I want to support as strongly as possible the case made by Deputy O'Kennedy. The reality here is that VAT on the supply of immovable goods, namely houses, on or after 30 April 1985 is increased from 5 per cent to 10 per cent. As Deputy O'Kennedy has pointed out in great detail the building industry is an extremely depressed one at present and is perhaps our most labour-intensive industry. Therefore, from an economic point of view it does not make any sense at all to increase VAT by 100 per cent on that industry.
The Minister and various Government spokesmen have argued that the balance is corrected to some extent on the other side by two factors — first, that the £1,000 new house grant has been doubled and that VAT on cement blocks has been reduced. In no way can those factors compensate for the devastating blow delivered to the building industry by increasing the rate of VAT on them by 100 per cent. The Minister will be well aware that the £2,000 new house grant now applies to first time purchasers of new houses only. It does not apply to people who purchase secondhand houses or that category of people purchasing new houses who are already house owners. My information from the Construction Industry Federation is that that category constitute approximately 40 per cent of purchasers of new houses.
With regard to the question of the reduction of VAT on cement blocks, I should say that not alone will that not compensate for what the Minister has done in regard to the main increase but will have detrimental effects via-a-vis the black economy. It must be remembered that its effect is two-fold. First, it makes materials cheaper for a builder who has not registered for VAT. Second, it places a builder who has not registered for VAT and who is selling a house in a better and more competitive position vis-a-vis his registered counterpart. This means that, whereas heretofore he could sell that house for 5 per cent less, he can now sell it for 10 per cent less because he does not have to collect any VAT.
There have been some arguments about a cash flow advantage that might arise for builders from the reduction in VAT on cement blocks. My information is that there will be no such cash flow advantage because the refunding of VAT charged is normally effected within the credit period operating within the building industry generally. In those circumstances we on this side of the House have no doubt but that the blow delivered by the Minister to the building industry in relation to the increases in VAT from 5 per cent to 10 per cent on the supply of immovable goods constitutes a truly devastating blow with profound implications for employment in that industry. Certainly its effect will be that no new employment will be created in the next 12 months.
The Minister should take cognisance of the fact that new houses will now be taxed at 10 per cent whereas secondhand houses are taxed at between 4 per cent and 6 per cent only. By that I mean that stamp duty applying to secondhand houses valued between £20,000 and £50,000 is at a rate of 4 per cent and on houses whose value is in excess of £50,000 the rate goes up to 6 per cent. That means there is a distinct bias in favour of secondhand houses. In the case of non-grant aided houses, which constitute 40 per cent of new houses, the bias will be particularly severe and the situation badly out of balance.
I would ask the Minister to consider this amendment very seriously. He should look first at the implications of what he has done by increasing VAT on the building industry by 100 per cent, at the reaction that has caused throughout that industry and the building unions. Nobody will fault the Minister in any way if he stands up and admits that he has made a genuine error and accepts Deputy O'Kennedy's amendment. In fact people would praise him all the more.
There is one technical question I want to pose to the Minister, something which has given rise to a certain amount of dispute and correspondence in the media. Is the 10 per cent VAT rate on new houses inclusive or exclusive of the £2,000 new house grant? I want the Minister to give me a clear and definitive answer to that.