Dáil Éireann Debate, Tuesday - 12 February 2013
197. Deputy Brendan Griffin asked the Minister for Finance if mortgage interest relief will continue to be made available to first-time buyers in recognition of the economic benefits of the scheme, including the freeing up of cashflow in the economy and increased tax revenue for the State; and if he will make a statement on the matter. [6587/13]
View answerThe position is that mortgage interest relief for principal private residences is no longer available to house purchasers who purchase in 2013.
In response, I am sure that the Deputy is aware of recent evidence that property prices stabilised in 2012. Indeed data from the CSO’s Residential Property Price Index show that national prices have been broadly stable for 9 months now, with prices in Dublin experiencing upward price pressure towards in the latter part of 2012. Indeed recent releases by both Daft.ie and myHome.ie have pointed to the same outcome.
Whilst some commentators attributed some of the stabilisation to the ending of mortgage interest relief to new first-time buyers, it is not possible to separate out this effect from wider economic factors. Indeed, even if the ending of the relief did lead to an increase in transactions this may be because first-time buyers brought forward their planned purchases from 2013 to 2012 so as to benefit from mortgage interest relief. This may therefore have helped to stabilise property prices whilst the fundamentals of the economy improved. It is therefore hoped that stability will be maintained in 2013 and beyond with further improvements in economic fundamentals without the need for further measures.
I would like to point out that there are a number of economic considerations that might mitigate against such a scheme going forward.
Firstly, it is not clear that such a subsidy is necessary in the current environment. The price of housing is now at an affordable level for most individuals, with prices at a low level for housing suitable for first-time buyers. Providing a subsidy to mortgages would risk distorting a natural and sustainable growth in prices in the medium term. It would also need to be borne in mind, that a universal subsidy may not be the best way of making housing affordable to those who may have difficulties in securing mortgages as it also benefits those without difficulties.
There is also the consideration that subsidies of this kind very often result in higher purchase prices and higher mortgages rather than more affordable housing and mortgages as the subsidy is generally passed through to the purchase price. To the extent that the mortgage interest subsidy results in higher prices and larger borrowings, I would be concerned that it would not in fact free up cash flow for the economy.
Even if some of the subsidy does in fact result in greater disposable income, it is not clear that the income would be spent on additional consumption in the domestic economy. Given the high import propensity of a small open economy like Ireland, there is a risk that any additional expenditure would leak out of the economy. This of course assumes that individuals would actually spend any additional disposable income rather than saving or paying down extra capital on their mortgage. This would mean that the exchequer gains from the measure referred to by the Deputy may be overstated.
In addition, you will also appreciate, I receive numerous requests for the introduction of new tax reliefs and the extension of existing ones. You will also appreciate that I must be mindful of the public finances and the many demands on the Exchequer given the current significant budgetary constraints. Tax reliefs, no matter how worthwhile in themselves, reduce the tax base and make general reform of the tax system that much more difficult.
