Dáil Éireann Debate, Thursday - 1 February 2024
81. Deputy Pearse Doherty asked the Minister for Finance if he will provide details of the estimated deadweight costs associated with the rented residential relief introduced in the Finance Act 2023; his views of the costs, inequity and effectiveness of the measure; and if he will make a statement on the matter. [4693/24]
View answerIn the latest Finance Bill the Minister introduced the residential premises rental income relief scheme, which was a tax break for landlords. It will cost €160 million by 2026. It is important to ask whether, in the first instance, this is good value for money for the taxpayer, given its cumulative cost will reach more than €500 million by 2028. Could the Minister, therefore, outline the deadweight costs, which will be substantial in regard to this relief, his views on the equity that arises, and its effectiveness?
I thank the Deputy very much. 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 €3,000 in the tax year 2024; €4,000 in the tax year 2025; €5,000 in the tax year 2026 and €5,000 in the tax year 2027. This will equate 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.
As the Deputy will be aware, the potential for deadweight was considered as part of the process of creating this relief and it was determined that, as with most tax reliefs, there is, indeed, an element of deadweight in the scheme. On balance, however, this measure is worth implementing and is necessary to retain small landlords in the rental market. To mitigate the issue of deadweight as much as possible the relief is targeted and is only available for the tax years from 2024 and ends in 2027, is capped at the individual's tax liability and rental income from residential property, relates only to tenancies registered with the RTB or where a landlord leases a property to a public authority. Equally, a relief will be clawed back if at any point within the four years of the first year of assessment in which the credit was claimed the landlord disposes of any of the residential rental premises owned in the first year in respect of which a claim was made. The first-year cost of the relief in 2024 is estimated to be €45 million. Compared with the rent tax credit I announced in the budget, this measure is estimated to cost an additional €88 million in terms of the increase in that credit to the already €200 million it was previously estimated to cost for 2024.
I thank the Minister. The time is up.
This gives a total cost for the rent tax credit in 2024 in our budget documentation of €288 million.
This relief, cumulatively, will cost more than €500 million. The Minister said there is an element of deadweight cost. His officials told and warned him that there would be substantial deadweight elements. They drew comparisons between it and the Celtic tiger tax breaks provided the last time we had a Fianna Fáil Minister for Finance, warning, in their words that, "Previous experience in the not-too-distant past was that such measures were ultimately disastrous". Those are the words of the Minister's officials. They were clear that the evidence did not support the case that tax is a primary factor causing people to exit the rental market or in dissuading people from entering it. They also noted that many landlords are selling up to cash out given the soaring house prices seen under the Minister's Government, as well as those accidental landlords who are seizing the opportunity to sell now given they are no longer in negative equity. The Minister's Department has said this relief will not be effective and will provide a tax break to landlords who have no intention of leaving the market.
I thank the Deputy.
How come all the Minister's officials are wrong and he is right?
I thank the Deputy. This is a measure designed, principally, to retain investment in the private rental sector. The trend in recent years has been very clear. The evidence is there for everyone to see. Over the past year, more than 24,000 notices of termination have been received, and 14,500 of these were stated as being due to the landlord selling the property. Some 60% of all notices of termination issued in the past year have been due to landlords selling the property. Between the first quarter and third quarter last year, 15,000 notices of termination were issued to tenants. Of those, more than 9,000 were because the landlord intended to sell the property. We clearly have a significant challenge, therefore, in supply in the private rental sector and it is important that we use the policy instruments available to the Government to attract landlords into the sector and, principally, right now, to retain the existing investment we have to ensure people can access rental accommodation where they need it.
The Minister's officials have told him that his €500 million landlord tax break will not fix this problem. It will be ineffective and will primarily go to landlords who have no intention of leaving the system. According to figures from the Revenue, more than 41,000 landlords, which is more than one in four, will pay no income tax on their rental income as a result of the Minister's tax break for landlords. We now have a situation where ordinary workers, be they teachers, gardaí, cleaners or people working on the factory floor, are paying a higher rate of tax on their earned income than landlords will pay on their rental profits. This is not fair by any measure. This has been shown by the Minister's officials. How come all his officials are wrong and he is right? How come they are wrong when they are saying this measure has a substantial deadweight cost? How come they are wrong when they draw comparisons to the Celtic tiger tax breaks that Fianna Fáil introduced in the past, which the officials say were, ultimately, disastrous? How come they are wrong when they say this is not the driving factor causing landlords to exit the market? How come they are wrong when they say this relief is going to be ineffective? How come the Minister is right on all these issues?
I thank the Deputy.
This is a tax break of €500 million that should not be given. It is public money and it is not going to have the effect the Minister desires.
The logical extension of the Deputy's position is that if he was in Government and was the Minister for Finance, he would only introduce measures that were fully supported by the officials in his Department.
This is the thrust of what he is saying.
I would be able to argue the case.
The Minister, please.
In the context of that scenario, the Deputy should be prepared to find that the vast majority of his taxation proposals, which comprises up to €3 billion of new tax proposals, will not meet with the support of the officials in the Department of Finance. The thrust of what he is saying, therefore, is that he is going to drop those proposals and not go ahead with them. In that scenario, there is no-----
I am asking the Minister how the officials are wrong. I ask him to explain to me how they are wrong.
The Minister to respond.
There is no point in having an elected Government-----
The elected Government considers all the advice and all the issues and then makes policy decisions. On the issue of deadweight, the Deputy should look at some of his own proposals. For example, he wants to get rid of the local property tax. Where is the deadweight in removing a charge from many people who are well able to afford to pay it? Where is the deadweight in the Deputy's proposal that people with €1 million mortgages should get mortgage interest relief, for example, from the taxpayers?
The Minister cannot defend his position.
We need to move on.
I ask the Minister to explain why his officials are wrong.
The Deputy, therefore, should be very careful about getting up on his high horse because it will all rebound on him at some point in the future if he is privileged enough to be elected to government.
I thank the Minister and the Deputy. We need to move on.
This is a €500,000 tax break and he cannot defend it. Not one official supported the Minister's €500,000 tax break, and he cannot defend it.
I thank the Deputy. We need to move on to the next question.
I can. The Deputy's tax package will fall away.
I ask the Minister to send in his officials. They might be able to explain it.
Deputy, please.
