rate is low, there have been increases — indicates people have been able to meet their commitments.
The Deputy referred to those in the sub-prime market. There is evidence they have moved into the mainstream mortgage market because of the improved economic situation, which, thankfully has been open to them as well as to others.
