Vol. 438 No. 1
21 Mr. R. Bruton asked the Minister for Finance whether he has satisfied himself with the equity of the present stamp duty tax in view of the fact that it creates discrimination between the purchase of new and second-hand houses and that rates do not apply to successive tranches of the value of the house resulting in abrupt jumps in the tax burden within very narrow ranges of house prices.
The yield from stamp duty makes a very significant contribution to overall tax revenue. Concessions in this area can be entertained only where there are likely to be considerable social and economic benefits involved. The stamp duty relief for new houses provides a valuable boost to building activity, thereby helping to maintain and increase employment in the construction industry. The relief also has the effect of reducing the real price of housing generally. I should add that, because second-hand houses are normally sold by individuals in their private capacity, they are generally not subject to VAT, whereas new houses sold by builders in the course of their trade are subject to VAT.
I am satisfied that the stamp duty relief for new houses helps to further important social and economic objectives and that, in the overall context, the tax code does not unduly discriminate against second-hand houses. Applying the rates of stamp duty on a successive tranche basis would not be appropriate in the present circumstances. Such a measure would cost in the region of £20 million a year, with little or no impact on job creation.
Does the Minister acknowledge that the structure of this tax is totally iniquitous in that there is no grading of the tax according to ability to pay? Can he explain how he reaches the conclusion that any tax, such as stamp duty, reduces the price of houses? That certainly bewilders me. Would he not agree that, on a standard house above the residential property tax threshold, the stamp duty bill, on its purchase, would amount to approximately £5,000? This means that people endeavouring to buy a second-hand house in settled areas where facilities exist — where the State does not have to provide them — are being asked to pay an additional £5,000 as well as being ineligible for the £3,000 new house grant. Would he not agree that this constitutes a foolish approach to taxation policy? Furthermore would he not agree that it places an extra burden on people burdened already by his residential property tax and the curtailment of mortgage interest relief?
In this instance it is a matter of raising revenue. The stamp duty on transfer of houses yields approximately £55 million annually. The House will recall that I implemented a number of amendments in this area last year in that new houses with a floor area below 125 square metres were exempt from stamp duty. I made a number of changes to help the construction industry. The stamp duty charge is now based on the site value. Only 25 per cent of the site value is taken into account. This has been of substantial benefit in the case of that type of house. The reason I took that initiative was that, in the case of a number of new estates, houses were less than 125 square metres and when the purchasers had avoided paying stamp duty they then converted the garage. The present bands of stamp duty range from zero to 6 per cent for properties in excess of £50,000. The House will realise that to reduce any of those bands substantially would be extremely costly. I made one substantial amendment in the case of the new house market last year. It would be extremely costly to being to make amendments in respect of the second-hand house market. I might mention value-added tax. Last year we had to increase the new house grant by £1,000 to accommodate the 2.5 per cent VAT increase which just about covered that cost. There is no VAT on the sale of second-hand houses and this is a concession vis-à-vis new houses. A substantial cost is involved in making concessions in this area.
A final supplementary question——
Our time is exhausted but I will allow a brief supplementary.
The devil can cite scripture for his own benefit. Will the Minister agree that last week he suggested when curtailing mortgage interest relief that we had too much investment in house building? What is the point in asking people who could live in an area like Drumcondra where there are plenty of services to move out to Swords, an area in which there are no services and where the State will have to provide schools, hospitals, churches and other facilities?
No services for you.
Is Deputy Burke glad that he is not running for Europe?
I think Deputy Bruton is making this point because he strongly supports the Government's initiative on urban renewal and all the urban renewal initiatives provide housing where there already are facilities.
Twenty thousand houses?
That is why I think it works very successfully.
That disposes of questions for today.
