Dáil Éireann Debate, Thursday - 23 November 2023
81. Deputy Pearse Doherty asked the Minister for Finance for his and his Department's analysis of the estimated deadweight loss associated with the rented residential relief; its implications for social equity within the taxation system; and if he will make a statement on the matter. [51792/23]
View answerAs we have discussed previously, in the recent budget the Minister introduced a tax break for landlords of €600 next year, going up to €1,000. It was an unprecedented step in our tax code and raises fundamental concerns around equity and fairness. Another key issue is the purpose of this tax break, who will benefit and why it is necessary. Can the Minister inform the Dáil of the deadweight loss associated with this tax break for landlords?
Landlords are an essential feature of a functioning housing market. Rising rents are driven by a shortage of supply so stabilising and increasing the supply of rental properties should ease upward pressure on rental prices and make it easier for prospective tenants to find affordable homes.
The new residential premises rental income relief is a tax relief at the standard rate of 20% against private rented residential income. The purpose of this relief is to provide an incentive for landlords, specifically targeted at attracting and retaining small-scale landlords in the private sector. The relief will be targeted, with €3,000 in the tax year 2024, €4,000 the following year and €5,000 in 2026 and 2027. This will equate, in effect, to a tax credit of up to €600 in year one, €800 in year two and €1,000 in years three and four. The relief is capped at the individual’s tax liability on rental income from residential property.
The risk of deadweight was considered as part of the process of creating this relief and it was determined, as with most tax reliefs, that there is a risk of deadweight. However, I believe that on balance this measure is worth implementing and is necessary to retain small-scale landlords in the rental market. To mitigate the issue of deadweight as much as possible, this relief is targeted and is only available for the tax years 2024 to 2027, is capped at the individual’s tax liability on rental income from residential property and relates only to tenancies registered with the Residential Tenancies Board or where a landlord leases a property to a public authority.
In terms of social equity, Ireland has one of the most progressive systems of taxes and social transfers of any EU or OECD country, which contributes to the redistribution of income and to the reduction of income inequality. My Department undertook a distributional analysis of the tax and welfare measures announced in budget 2024, which demonstrated that the overall core budget package was progressive.
It is difficult to see this tax break as anything other than an expensive sop to landlords. That is why Professor Barra Roantree, formerly of the ESRI, described this tax break as "Maybe the stupidest tax relief of recent times", with the vast majority going to landlords who never even thought of leaving the market. The Minister says there is a risk of deadweight. Is he telling me that he has not even calculated the deadweight? He probably does not want to calculate the deadweight because it is absolutely massive. He should consider the view of his own Department, which noted this year:
Finally, taxation of rental income is often cited as a push factor for Buy-to-Let investors. In fact ... the way in which rental income is treated for tax purposes hasn't changed. Personal rates of income tax have always applied to rental income.
In fact, landlords have benefited from changes to their personal taxation system every year for the past number of years. The fact is that the effective rate on landlords has fallen, not increased; it is actually dropping. Furthermore, the Department noted that accidental landlords are cashing out as house prices have soared and this tax break is going to do nothing to stop it. Is it not the case that this is an expensive sop to landlords that is not going to have any impact whatsoever on the rental market other than increasing the landlords' bank balances?
I think we can agree that we are witnessing the departure of a significant number of small-scale landlords from the Irish market. We need to have a functioning private rental market providing homes for individuals and families on an ongoing basis. When I look at the data, I can see the number of notices of termination that have been served. Over 24,000 were served from the third quarter of last year to the third quarter of this year and in the majority of instances the reason cited for the serving of the notice of termination was the intention of the landlord to sell the property concerned. The RTB data on the number of tenancies registered shows that in 2017 there were 313,000 tenancies registered with the RTB. The latest figures we have for 2022, based on a system of annual registration, stood at 246,000. That is a very significant reduction, which has resulted in a tightening of the rental market, making it more and more difficult for people to access accommodation in the private rental market. I believe this measure will help to retain some small-scale landlords in the market, providing homes in towns and villages around the country for tenants.
The Minister's officials, experts and professors on the outside are telling him this is not going to work but he is going ahead with it because that is what his party does in terms of the interests of landlords. There is a perverse incentive in our tax code, which I addressed at the finance committee, that Fine Gael introduced many years ago and that encourages landlords to sell. All the different agencies and advisers are telling landlords to sell now and that now is the time to sell if they want to be tax efficient. That is because there is a CGT exemption for the thousands of homes that were bought between 2011 and 2014. If landlords bought a home in 2014 and held onto it until 2021, they would pay no CGT on the €200,000 average uplift on the property. If they sold it last year, they would have to pay €8,500. If they sell it this year, they will have to pay €15,000. If they sell it next year, it will be €23,000. The tax goes up every year. There is an incentive for landlords to sell. What the Minister has introduced with this €600 tax relief and the €1,000 it will increase to, which equates to hundreds of millions of euro in taxpayers' money going into landlords' pockets, is not going to work. His officials have told him that and expert, formerly of the ESRI, has told him that. Why does he continue to go ahead with this when the real issue here is Fine Gael's incentive for landlords to sell up, which is having an effect on hundreds of people? Hundreds of landlords have sold up as they benefit from this tax exemption.
We discussed that issue in detail on Committee Stage of the Finance Bill and I gave a commitment that the officials in my Department would examine it in the context of the TSG papers. On the issue of the supply of homes, we need to have a functioning private rental sector. We are providing approximately €5 billion of capital to build more homes, including public homes, cost-rental homes and affordable purchase homes, and the private sector is adding perhaps another €10 billion to that to build private housing in our country. We need to have rental accommodation available not just through institutional investors building big blocks of rental accommodation, and they have a role to play, but in small towns and villages around Ireland where we need one or two units around housing estates and in settlements so there is accommodation available. I believe this measure, which is a modest measure, will be a factor in helping to retain some small-scale landlords in the market who would otherwise be intending to leave.
