Financial Resolution, Stamp Duties: Motion.

Minister for Finance (Mr. McCreevy)

I move:

(1) THAT in this Resolution—

"the Act of 1891" means the Stamp Act, 1891;

"the Commissioners" means the Revenue Commissioners;

"the First Schedule" means the First Schedule (as amended by the Finance Act, 1970 (No. 14 of 1970), and subsequent enactments) to the Act of 1891.

(2) THAT, subject to paragraph (3) of this Resolution, this Resolution shall have effect as respects instruments executed on or after the 23rd day of April, 1998.

(3) Paragraphs (8), (9), (11) and (12) of this Resolution shall not apply as respects any instrument executed prior to the 1st day of October, 1998, in pursuance of a contract which was evidenced in writing prior to the 23rd day of April, 1998.

(4) THAT the First Schedule is hereby amended—

(a) by the substitution of the Heading set out in Part I of the Schedule to this Resolution for the Heading (as amended by the Finance Act, 1997 (No. 22 of 1997)) "CONVEYANCE or TRANSFER on sale of any property other than stocks or marketable securities or a policy of insurance or a policy of life insurance", and

(b) by the substitution of the subparagraphs set out in Part II of the Schedule to this Resolution for subparagraph (a) of paragraph (3) (inserted by the Finance Act, 1997), of the Heading "LEASE".

(5) THAT section 4 of the Act of 1891 is hereby amended by the insertion of the following paragraph after paragraph (b):

"(c) Without prejudice to the generality of paragraphs (a) and (b), where the consideration (other than rent) for the sale or lease of any property is partly attributable to residential property and partly attributable to property which is not residential property the instrument of conveyance or transfer or lease shall be chargeable to ad valorem stamp duty on the basis that it is a separate conveyance or transfer or lease of residential property to the extent that that consideration is attributable to residential property and also a separate conveyance or transfer or lease of property which is not residential property to the extent that that consideration is attributable to property which is not residential property.”.

(6) THAT section 58 of the Act of 1891 is hereby amended by the substitution of the following subsection for subsection (1A) (inserted by the Finance Act, 1997:

"(1A) Where—

(a) any property which consists partly of an interest in residential property is sold to any person and the sale (hereinafter in this subsection referred to as ‘the first-mentioned sale') does not form part of a larger transaction or of a series of transactions, or

(b) the sale to any person of property consisting in whole or in part of such an interest forms part of a larger transaction or of a series of transactions, the consideration attributable to the first-mentioned sale and the aggregate consideration (other than rent) attributable to that larger transaction or series of transactions, as the case may be, shall be apportioned, on such basis as is just and reasonable, as between that interest in residential property and the other property or part concerned, and that aggregate consideration shall likewise be apportioned as between each other such interest (if any) comprised in that larger transaction or series of transactions and the other property or parts concerned, and notwithstanding the amount or value of the consideration set forth in any instrument—

(i) the consideration so apportioned to that interest shall be deemed to be the amount or the value of the consideration for the sale which is attributable to that interest and the consideration so apportioned to the aggregate of all such interests comprised in that larger transaction or series of transactions shall be deemed to be the amount or value of that aggregate consideration which is attributable to residential property, and

(ii) the consideration so apportioned to the other property or part or parts concerned shall be deemed to be the amount or value of the consideration for the sale, or of that aggregate consideration, as the case may be, which is attributable to property which is not residential property.".

(7) THAT section 77 of the Act of 1891 is hereby amended by the substitution of the following subsection for subsection (6) (inserted by the Finance Act, 1997):

"(6) Where—

(a) any property which consists partly of an interest in residential property is leased to any person and that lease (hereinafter in this subsection referred to as ‘the first-mentioned lease') does not form part of a larger transaction or of a series of transactions, or

(b) the lease to any person of property consisting in whole or in part of such an interest forms part of a larger transaction or of a series of transactions,

the consideration attributable to the first-mentioned lease and the aggregate consideration (other than rent) attributable to that larger transaction or series of transactions, as the case may be, shall be apportioned, on such basis as is just and reasonable, as between that interest in residential property and the other property or part concerned, and that aggregate consideration shall likewise be apportioned as between each other such interest (if any) comprised in that larger transaction or series of transactions and the other property or parts concerned, and notwithstanding the amount or value of the consideration set forth in any instrument—

(i) the consideration so apportioned to that interest shall be deemed to be the amount or the value of the consideration for the lease which is attributable to that interest and the consideration so apportioned to the aggregate of all such interests comprised in that larger transaction or series of transactions shall be deemed to be the amount or value of that aggregate consideration which is attributable to residential property, and

(ii) the consideration so apportioned to the other property or part or parts concerned shall be deemed to be the amount or value of the consideration for the lease, or of that aggregate consideration, as the case may be, which is attributable to property which is not residential property.".

(8) THAT section 49 of the Finance Act, 1969 (No. 21 of 1969), is hereby amended——

(a) by the substitution of the following subsection for subsection (1):

"(1) Subject to subsection (2B) of this section, an instrument giving effect to the purchase of a dwellinghouse or apartment upon the erection thereof shall be exempt from all stamp duties.",

(b) in subsection (2B) (inserted by the Finance Act, 1996 (No. 9 of 1996)) by the substitution in paragraph (a) of the following subparagraphs for subparagraph (i):

"(i) the instrument gives effect to the purchase of a dwellinghouse or apartment upon the erection thereof, and

(ia) until the expiration of the period of 5 years commencing on the date of the execution of the instrument or the subsequent sale (other than a sale the contract for which, if it were a written conveyance, would not be charged with full ad valorem duty or a sale to a company under the control of the vendor or of any person entitled to a beneficial interest in the dwellinghouse or apartment immediately prior to the sale or to a company which would, in relation to a notional gift of shares in that company taken by that last-mentioned person immediately prior to the sale, be under the control of the donee or successor within the meaning of section 16 of the Capital Acquisitions Tax Act, 1976 (No. 8 of 1976) and irrespective of the shares the subject-matter of the notional gift) of the dwellinghouse or apartment concerned, whichever event first occurs, that dwellinghouse or apartment will be occupied as the only or principal place of residence of the purchaser, or if there be more than one purchaser, of any one or more of the purchasers or of some other person in right of the purchaser or, if there be more than one purchaser, of some other person in right of any one or more of the purchasers and that no person, other than by virtue of a title prior to that of the purchaser, will derive any rent or payment in the nature of rent for the use of that dwellinghouse or apartment, or of any part of it, during that period, and”,

and

"(aa) Where, in relation to an instrument which is exempted from stamp duty by virtue of subsection (1) and at any time during the period referred to in paragraph (a)(ia), some person, other than by virtue of a title prior to that of the purchaser, derives any rent or payment in the nature of rent for the use of the dwellinghouse or apartment concerned, or of any part of it, the purchaser, or where there be more than one purchaser, each such purchaser, shall—

(i) jointly and severally become liable to pay to the Revenue Commissioners a fine equal to the amount of the duty which would have been charged in the first instance if the dwellinghouse or apartment had been conveyed or transferred or leased by an instrument to which this section had not applied together with interest on that amount charged at a rate of 1 per cent per month or part of a month from the date when the rent or payment is first received to the date the fine is remitted, and

(ii) the person who receives the rent or payment shall, within 6 months after the date of the payment, notify the payment to the Revenue Commissioners on a form provided, or approved of, by them for the purposes of this section, unless that person is already aware that the Revenue Commissioners have already received such a notification from another source.".

(9) THAT section 112 of the Finance Act, 1990 (No. 10 of 1990), is hereby amended—

(a) in subsection (1) (inserted by the Finance Act, 1993 (No. 13 of 1993)) by the substitution of the following paragraphs for paragraphs (a) and (b):

"(a) in the case of such sale, under the Heading "CONVEYANCE or TRANSFER on sale of any property other than stocks or marketable securities or a policy of insurance or a policy of life insurance" in the First Schedule (as amended by the Finance Act, 1970, and subsequent enactments) to the Stamp Act, 1891, as if the property concerned were residential property on an amount equal to the aggregate of—

(i) any consideration paid in respect of the sale of that land, and

(ii) any consideration paid, or to be paid, in respect of the building of the dwellinghouse or apartment on that land;

(b) in the case of such lease, under subparagraph (a) of paragraph (3) of the Heading "LEASE" in the First Schedule (as amended by the Finance Act 1970, and subsequent enactments) to the Stamp Act, 1891, as if the property concerned were residential property on an amount equal to the aggregate of—

(i) any consideration (other than rent) paid in respect of the lease of that land, and

(ii) any consideration paid, or to be paid, in respect of the building of the dwellinghouse or apartment on that land.",

and

(b) in paragraph (a) of subsection (3) by the substitution of "the aggregate consideration which is chargeable under subsection (1)" for "such aggregate consideration".

(10) THAT section 121 of the Finance Act, 1997, is hereby amended in subsection (2) by the deletion of the proviso thereto.

(11)(a) THAT where, in relation to an instrument to which this paragraph applies—

(i) the instrument gives effect to the purchase of a dwellinghouse or apartment upon the erection thereof and under section 49 of the Finance Act, 1969, and section 112 (as amended by paragraph (9) of this Resolution) of the Finance Act, 1990, do not apply, the consideration (other than rent) for the sale shall for the purposes of ad valorem duty be treated as being reduced by 75 per cent, and

(ii) the instrument is one to which section 112 (as amended by paragraph (9) of this Resolution), of the Finance Act, 1990 applies, that section shall apply to that instrument as if the following paragraphs were substituted for paragraphs (a) and (b) of subsection (1) of that section and paragraph (9)(b) of this Resolution did not apply:

"(a) in the case of such sale, under the Heading ‘CONVEYANCE or TRANSFER on sale of any property other than stocks or marketable securities, or a policy of insurance, or a policy of life insurance' in the First Schedule (as amended by the Finance Act, 1970, and subsequent enactments) to the Stamp Act, 1891, as if the property concerned were residential property on an amount which is the greater of—

(i) any consideration paid in respect of the sale of that land, and

(ii) 25 per cent of the aggregate of the consideration at subparagraph (i) and the consideration paid, or to be paid, in respect of the building of the dwellinghouse or apartment on that land;

(b) in the case of such lease, under the Heading ‘LEASE' in the First Schedule (as amended by the Finance Act, 1970, and subsequent enactments) to the Stamp Act, 1891, as if the property concerned were residential property on an amount which is the greater of—

(i) any consideration (other than rent) paid in respect of the lease of that land, and

(ii) 25 per cent of the aggregate of the consideration at subparagraph (i) and the consideration paid, or to be paid, in respect of the building of the dwellinghouse or apartment on that land.", and

(b) THAT this paragraph applies to an instrument which contains a statement, in such form as the Commissioners may specify, certifying that—

(i) the instrument—

(I) gives effect to the purchase of a dwellinghouse or apartment upon the erection thereof and that section 49 of the Finance Act, 1969, and section 112 (as amended by paragraph (9) of this Resolution) of the Finance Act, 1990, do not apply, or

(II) is one to which section 112 (as amended by paragraph (9) of this Resolution), of the Finance Act, 1990 applies.

and

(ii) until the expiration of the period of 5 years commencing on the date of the execution of the instrument or the subsequent sale (other than a sale the contract for which, if it were a written conveyance, would not be charged with full ad valorem duty or a sale to a company under the control of the vendor or of any person entitled to a beneficial interest in the dwellinghouse or apartment immediately prior to the sale or to a company which would, in relation to a notional gift of shares in that company taken by that last-mentioned person immediately prior to the sale, be under the control of the donee or successor within the meaning of section 16 of the Capital Acquisitions Tax Act, 1976 (No. 8 of 1976) and irrespective of the shares the subject-matter of the notional gift) of the dwellinghouse or apartment concerned, whichever event first occurs, that dwellinghouse or apartment will be occupied as the only or principal place of residence of the purchaser, or if there be more than one purchaser, of any one or more of the purchasers or of some other person in right of the purchaser or, if there be more than one purchaser, of some other person in right of any one or more of the purchasers and that no person, other than by virtue of a title prior to that of the purchaser, will derive any rent or payment in the nature of rent for the use of that dwellinghouse or apartment, or of any part of it, during that period.”.

(12) THAT where paragraph (11) of this Resolution applies to an instrument and at any time during the period referred to in paragraph (11)(b)(ii) of this Resolution, some person, other than by virtue of a title prior to that of the purchaser, derives any rent or payment in the nature of rent for the use of the dwellinghouse or apartment concerned, or of any part of it, the purchaser, or where there be more than one purchaser, each such purchaser, shall—

(i) jointly and severally become liable to pay to the Commissioners a fine equal to the difference between the amount of the duty which would have been charged in the first instance if the dwellinghouse or apartment had been conveyed or transferred or leased by an instrument to which paragraph (11) of this Resolution had not applied and the amount of duty which was actually charged, together with interest on that amount charged at a rate of 1 per cent per month or part of a month from the date when the rent or payment is first received to the date the fine is remitted, and

(ii) the person who receives the rent or payment shall, within 6 months after the date of the payment, notify the payment to the Commissioners on a form provided, or approved of, by them for the purposes of this section, unless that person is already aware that the Commissioners have already received such a notification from another source.

(13) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1927 (No. 7 of 1927).

SCHEDULE

STAMP DUTY ON INSTRUMENTS

PART I

Conveyance or Transfer on Sale of any property other than stocks or marketable securities or a policy of insurance or a policy of life insurance

"CONVEYANCE or TRANSFER on sale of property other than stocks or marketable securities or a policy of insurance or a policy of life insurance.

(1) Where the amount or value of the consideration for the sale which is attributable to residential property, or would be so attributable if the contents of residential property were considered to be residential property, does not exceed £60,000 and the instrument contains a statement certifying that the consideration for the sale is, as the case may be—

(a) wholly attributable to residential property, or

(b) partly attributable to residential property,

and that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration which is attributable to residential property, or which would be so attributable if the contents of residential property were considered to be residential property, does not exceed £60,000:

for the consideration which is attributable to residential property . . .

Exempt

(2) Where paragraph (1) does not apply and the amount or value of the consideration for the sale which is attributable to residential property, or would be so attributable if the contents of residential property were considered to be residential property, does not exceed £100,000 and the instrument contains a statement certifying that the consideration for the sale is, as the case may be—

(a) wholly attributable to residential property, or

(b) partly attributable to residential property,

for every £100, or fractional part of £100, of the consideration which is attributable to residential property . . .

£3.00

(3) Where paragraphs (1) and (2) do not apply and the amount or value of the consideration for the sale which is attributable to residential property, or would be so attributable if the contents of residential property were considered to be residential property, does not exceed £170,000 and the instrument contains a statement certifying that the consideration for the sale is, as the case may be—

(a) wholly attributable to residential property, or

(b) partly attributable to residential property,

for every £100, or fractional part of £100, of the consideration which is attributable to residential property. .

£4.00

(4) Where paragraphs (1) to (3) do not apply and the amount or value of the consideration for the sale which is attributable to residential property, or would be so attributable if the contents of residential property were considered to be residential property, does not exceed £250,000 and the instrument contains a statement certifying that the consideration for the sale is, as the case may be—

(a) wholly attributable to residential property, or

(b) partly attributable to residential property,

for every £100, or fractional part of £100, of the consideration which is attributable to residential property. .

£5.00

(5) Where paragraphs (1) to (4) do not apply and the amount or value of the consideration for the sale which is attributable to residential property, or would be so attributable if the contents of residential property were considered to be residential property, does not exceed £500,000 and the instrument contains a statement certifying that the consideration for the sale is, as the case may be—

(a) wholly attributable to residential property, or

(b) partly attributable to residential property,

for every £100, or fractional part of £100, of the consideration which is attributable to residential property. .

£7.00

(6) In any other case:

for every £100, or fractional part of £100, of the consideration which is attributable to residential property. .

£9.00

(7) Where the amount or value of the consideration for the sale which is attributable to property which is not residential property does not exceed £5,000 and the instrument contains a statement certifying that the consideration for the sale is, as the case may be—

(a) wholly attributable to property which is not residential property,

(b) partly attributable to residential property, and that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration which is attributable to property which is not residential property exceeds £5,000:

for the consideration which is attributable to property which is not residential property

Exempt

(8) Where paragraph (7) does not apply and the amount or value of the consideration for the sale which is attributable to property which is not residential property does not exceed £10,000 and the instrument contains a statement certifying that the consideration for the sale is, as the case may be—

(a) wholly attributable to property which is not residential property,

for every £100, or fractional part of £100, of the consideration which is attributable to property which is not residential property. . .

£1.00

(9) Where paragraphs (7) and (8) do not apply and the amount or value of the consideration for the sale which is attributable to property which is not residential property does not exceed £15,000 and the instrument contains a statement certifying that the consideration for the sale is, as the case may be—

(a) wholly attributable to property which is not residential property,

(b) partly attributable to residential property,

for every £100, or fractional part of £100, of the consideration which is attributable to property which is not residential property. . .

£2.00

(10) Where paragraphs (7) to (9) do not apply and the amount or value of the consideration for the sale which is attributable to property which is not residential property does not exceed £25,000 and the instrument contains a statement certifying that the consideration for the sale is, as the case may be—

(a) wholly attributable to property which is not residential property, or

(b) partly attributable to residential property,

for every £100, or fractional part of £100, of the consideration which is attributable to property which is not residential property. . .

£3.00

(11) Where paragraphs (7) to (10) do not apply and the amount or value of the consideration for the sale which is attributable to property which is not residential property does not exceed £50,000 and the instrument contains a statement certifying that the consideration for the sale is, as the case may be—

(a) wholly attributable to property which is not residential property, or

(b) partly attributable to residential property,

for every £100, or fractional part of £100, of the consideration which is attributable to property which is not residential property. . .

£4.00

(12) Where paragraphs (7) to (11) do not apply and the amount or value of the consideration for the sale which is attributable to property which is not residential property does not exceed £60,000 and the instrument contains a statement certifying that the consideration for the sale is, as the case may be—

(a) wholly attributable to property which is not residential property, or

(b) partly attributable to residential property,

for every £100, or fractional part of £100, of the consideration which is attributable to property which is not residential property. . .

£5.00

(13) In any other case:

for every £100, or fractional part of £100, of the consideration which is attributable to property which is not residential property. . .

£6.00

(14) Where in the case of a conveyance or transfer on sale or in the case of a conveyance or transfer operating as a voluntary disposition inter vivos the instrument contains a certificate by the party to whom the property is being conveyed or transferred to the effect that the person becoming entitled to the entire beneficial interest in the property (or, where more than one person becomes entitled to a beneficial interest therein, each of them) is related to the person or each of the persons immediately theretofore entitled to the entire beneficial interest in the property in one or other of the following ways, that is to say, as a lineal descendant, parent, grandparent, step-parent, husband or wife, brother or sister of a parent or brother or sister, or lineal descendant of a parent, husband or wife or brother or sister:

a duty of an amount equal to one-half of the ad valorem stamp duty which, but for the provisions of this paragraph, would be chargeable under this Heading.”.

Part II

Lease

"(a) where the consideration, or any part of the consideration (other than rent), moving either to the lessor or to any other person, consists of any money, stock or security, and—

(i) the amount or value of such consideration which is attributable to residential property, or would be so attributable if the contents of residential property were considered to be residential property, does not exceed £60,000 and the lease contains a statement certifying that the consideration (other than rent) for the lease is, as the case may be—

(I) wholly attributable to residential property, or

(II) partly attributable to residential property,

and that the transaction thereby effected does not form part of a larger transaction or of a series of transactions, in respect of which the amount or value, or the aggregate amount or value, of the consideration (other than rent) which is attributable to residential property, or which would be so attributable if the contents of residential property were considered to be residential property, does not exceed £60,000:

for the consideration which is attributable to residential property . . .

Exempt

(ii) the amount or value of such consideration which is attributable to residential property, or would be so attributable if the contents of residential property were considered to be residential property, does not exceed £100,000 and the lease contains a statement certifying that the consideration (other than rent) for the lease is, as the case may be—

(I) wholly attributable to residential property, or

(II) partly attributable to residential property,

and that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration (other than rent) which is attributable to residential property, or which would be so attributable if the contents of residential property were considered to be residential property, does not exceed £100,000 and clause (i) does not apply:

for every £100, or fractional part of £100, of the consideration which is attributable to residential property. .

£3.00

(iii) the amount or value of such consideration which is attributable to residential property, or would be so attributable if the contents of residential property were considered to be residential property, does not exceed £170,000 and the lease contains a statement certifying that the consideration (other than rent) for the lease is, as the case may be—

(I) wholly attributable to residential property, or

(II) partly attributable to residential property,

and that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration (other than rent) which is attributable to residential property, or which would be so attributable if the contents of residential property were considered to be residential property, does not exceed £170,000 and clauses (i) and (ii) do not apply:

for every £100, or fractional part of £100, of the consideration which is attributable to residential property. .

£4.00

(iv) the amount or value of such consideration which is attributable to residential property, or would be so attributable if the contents of residential property were considered to be residential property, does not exceed £250,000 and the lease contains a statement certifying that the consideration (other than rent) for the lease is, as the case may be—

(I) wholly attributable to residential property, or

(II) partly attributable to residential property,

and that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration (other than rent) which is attributable to residential property, or which would be so attributable if the contents of residential property were considered to be residential property, does not exceed £250,000 and clauses (i) to (iii) do not apply:

for every £100, or fractional part of £100, of the consideration which is attributable to residential property. .

£5.00

(v) the amount or value of such consideration which is attributable to residential property, or would be so attributable if the contents of residential property were considered to be residential property, does not exceed £500,000 and the lease contains a statement certifying that the consideration (other than rent) for the lease is, as the case may be—

(I) wholly attributable to residential property, or

(II) partly attributable to residential property,

and that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration (other than rent) which is attributable to residential property, or which would be so attributable if the contents of residential property were considered to be residential property, does not exceed £500,000 and clauses (i) to (iv) do not apply:

for every £100, or fractional part of £100, of the consideration which is attributable to residential property. .

£7.00

(vi) the case is of any other kind:

for every £100, or fractional part of £100, of the consideration which is attributable to residential property. .

£9.00

(aa) where the consideration, or any part of the consideration (other than rent), moving either to the lessor or to any other person, consists of any money, stock or security, and—

(i) the amount or value of such consideration which is attributable to property which is not residential property does not exceed £5,000 and the lease contains a statement certifying that the consideration for the lease is, as the case may be—

(I) wholly attributable to property which is not residential property, or

(II) partly attributable to residential property,

and that the transaction thereby effected does not form part of a larger transaction or of a series of transactions, in respect of which the amount or value, or the aggregate amount or value, of the consideration (other than rent) which is attributable to property which is not residential property does not exceed £5,000:

for the consideration which is attributable to property which is not residential property

Exempt

(ii) the amount or value of such consideration which is attributable to property which is not residential property does not exceed £10,000 and the lease contains a statement certifying that the consideration for the lease is, as the case may be—

(I) wholly attributable to property which is not residential property, or

(II) partly attributable to residential property,

and that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration (other than rent) which is attributable to property which is not residential property does not exceed £10,000 and clause (i) does not apply:

for every £100, or fractional part of £100, of the consideration which is attributable to property which not residential property

£1.00

(iii) the amount or value of such consideration which is attributable to property which is not residential property does not exceed £15,000 and the lease contains a statement certifying that the consideration for the lease is, as the case may be—

(I) wholly attributable to property which is not residential property, or

(II) partly attributable to residential property,

and that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration (other than rent) which is attributable to property which is not residential property does not exceed £15,000 and clauses (i) and (ii) do not apply:

for every £100, or fractional part of £100, of the consideration which is attributable to property which not residential property

£2.00

(iv) the amount or value of such consideration which is attributable to property which is not residential property does not exceed £25,000 and the lease contains a statement certifying that the consideration for the lease is, as the case may be—

(I) wholly attributable to property which is not residential property, or

(II) partly attributable to residential property,

and that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration (other than rent) which is attributable to property which is not residential property does not exceed £25,000 and clauses (i) to (iii) do not apply:

for every £100, or fractional part of £100, of the consideration which is attributable to property which not residential property

£3.00

(v) the amount or value of such consideration which is attributable to property which is not residential property does not exceed £50,000 and the lease contains a statement certifying that the consideration for the lease is, as the case may be—

(I) wholly attributable to property which is not residential property, or

(II) partly attributable to residential property,

and that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration (other than rent) which is attributable to property which is not residential property does not exceed £50,000 and clauses (i) to (iv) do not apply:

for every £100, or fractional part of £100, of the consideration which is attributable to property which not residential property

£4.00

(vi) the amount or value of such consideration which is attributable to property which is not residential property does not exceed £60,000 and the lease contains a statement certifying that the consideration for the lease is, as the case may be—

(I) wholly attributable to property which is not residential property, or

(II) partly attributable to residential property,

and that the transaction thereby effected does not form part of a larger transaction or of a series of transactions in respect of which the amount or value, or the aggregate amount or value, of the consideration (other than rent) which is attributable to property which is not residential property does not exceed £60,000 and clauses (i) to (v) do not apply:

for every £100, or fractional part of £100, of the consideration which is attributable to property which not residential property

£5.00

(vii) the case is of any other kind:

for every £100, or fractional part of £100, of the consideration which is attributable to property which not residential property

£6.00.”.

As Deputies will know, the rapid escalation in house prices over the past few years has had serious adverse implications for first time buyers. Furthermore, excessive house price increases carry potentially serious implications for the wider economy in terms of possible inflationary effects and the dangers of excessive personal borrowing. It was necessary, therefore, for the Government to take action in this area and a comprehensive range of measures in relation to the housing market was announced by the Government last Thursday.

The extent of sustained economic growth over the past five years or so has been unprecedented in the history of this State. However, the level of house price increases over the same period has been an unwelcome side effect of our rapid growth in incomes and employment, demographic changes and historically low interest rates.

In formulating policies to tackle the problem of major house price increases, we are, in effect, addressing a key element in managing the effects of major economic and social development in Ireland. The approach we take can have implications not only within the housing sector, but throughout the economy. It is essential that such decisions are based on thorough analysis of all the relevant factors and rigorous asessment of the likely implications. The report on House Prices by Peter Bacon and Associates has provided us with an independent expert analysis of the situation and a sound platform on which to formulate a balanced well targeted package of measures to address this critical issue, which has become a matter of serious public concern. I join with various commentators in complimenting the authors for their excellent report.

The consultants point out correctly that "there is not a simple formula available to address the issue of house price increases". The strong economic and demographic fundamentals that I referred to earlier are the primary forces driving prices. Traditional responses such as interest rate increases are not now feasible in the run-up to monetary union. It follows that there is no single measure available in the short term to counter the fundamental factors that have given rise to rapid increses in demand and prices. In essence, there can be no quick fix solutions to the present housing situation and, instead, there must be a well-targeted combination of measures.

I would like to refer briefly to two key priorities that must be addressed in approaching this matter. First and foremost is the question of affordability of housing, especially for lower income groups. The scale of recent price increases has presented difficulties even for those prospective buyers who would normally be regarded as having good incomes. The Government is not prepared to countenance the possible development of a situation where the goal of home ownership might be pushed beyond the reach of a significant proportion of households who reasonably aspire to it.

Second, it is vital to ensure that the long-term strength, stability and balance of the housing sector is not jeopardised by excessive overheating or distortions in the market of which recent price developments are symptomatic.

The consultants' report has given clear recognition to these key priorities and the package of measures announced last Thursday will help restore balance to the housing market. It will also help to remove another significant factor that has been fuelling price escalation, namely, the expectation or — depending on one's perspective — fear of further major price increases. The publication of the report, with the Government's speedy response, will help take much of the hype out of the market. It is not without significance that as the publication of the report approached, there were increasingly frequent comments to the effect that the market "is about to right itself and that prices are set to stabilise soon".

The Government has formulated a balanced range of actions designed to remove factors — on both the demand and supply side — which are identified in the report as causing overheating, bottlenecks or distortions in the housing market. The Government's response consists broadly of a three-pronged approach. First, measures to increase the potential supply of housing, which involves increasing the availability of serviced land by the removal of infrastructural constraints, promoting increased densities at appropriate locations, encouraging faster release of serviced land for residential development and achieving better movement within the existing housing stock. Second, measures must be taken to address factors causing overheating or distortions in the market. A key issue here, as emphasised in the report, is the need to dampen excessive investor demand and thereby help restore better balance between supply and demand. Third, measures must also be taken to improve the position of prospective first-time buyers.

I will now discuss the taxation measures proposed in the consultants' report and acted on by Government. The Government's response document entitled "Action on House Prices", which was launched last Thursday, is designed to help restore balance to the housing market and provide for orderly growth of housing output into the coming years. Before dealing in detail with the stamp duty measures contained in the financial resolution before the House I would like to outline the other tax measures which are part of this overall package.

The consultants recommended the removal of the deductibility of interest on borrowings for residential property against rental income for the purpose of personal income tax. The Government has accepted this recommendation. Accordingly, investors will no longer be entitled to a deduction for tax purposes in respect of interest on borrowings used on or after last Thursday to purchase, improve or repair residential property. This measure will apply to individuals, partnerships and companies who take out loans for the purpose of purchasing, improving or repairing investment residential property. This measure will directly address the situation identified in the report that investors were to some extent replacing first-time buyers in the market, which development goes totally against the thrust of housing policy objectives accepted over recent decades.

Pipeline cases have been catered for, however, where a binding contract in writing was in place before 23 April 1998 to purchase an investment residential property and the borrowed money is employed for that purpose by 30 September 1998. If these conditions are met the new restrictions will not apply. In addition, the restrictions will not apply to interest on borrowed money used in the improvement or repair of residential property owned by the investor before last Thursday or which are covered by the arrangements for pipeline cases. I believe that arrangements are fair and reasonable in the circumstances.

The consultants recommended that to encourage the supply of serviced land zoned residential, there should be a temporary reduction in the rate of capital gains tax from 40 per cent to 20 per cent for disposals made during the next four years. Thereafter, a rate of 60 per cent would apply to the disposal of such land where the temporary reduction had not been availed of. It is intended to legislate immediately for this supply side measure by making the new reduced rate applicable to disposals of such qualifying land made on or after 23 April 1998.

The consultants recommended the repeal of section 23 relief from a current date. However, under the new urban renewal scheme to be introduced on 1 August 1998, tax incentives will not be available in any new urban designated area on a blanket basis as was the position up to now. Instead, the case for the applicability of section 23 will be critically evaluated and the possible impact on house prices will be a factor in considering whether section 23 would apply for any particular area. Accordingly, section 23 relief will in future apply only in specific areas where it can be proven to be absolutely necessary for the achievement of the objectives of the integrated area plans under this new urban renewal scheme.

It is my intention to shortly bring before the House a special Finance Bill to legislate for all the tax changes announced in the Government's response to the consultants' report.

I will now turn specifically to the financial resolution dealing with the announced changes in the stamp duty regime for residential property. This resolution provides for significant reductions in the rates of stamp duty charged on the transfer of second-hand residential property and the imposition of stamp duty on certain new residential property. The consultants' report highlighted that the high rates of stamp duty, particularly the 7 per cent, 8 per cent and 9 per cent rates introduced in 1997, had caused a significant bottleneck in the market and, as a result, dampened the potential supply of second-hand housing to the market. In addition, the consultants argued that the existing rate-band structure posed a significant barrier to entry for first-time buyers of second-hand housing. For these reasons the Government announced the fundamental changes to the stamp duty regime last Thursday as part of the overall package.

The existing rate-band structure will continue to apply for non-residential property as it is felt that in view of the significant Exchequer costs that would be involved, there is no justification for reducing the rates applying to non-residential property. All conveyances for residential property dated on or after 23 April 1998 will benefit from the following stamp duty rates. All residential property valued up to £60,000 will now be exempt; residential property in excess of £60,000 and up to £100,000 will be liable at 3 per cent; residential property in excess of £100,000 and up to £170,000 will be liable at 4 per cent; residential property in excess of £170,000 and up to £250,000 will be liable at 5 per cent; residential property in excess of £250,000 and up to £500,000 will be liable for stamp duty at 7 per cent; while residential property valued in excess of £500,000 will continue to be liable at 9 per cent stamp duty.

This rebalancing of the rate-band structure will help to increase effective market supply, reduce the cost burden faced by buyers and increase the options available to first-time buyers. These reductions in the stamp duty rates will encourage existing house owners to trade up and thereby provide houses for purchase by first-time owner occupiers further down the price scale. The measures are weighted to favour first-time purchasers who would normally be buying at the lower end of the market, that is, the rate applying for property valued between £60,000 and £100,000, has been halved, where the rates at the upper end have not been reduced.

In addition to this new rate-band structure for residential property, I propose levying stamp duty on the purchase of all new residential property by a purchaser who is not an owner occupier. This is in line with the consultants' report and the above rates will apply as appropriate in such cases.

The rationale for such a change is as follows. As I indicated earlier, the consultants noted that rapid price escalation has attracted an increasingly wide range of personal investors into residential property. This has had the effect of pricing lower income purchasers, who wish to buy their own house or apartment, out of the market. The strong investor demand is, according to the consultants, a source of overheating in the housing market and the report has warned against the possibility of a "speculative bubble" fuelled by expectations of short-term gains from further price increases. The Government acted now, in the manner outlined above, to dampen market expectations, restore market normality and ensure that owner occupiers were not further driven out of the housing market.

The continuation of the long-standing tax exemption for new houses under a certain limit to owner occupiers represents a targeting of this relief to those most in need of it.

As with the other measures, pipeline cases are being catered for as follows. Existing reliefs will continue for new houses and apartments bought by non-owner occupiers, where contracts evidenced in writing have been entered into prior to 23 April 1998 and where the conveyance has been completed no later than 30 September 1998. In all other cases, purchases of a new residential property will attract existing relief only if the purchaser does not intend letting the property within the first five years of ownership. Also, upon notification to Revenue that the property has been let within that period, the individual will have to pay the amount of stamp duty that would have been paid at the outset had they purchased it as an investor.

These stamp duty measures alone are estimated to cost the Exchequer in net terms about £37 million in 1998 and £63 million in a full year, on a static basis. This is based on an annual gross cost of £78 million with additional revenue of £15 million being recouped from the purchasing of new housing by non-owner occupiers. The annual cost to the Exchequer of the reduction in the CGT rate is estimated at £7 million, while it is anticipated that the removal of the deductibility of interest on borrowings will yield £26 million. Overall, the total Exchequer cost of all the taxation measures on a full year basis is estimated to be somewhere in the region of £44 million annually.

Rapid price increases have greatly increased the burden of stamp duty and made it a distorting factor in the market. The consultants have identified that existing stamp duty rates present a significant barrier to entry to the second-hand house market by first-time purchasers and, by increasing transaction costs, militate against mobility in the housing market. New building represents only a small proportion of the overall housing stock, so good turnover of existing houses is essential. The significant reductions in stamp duty will help boost the supply of existing houses on the market.

The imposition of stamp duty on new houses for investors, with other measures in the package, is intended to discourage investment demand in residential property and thus to reduce overheating in the market. The reductions in stamp duty are not simply a give-away gesture on the part of the Government. There are very strong economic arguments behind this, as pointed out by the consultants. As I indicated, high stamp duty rates had become a significant bottleneck to market mobility, a distorting factor between new and second-hand houses and a particular barrier to entry to the second-hand market for first-time buyers. The reduced rates will help to increase effective market supply, reduce the cost burden faced by buyers and increase the options open to first time buyers. For instance, as already mentioned in the case of second-hand houses costing between £60,000 and £100,000, the rate of stamp duty is being halved.

In bringing forward these taxation measures, the Government is proposing a balanced package of measures aimed at dampening house price inflation and thereby restoring better balance between supply and demand. In doing so it has been necessary to redress the imbalance which now exists between those buying a house to live in and those buying purely for investment reasons. The actions of the latter if left unchecked could, in the view of the consultants, bring about a speculative bubble. There are wider economic issues at stake here since the recent trends in house prices cannot be allowed to destabilise the consensus which has been carefully nurtured over a long period between all the relevant social partners. To those who argue that these measures will not address the current housing situation, or that measures will increase rents, there is no proof that there will be any such effect. In fact, by making owner-occupied housing more affordable the demand for rental property may stabilise.

The package must be looked at in its totality and it would not be wise to engage in an exercise in cherrypicking to avoid offending certain sectors. At the outset, I stated that the Government took action in a comprehensive macroeconomic way to restore balance and sanity to the housing market. Consequently, I recommend this package to the House and move this financial resolution.

Mr. Noonan

There is, as everybody knows, a housing crisis in Dublin, and it is quickly spreading to the rest of the country. The price of even the most modest home has gone well beyond the reach of most young couples. Young people such as nurses, teachers, gardaí, middle-grade civil servants and persons in private industry or on the average industrial wage can no longer expect to own their own homes. Rising house prices are fuelling inflation and are a serious threat to social partnership. Already, a leading Civil Service union has called on the Government to take action or face the prospect of wage demands well in excess of those agreed in Partnership 2000.

When on budget day I predicted that rapidly rising prices would put our economic prosperity at risk unless the Government took action, I was greeted with smirks from the Government benches. Nobody is smirking now. The housing crisis, if it continues, will undermine our prosperity, wreck social consensus and make the task of local authorities, especially their housing departments, well nigh impossible. The Government is at last taking action. It may be too little, too late. The measures proposed may not work as expected. They may indeed have the opposite effect from what was intended, but we must at least call for one small cheer for the Government because at least, and at last, it is taking some action.

Its action is based on the Bacon report and because of this, if for no other reason, the package proposed must be taken seriously. The Bacon report is a good analysis of the problem and makes very clear recommendations. The Government has not accepted all Dr. Bacon's recommendations, in particular, those in relation to section 23 tax relief. The Government has modified other proposals, but it has stuck to the fundamental analysis that the housing problem in Dublin is essentially a problem of supply and that, by increasing supply and reducing demand, the market will be brought into equilibrium.

I would like to examine first those measures in the Government's proposals which are designed to increase supply. These are generally welcome proposals. Increased capital to service land with sewers, water and roads is welcome. The amount being allocated through the Department of the Environment is small but at least it will be used to service more zoned land and bring extra zoned serviced land to the market. Public-private initiatives to service land are also welcome. Again the amount of money being dedicated is quite small — £5 million is the amount suggested — which will be made available by the Minister for the Environment. That is a nugatory amount in the context of the problem, but if it is intended to set up the first public-private initiative on serviced land by way of pilot scheme, at least it can be examined on that basis. However, amounts of money being dedicated to bring further serviced land into play so that houses can be built are quite small, and we should not exaggerate the effect such amounts of money will have on a total housing market which is a multimillion, if not a multibillion pound market at the moment.

I also welcome proposals for increased density. In accordance with Dr. Bacon's recommendations, increased density will have to be coupled with better design. It is not enough just to say we now have between seven and ten units to the acre, that we can have 19 or 20, and that once we come to the brown sites in the city centre we can talk about 280 to 290 building units to the acre by way of apartments, if not high rise, moderate rise developments. The whole area of design and how higher densities fit into the landscape and the street scape have to be examined very carefully. We are not in the business of organising the ghettoes of the 21st century when this plan is put into effect. The Minister must take that very seriously. His colleague in the Department of the Environment and Local Government must take it equally seriously because we have had experiments before with high rise developments to meet a crisis when the late Deputy Neil Blaney was Minister for the Environment and the Ballymun scheme was put in place. It is arguable that even though Ballymun is high rise, it is low density, because there are vast, useless open spaces now dedicated to foddering wandering horses. By any standards it was a disaster of urban planning. Yet our predecessors here on all sides welcomed the initiative as a tremendous Government response to the housing crisis of the day when local authority waiting lists were of such magnitude that no one had any expectation of getting a local authority house. Very often the conventional wisdom of one generation becomes the ghetto of the next generation. I caution the Minister to continue his interest in housing policy and ensure that proper discussion takes place about the proper design, layout and social infrastructure to back up any high density developments in the new brown field sites which are being identified, particularly in Dublin city.

I welcome also the intention to develop such brown field sites. We have a problem in that the population of Dublin and other cities is spreading out to the margins and people no longer live in any great numbers near the city centre. There is some movement now back between the canals, but that has to be reinforced. The bringing into play of brown field sites which are not to be used for industrial or business purposes is very welcome indeed. There is great potential for it in the docks area and from there to Ringsend, which is one of the projects that was very dear to the heart of the Minister's predecessor in office, Deputy Ruairí Quinn.

The proposals to reduce stamp duty, which are the subject of the financial resolution being discussed today are welcome, but I would give them a conditional welcome.

However, one supply side measure is deplorable. The Minister for Finance reduced the rate of capital gains tax from 40 per cent to 20 per cent in the budget on all assets with one exception, namely, the sale of development land which was maintained at 40 per cent. The Government has been lobbied by developers since budget day to apply this reduction in capital gains tax to development land. Now, under the guise of a housing package and behind the smokescreen provided by the housing crisis, the Government has given into a particular lobby group. Development land which is sold in the next four years will have a capital gains tax rate of only 20 per cent. I do not believe this will do anything for persons who cannot afford a house and will merely increase the profits of speculators.

Mr. McCreevy

It was recommended by the consultants.

Mr. Noonan

I know that, but it is a peculiarly independent report. When a consultant completes a report, he submits it. This consultant seems to have been retained to fight the case in the media as well. Will the Minister inform us what level of discussion took place before the recommendations were entered in the report and what kind of cross-pollination took place between the political side, the administrative side and the consultants before the report was published? This is not a criticism of Dr. Bacon but, by any standards, the Government is getting great value from him. Not only did he produce the report, he proceeded to sell it to the media on behalf of the Government. I have never seen an independent consultant behaving in that way before. It is particularly interesting. It is very useful that he recommended this in his report because the Minister can say he is implementing a recommendation from an independent report. If it has been independently compiled, then it is a bad recommendation.

The notion that building land will be taxed at 60 per cent after four years is codology. If zoned service land is brought on to the market over the next four years by giving people the carrot of 20 per cent capital gains tax, does the Minister think, if the rate is raised to 60 per cent in four years' time, that people will not hold on to the land and lobby furiously? Housing policy should be developed for the next generation. Proceeding on a stop-start basis, where there will be an abundance of building land for the next four years and then none, suggests the next generation of young people do not need houses. I will lay any odds that the 60 per cent measure will never materialise. It may appear in the Minister's proposed Finance Bill but I do not believe there is any reality to it nor do I believe the market can work with it. It is a false stick accompanying a welcome carrot for speculators.

The Government's proposals on stamp duty are miscast. Any reduction in taxation is welcome and I welcome the reductions proposed in the financial resolution. However, I do not believe the changes will reduce the price of houses. In fact, prices may increase further as purchasers may use their savings on stamp duty to increase their bid on their desired house. The proposal put forward by Fine Gael would have more impact on the market. The crucial problem is that faced by first time buyers. Resources should be targeted to assist this group. I still believe first time buyers of second-hand houses should be exempt from stamp duty for houses up to a value of £100,000. I will propose an amendment along those lines when the Minister introduces the Finance Bill to give effect to these taxation measures.

The Government fought shy of implementing Dr. Bacon's proposals in respect of section 23 relief. While the Minister commented briefly on it, he did not explain why the Government did not implement the proposal. I would like him to explain why the Government thought this was not an appropriate proposal to put into effect, especially when interest relief on rented accommodation is being abolished. It seems to me that commercial investors tend to invest in section 23 accommodation while smaller investors invest in three bedroom, semi-detached houses. They are severely penalised by these proposals while the big investor is protected. Once more we have a situation where the person who can buy three, four or five apartments in the Customs House dock site will still be able to offset rental income against the purchase price and can continue in business. However, the small investor, who has paid for his or her mortgage and is making provision for the future by buying a semi-detached house in another housing estate, will be hammered as they will only receive mortgage interest relief. It is like the budget: the bigger one is, the better one will be protected by the Government. Capital gains tax will be reduced by 20 per cent if one has a land bank for building. If one is a section 23 investor, everything will be fine as one's potential investment will be maintained. However, if one is in the smaller end of the housing market and one buys a small, three bedroom, semi-detached house in a new estate in Tallaght in the hope that three or four nurses will rent it, one will no longer get interest relief on the mortgage. I strongly question that on social grounds.

The proposal to abolish interest relief is where Dr. Bacon's analysis runs into trouble. I will not argue against it on the grounds of equity but on the basis of his analysis. He treats supply and demand as if the status quo were a datum, as if supply will remain at current levels, and that any additional measures will give an additional supply. He argues as if measures to reduce demand will have no effect on supply. However, the Minister, who is no mean economist himself, knows supply and demand are always linked. The theory in the Bacon report seems to be that, if the private investor is removed from the new housing market, more houses will become available for owner-occupiers and that the other measures in the Government package will further increase the number of new houses available and that the new interaction of supply and demand will reduce house prices.

However, it is just as likely that, when the small investor is taken out of the new house market, the builder will adjust by reducing supply. If a builder owns land and has a building programme of 70 houses a year, of which 40 per cent go to the small investor, as soon as that demand reduces, as happens in the normal marketplace, supply will be adjusted downwards. It is a fallacy to think the supply of houses will remain intact and that everything the Minister is doing today and in subsequent measures will simply add to the supply. There is a danger there will be a reduction in the supply of houses when the builders and developers make their decision after the small investor goes out of the market. Equilibrium may not be reached at a lower house price in 18 months' time but possibly at a higher price. The difficulty is not that there is a shortage of land, zoned land or even zoned serviced land but a shortage in the supply of houses. No matter what sticks and carrots are used, until extra houses are available the supply problem will not be solved. If the small investors are removed, the builders will adjust downwards and that is the biggest fear.

There is also the fear that, if the small investors are removed, there will be a scarcity of houses for people to rent. Such people usually band together in threes and fours to rent accommodation in towns and cities around the country. There will be a scarcity and pressure will be put on rents. While we are advancing the case of owner-occupiers above all others, single people who have no intention of buying their own homes also need a place to lay their heads at night. It is not enough for the Minister to state that this will have no effect on rents. The fact is that any solicitor to whom one speaks says they have had cancellations in the past week. There is no doubt the measure will work, but how it will work and whether it will be to the advantage of the purchaser remains to be seen. Markets are tricky and we had experience of that in Government when we abolished residential property tax. We feared the market would go out of control so stamp duty was increased, not as a revenue collection measure but to dampen the market. I do not believe it achieved that and I am uncertain what the removal of residential property tax did to prices either. I suspect it was one of the causes of the rise in prices. The analysis omits the real possibility that if the private investor moves out of the housing market, builders will reduce the supply of houses to meet a lesser demand.

The Minister stated that in the transitional period a person will have to have an irrevocable contract. That is unfair. I know precedents have been set but such measures were introduced in the past for the purpose of collecting revenue. They were introduced on budget day to avoid loss or leakage of revenue. On this occasion the intention is to dampen down the market. I believe a person who has paid £2,000 to £3,000 in a booking deposit — and can prove that — has become sufficiently involved in the transaction not to be caught by the abolition of interest relief.

They are far enough down the line in the transaction not to be caught by the abolition of interest relief. Will the Minister re-examine this matter? In the normal process, a person looks at a house, puts a bid on it, an agreement is drawn up with the auctioneer and a booking deposit of £3,000 or £4,000 is paid. It takes several months for a contract to be signed and the non-returnable 10 per cent is paid up front. At a later stage conveyancing takes place and the balance of the money is paid.

The Minister has made strong provision for the person who has signed the contract and paid 10 per cent. He has given them until December to complete the transaction and pay the rest of the money. However, he has made no provision for the person who has legitimately bought a house, signed the agreement and paid the booking deposit. The cut-off point for such people is purely arbitrary. A case was brought to my attention today where a purchaser signed a contract, paid the 10 per cent and the contract was sent to the vendor's solicitor, but the boom came before the vendor had signed with that person's solicitor.

The Government would lose very little in revenue by making the adjustments I have suggested. The transitional period should include persons who can prove they have paid a booking deposit. One would need a receipt for the money paid and letters from the solicitor and the auctioneer. The Government would gain a lot of good will if it adopted that measure. People who have legitimately concluded transactions, even if a booking deposit is returnable, should not be caught by this measure, particularly when they may have sold another property and made arrangements with a building society or a bank to take out a loan. When drafting the Finance Bill, will the Minister be easy on people who have legitimately purchased properties, but have not gone into the definition of the irrevocable contract with the 10 per cent paid up front?

We can deal with the detail of the stamp duty resolution at a later stage. I understand a Committee Stage type debate will take place from 8.30 p.m. to 9.30 p.m. tonight and we will have another day out. As we are all putting our programmes together for the remainder of the year, can the Minister tell us when the Finance Bill will be published? I am not tying him to a date, I merely want an indication of when it might be published.

Mr. McCreevy

I intend to publish the Finance Bill next week and to deal with it the following week, the week before the week we are off for the referendum campaign.

Mr. Noonan

That is fairly fast.

Mr. McDowell

It will hardly surprise the Minister that, in regard to the likely effect of the deductibility of interest, I side more with the Minister than with Deputy Noonan, but I will deal with that matter later.

Today's financial resolution arises directly from the report commissioned by the Government from Peter Bacon and Associates. Dr. Bacon and his associates have done us a considerable service in setting out a detailed analysis of the housing crisis. The report assesses experience and developments in the housing market in the past and, more particularly, examines current and future needs. On foot of this analysis, Dr. Bacon made a number of recommendations, most of which have since been accepted by Government. The resolution before the House is only one of those recommendations and cannot be dealt with in isolation. I agree with those who have stated this stands or falls as a package and it is on that basis I wish to debate the matter today.

Dr. Bacon has given us much in the way of facts, figures, details and analysis, all of which are helpful. Most of the major factors which brought about the current explosion in house prices have been obvious for some months. Anyone with half an eye on the housing market has known for some time that a worryingly high percentage of new housing units in Dublin, be they apartments or houses, are being bought by people for passive investment purposes. We have known for some time that demographic changes and, in particular, net immigration are producing a bulge in demand which is putting up prices.

The Government knew this, and a great deal more, six months ago when it commissioned Dr. Bacon to produce a report. It appears to find it almost impossible to make a decision without setting up a working party, interdepartmental group, commission or consultancy to advise it on what it should do. Much of the time the delay makes little or no difference, but in this instance, the six month delay in taking action has had a disastrous effect, not least in Dublin and Galway. House prices in both those cities have risen by nearly 20 per cent in the six months since the consultants were asked to commission a report. The bald fact is that while the Government dithered many thousands of people, particularly young couples and single people, have been priced out of the housing market. Many people could have aspired to buy a house for £75,000 or £80,000 last October, but now find the average cost of £95,000 or £100,000 impossible. These people can blame Government inaction over the last six months for their predicament.

This was not for lack of advice. During the debate on the Finance Bill, Deputy Noonan and I proposed increases in taxation as part of an effort to deal with the demand problem. The Minister is well aware that it is most unusual for an Opposition party to suggest increases in taxation. I proposed that we should reverse the reduction in CGT introduced last December as it applies to house property. I also suggested that we should impose stamp duty on new houses for people other than first time buyers. The Minister has belatedly agreed to do the latter while he still maintains his ideological standpoint on CGT.

I will now deal with some of the recommendations made by Bacon and approved by the Minister. We must first ask ourselves a simple question. Is it, or should it be, a matter of political priority to encourage the traditional aspiration of Irish people to own and occupy their own homes? The simple answer is yes. More particularly, we should offer people a choice of accommodation that meets their needs and aspirations. The structure of our society is changing. There are a greater number of household units, many consisting of one or two people. The opposite is also true, in that fewer households consist of a large number of people. There is every indication that this trend will continue into the future.

This trend is particularly strong in the local authority or voluntary sector. A very large percentage of those on local authority housing lists are single parents, senior citizens or others living alone or with one other person. That the housing lists should be dominated by such people is in part a reflection of their means. It also reflects that the private housing market does not adequately cater for people in those circumstances.

I will now deal in detail with the recommendations in the report and the action taken by the Government. The programme is unsurprisingly a mixed bag. Some parts, such as the changes in the incentivisation of passive investment, are good. Other parts, if by and large inoffensive, are unconvincing. In that regard I refer in particular to the measure before the House dealing with stamp duty. Elements such as the reduction in CGT, are unconvincing and potentially offensive and other elements, such as the meagre effort to deal with the voluntary and local authority housing sector, are utterly inadequate.

The rate of stamp duty is dictated by the price of a house or apartment. The rates and thresholds were set many years ago and have not been changed since, despite the fact that house prices have multiplied in the meantime. The Exchequer take from stamp duty has increased enormously in recent years. When it was first introduced, the 6 per cent rate applied, in effect, only to bigger or luxury houses. Obviously, this is no longer the case in that virtually any urban house or apartment now attracts stamp duty at 6 per cent or more.

It is not difficult to see why Ministers were not motivated to change the stamp duty regime in the past. The tax attracted very little public disapproval because most people paid it only once or twice in their lifetimes. Also, the Exchequer was short of money and the take from stamp duty made a significant contribution. That said, times have changed. Income tax and VAT revenues are buoyant and it is possible to examine the stamp duty regime in a more dispassionate and equitable way. On that basis alone, the moves made by the Minister are justifiable. That is not to say, however, that the reductions in stamp duty will have the effect claimed by the Minister. The reduction in stamp duty on second-hand houses applies to all purchasers not just to first time buyers. The failure to focus on first time buyers is a fatal flaw.

Dr. Bacon sets out the current problem in the housing market in succinct terms. In one of the myriad of graphs and statistics he sets out an affordability index. One of the bottom lines is very stark. A married couple with one earner on one and a half times the average industrial wage — approximately £20,000 — could easily afford a house in Dublin ten years ago whereas they would now find it — to use Dr. Bacon's word — impossible. Surely this is what today's debate is about. Surely it is first time buyers we should be seeking to help. By failing to focus the reduction in stamp duty on first time buyers the Minister is missing the point. For as long as I can remember there has been a distinction in the treatment of new and second-hand houses for stamp duty purposes. No stamp duty has been payable on new houses up to a certain size whereas all second-hand houses attract stamp duty at different rates. It is worth remembering why this distinction was made. It was made primarily, if not exclusively, to encourage the construction industry.

Construction is a labour intensive industry and it is also an industry which produces positive knock-on effects. For a long time the industry was working below capacity and there was good reason to provide incentives to encourage construction, not only from the point of view of the housing market, but also from the point of view of the economy. However, that reasoning is now redundant. The industry is working at full stretch, profit margins are enormous and labour shortages are becoming more prevalent. This position was unimaginable ten years ago. Home owners have to wait months before they can get a builder to carry out basic home improvements or to build an extension. Large infrastructural projects are increasingly being taken up by builders based outside the State because domestic industry does not have the time or capacity to take up the job. More strikingly, builders are finding it increasingly difficult to get skilled workers to work on site.

We find ourselves in a situation unimaginable a few years ago where Irish builders are advertising in the UK for people to come home and work. In short, the differentiation in the treatment of new and old houses in terms of stamp duty as a means of encouraging the construction industry is no longer necessary. That is not to say that it will not be necessary in the future but for the moment it is redundant. We need to target stamp duty relief at purchasers and first time buyers in particular. First time buyers will normally look to buy a house for £100,000 or less. Why should the first time buyer of a new house costing £100,000 pay no stamp duty whereas the same buyer will pay £3,000 stamp duty if they choose to buy a second-hand house? Where is the logic in this and why the distinction? I would be interested to hear the Minister's thoughts on that question.

The Minister's central argument is that the reductions in stamp duty will free up supply by addressing a blockage which exists. The first part of this proposition is difficult to understand. If the Minister is right that the reduction in stamp duty will very likely increase the number of transactions, this is turn will increase the range of choice available to buyers but it will hardly increase the supply. The supply of second-hand houses is more or less fixed. By increasing the number of transactions we will increase the choice available to potential purchasers, including first time buyers, and the profits of those who deal in property. However, ultimately it does not address the problem of too many buyers chasing too few houses.

A common part of the analysis offered by commentators in recent days has been that there is a blockage in the price range of £150,000 to £170,000. The suggestion is that this came about when higher rates of stamp duty were imposed following the abolition of RPT. There may or may not be such a blockage. Dr. Bacon's report sets out almost no evidence in relation to this matter. It would be interesting to know what has happened to the number of housing transactions in that price range in recent years. I read the report carefully but could find no evidence that there has been any notable difficulty at this price level. Surely the Revenue Commissioners must have figures for the number of transactions in particular price ranges and perhaps the Minister can help us in that regard.

The real problem with the reduction in stamp duty is that it may not be the buyer who gets the benefit. Those who are in the market or who have signed contracts have just got a windfall benefit from Dr. Bacon and the Minister and fair play to them. However, I wonder what the position will be in one year. We are all familiar with the situation where one goes to an auction with £100,000. Human nature being what it is people tend to overshoot the limit and go to £102,000 or £103,000. If they have an extra £3,000 to spend what is to say that they will not now go to £106,000 or £107,000? What is to say that the stamp duty benefit will not ultimately derive to the vendor rather than the purchaser?

Dr. Bacon has some interesting reflections on the new house purchaser's grant. He confirms the popular assessment that the £3,000 grant has added to the capital price of houses. What is to say that the reduction in stamp duty will not have a similar effect? Are we not at risk of ratcheting up the prices and giving most of the benefits to the vendors? I hope I am wrong but my doubts are shared by many in the housing business.

The other side of what is being done today concerns the imposition of stamp duty on some purchasers of new houses. I suggested something similar during debate on the Finance Bill and I am happy to support the Minister in what he is proposing. In recent days commentators have tended to concentrate on the supply side problems in the housing market and they are right in many ways. However, there is one factor which is distorting the demand side of the equation. An increasing number of units are being purchased for passive investment purposes. There are no hard statistics but it is accepted that between 20 and 40 per cent of housing units in Dublin and Galway are being purchased for investment purposes. In some cases this is intended as a long-term provision for retirement or pension. In other cases it is a speculative investment intended to bring about a short-term gain.

I do not wish to give the impression that this sort of investment is and always has been a bad thing — far from it. Parts of this city would not have been developed were it not for investors and the tax incentives which encouraged them. There are still plenty of under-developed parts of this country where these incentives are appropriate.

It is equally clear that given the current state of the housing market and the construction industry there are a number of untargeted, unfocused incentives which are unnecessary. Worse than that, these incentives are giving investors or potential investors a comparative advantage which is pricing first time buyers out of the market. It is very well for property owners and investors to say that they should be able to make a few bob out of the booming economy but we cannot lose sight of the fact that there is a major downside which is that many first time buyers can no longer compete with investors, particularly when it comes to buying new houses and apartments. For those of us in politics it has become a simple choice — do we wish to encourage people to make a few bob out of property or do we want to help people to buy their own houses? The answer is surely clear.

This country needs entrepreneurs, risk takers and investors. However, let us be honest. Investment in property is the antithesis of all that. There is virtually no risk. Passive investment in property is a ticket to ride paid for, in part, by the taxpayer. We all know what has been happening. One borrows money, buys a house or apartment, writes off the borrowing costs against income tax and one gets the tenants to pay the rest of the mortgage if not a little more. In the meantime the capital value of the property is zooming up and one stands to make a tidy fortune when one sells the property. There is nothing improper of immoral about this. What is improper and inappropriate is that this risk-free, one-way bet should be underpinned by the taxpayer. In that regard I support the action taken by the Minister in terms of the deductibility of interest for income tax purposes.

As an aside, the Minister will forgive me for saying that I am surprised he has chosen to go down this road. Until such time as I see the precise terms of the Finance Bill I will continue to retain a small doubt in the back of my mind that he will follow through on the commitments he has made. The thinking behind what is proposed is contrary to the thinking which inspired the Minister to slash CGT by 50 per cent last December. That reduction added fuel to the fire. It can only have served to encourage people to invest in property. Now, perversely, the Minister is taking a number of steps to do the opposite. How he can reconcile the two is beyond me.

The Minister rejected the recommendation of Dr. Bacon to abolish section 23 relief. He says he will look at the application of section 23 in a more critical way in the future and I am prepared to accept his word. However, he is stirring up trouble for himself and his successors. It is inevitable that most local authorities will look to have the possibility of section 23 relief available to them in drawing up local plans. It will then become a matter for the Minister, in conjunction with the Minister for the Environment and Local Government, to decide whether it is appropriate in each case. This is not a sound and sensible way to do business. It would have been cleaner and more straightforward to accept Dr. Bacon's recommendation and abolish the relief. That is what the Minister should have done.

The suggestion has been made in recent days that some of the measures the Minister has proposed will have a detrimental effect on the rental sector. My mind is not closed to this argument but I find it unconvincing. The private rental sector makes up only 17 per cent of the total housing market and the percentage has fallen considerably in recent years. There is much evidence to suggest that many people who are renting would prefer to buy their own house. We all know people who are renting a house simply because they cannot afford to buy one. It surely follows that if more people are in a position to afford their own house the pressure on the rental sector will diminish.

The suggestion has also been made that builders will simply switch their attention to the commercial sector. This argument ignores some very basic facts. The cost of building materials and labour has scarcely increased in the past two years. The price of new houses has increased because landowners are making more money and because builders are making more profits. Dr. Bacon's report sets out several practices such as the phased release of developments and rezoning which have clearly added to builders' profits. There have been plenty of examples in this city and elsewhere of new estates where the price of the first houses built was substantially less than that of the last houses built. Nobody can seriously suggest the cost to the builder has increased significantly in the meantime. What has happened is that builders have taken the opportunity to get a windfall super-normal profit. In plain man's language they made a killing.

If the measures proposed by the Minister are effective they will reduce the opportunity for super-normal profits. If they do not have this effect the measures will have failed. To suggest this would make it unprofitable to build apartment blocks or other units designed particularly for rental use is patently absurd. The profits available will continue to be considerable for the foreseeable future.

In fairness to those who have expressed concern we should perhaps accept that to some degree we are in uncharted territory. My personal predisposition is to believe that the dire warnings about disaster for the rental sector are at least exaggerated if not entirely wrong. In fairness to all concerned this is something we should keep under review in future years. There is a great deal more of what Dr. Bacon's proposes that I would like to deal with but unfortunately time does not permit. I am conscious I will have the opportunity to do so in a couple of weeks' time.

The Labour Party will not oppose the changes in stamp duty. They are probably justified on the grounds that no changes have been made for many years but that does not mean I am convinced that the changes will have the effects claimed by Dr. Bacon and the Minister.

Mr. Gilmore

This debate arises from the publication of the Bacon report on house prices. I congratulate Dr. Bacon and his associates on the fine report they have produced, although there are some aspects of the report with which I do not entirely agree.

The motion before us and the package of measures to which the Minister referred are intended to calm the housing market and to make houses more affordable, especially for first time buyers. Unfortunately, this measure which is before the House and the package announced last week will not make it significantly easier for a young working couple to buy a home of their own. The Government's package on house prices has come far too late and does not go far enough to bring stability and affordability into the housing market. In many respects the principal beneficiaries of the package will be builders, developers and landowners rather than those who are trying to scrape together enough money to buy a family home.

The changes in stamp duty and section 23 should have been made in the budget and it should not have required a consultant's report to tell the Government what every family trying to buy a house already knows, that investment buying has been distorting the market for some time. The Government is seriously misunderstanding and underestimating the scale of the housing crisis. For the first time in the history of the State young middle class couples cannot afford to buy a home of their own. Young working people are ensnared in a housing and incomes trap. They are not earning enough to buy a house because prices are too high and earning too much to qualify for public housing because the income eligibility limits are too low. In many cases they are ripped off in the private rented sector, in some cases paying £200 per week to the same investors who have bid them out of the market.

The victims of the housing crisis are the young people in the so-called baby boom generation. This is the generation of confident young Irish people of whom we are all proud but it is a generation which, in many respects, has drawn the short straw. They are the same young people who had to endure huge class sizes at school and had to go through the cruel points race to get into third level education. Now they are graduating to a society which proclaims economic prosperity but which cannot give them the basic entitlement of owning a home of their own. What status do these young people have in a so-called successful economy if they are denied the right to buy a house? How can we continue to claim to remain a home-owning democracy if only the very well off can afford to buy a house? How hollow is the constitutional right to property if home ownership for many people on low and middle incomes is becoming a thing of the past?

The housing crisis has the potential to destroy social cohesion and to seriously disrupt economic progress. The Government has not yet grasped just how serious the crisis is and just how angry many of its victims are becoming. Couples who go out every Saturday to look at potential homes are frustrated because the price of the house continues to move faster than their means. Some 40,000 families who are in need of public or social housing are condemned to wait for years in impossible physical and family circumstances. A growing number of people are paying huge rents for limited accommodation in the private rented sector. Tenants of private rented accommodation are being evicted in increasing numbers because the owners of their properties are either selling or converting them to benefit from the property boom. There is a growing pool of homeless persons in hostels and bed and breakfast accommodation whose needs are far greater than most housing authorities can hope to meet. What was needed from the Government was urgent action to deal in a comprehensive way with the housing crisis in its entirety. What we have got is a delayed reaction which does not fully implement the limited package which was recommended in the Bacon report and which concentrates only on some aspects of the private housing market.

The specific measure does not abolish stamp duty on second-hand houses for first time buyers. It is typical of the Government that the measure before us does more for the better off home owner who is trading up than for the young couple trying to buy a home for the first time. Under this measure, somebody who is buying a house for almost £500,000 will get a reduction in stamp duty worth almost £10,000 whereas a person who is buying a former council house for £80,000, for example, will still have to pay stamp duty. The limit at which stamp duty is being exempted is £60,000. There are no houses in my constituency or in many other parts of the country which are available for £60,000 or under.

There is another aspect of the stamp duty problem which has been ignored, that is the problem encountered by families who have to move home due to changes in jobs or job transfers and who may have to change twice, three or four times to follow their employment. Every time they change and buy a second hand house they will have to pay the full whack of stamp duty. It is a pity the opportunity of this measure was not availed of to provide some redress for those people.

Section 23 relief is not being ended, as recommended in the Bacon report. It remains to be seen how restricted in practice section 23 will be when confined to the integrated area plans.

The abolition of interest relief on rental income will probably somewhat discourage the small investor in once off properties but it will do nothing to limit the distortion of the housing market by big time investors who are buying up multiple properties with surplus cash and who are not relying on borrowings. An examination of the housing statistics of the Department of the Environment and Local Government will show there is an increasing number of people who are buying property and an increasing number of properties are being bought without the assistance of a loan. They are being bought by people who are doing well in this economy and have a great deal of money to spend and are buying up multiple properties — apartments and so on — with their spare money. These people are not affected by the measures before the House.

The reduction in capital gains tax from 40 per cent to 20 per cent announced in the budget has contributed to the increase in investment activity in the housing market. Instead of reversing that decision the Government has extended this windfall to the owners of development land. The owner of rezoned residential land will not only reap a huge profit from the rezoning decision but his capital gains tax bill on the disposal of the land will be cut in half. This is a far cry from the recommendations of the Kenny report on building land, almost 30 years ago.

The measures being introduced to increase the supply of houses represent another gain for builders and developers. They will get an additional £15 million subsidy towards servicing the land, a £5 million subsidy for road infrastructure, increased housing densities and a fast tracking of the planning process. All these measures are costs to the taxpayer, as is the change in stamp duty, without any corresponding measures to restrict profiteering in the housing market. The costs announced by the Minister were £63 million for the stamp duty measure, £44 million for the tax measures, £20 million for the servicing subsidies, plus administrative costs, which means the total package will cost the taxpayer £130 million without any return from the industry or an attempt to bring profiteering in the building and residential property market under control.

Last year the cost of building increased by about 3 per cent but the price of new houses went up by 25 per cent. Someone is making huge additional profits yet no attempt is made by Government to control the unjustifiable increases in new house prices beyond the increase in the cost of building them. It should be possible to control the price of new houses by reference to the cost of building and still allow for reasonable profits for builders and developers.

Profiteering in the housing market is not confined to the difference between cost and sale. There is increasing evidence that builders and estate agents are shamefully exploiting first time buyers. A deposit no longer holds the price and many first time buyers who have paid a deposit come back some months later to find the price of their house has jumped by £20,000 in the period in which it was built. Legislation should be introduced to outlaw this price gazumping. The Bacon report and the Minister seem to be relying on the introduction of a code of practice in the industry but, given the reaction of some building industry interests to the rather timid measures now proposed, I have no great confidence that a code of practice will be introduced or, if introduced, that it will be successful.

The focus thus far in the public debate on house prices has been on how to stop them increasing further. Even if the Government's measures cause house price increases to slow down — and I doubt they will do that to any great extent — many families have already been priced out of home ownership and additional measures are needed to enable those people to provide basic shelter needs for themselves and their families.

First, the private rented sector will have to be more effectively regulated. Existing regulations on rent books, registration and standards must be enforced because at present they are not. Legislation to provide some security of tenure must be introduced. Such legislation was promised five years ago during the sale of the Mespil House flats but it has still not been delivered.

Second, there must be a massive increase in the social housing programme. The existing public housing programme, which is producing about 3,500 new housing starts per annum, is clearly inadequate because 40,000 families are in need of public housing. In addition, new social housing methods are required to provide houses for those on low to middle incomes who cannot now afford to buy on the housing market and whose incomes are marginally above the limit at which they can enter the public housing lists. I welcome the increase in eligibility for the shared ownership scheme. However, that increase should be extended to other public housing programmes and social housing schemes.

Legislation must be introduced to underpin the objectives of local authorities such as my own, Dún Laoghaire-Rathdown, which is seeking to establish a 10 per cent social housing component in all new private housing developments. Co-operative housing, the use of new types of house tenure and the restructuring of housing subsidies and incentives are all part of a complete shake up of housing policy which is urgently required to deal with the problem.

The housing crisis we have experienced for some time is the illness which will kill the Celtic tiger. The provision of shelter for oneself is a basic human need and people expect to be able to do it, but it is not possible at present. The measures introduced by the Government deal only with a part of the private housing sector and will not significantly improve the prospects of young couples buying a home of their own. We must also deal with the people who have already been squeezed out of the housing market. I am disappointed that the Minister for the Environment and Local Government and the Minister of State responsible for housing have neither introduced nor announced the intention to introduce new social housing measures to deal with this problem. The huge number of people living with relatives in overcrowded conditions or in overpriced and sub-standard private rented accommodation even yet entertain some hope that they may be able to buy housing if the market stabilises, that the Government will do something to assist them or that their local authority will house them. As time rolls by and more people come to realise that housing is not being provided, either as a result of rising prices or inadequate provision of social and public housing, this area will give rise to enormous tension and pressure, which the Government has seriously underestimated.

Mr. Gormley

I welcome the opportunity to speak on this important matter. To say the Dublin housing market has gone crazy is not to overstate the case. We all have first hand evidence of this phenomenon — in Ringsend-Irishtown, where I live, a house which cost £50,000 six years ago is now worth between £130,000 and £150,000. This has fundamental implications for our planning, environment, quality of life, towns and cities, young couples and families, communities and society.

The most significant feature of the Irish housing stock is the level of home ownership, which is the highest in Europe. The promotion of home ownership has long been an aim of State policy and it can be argued convincingly that the high levels of ownership are due to this policy alone, as manifested through tax incentives and cash grants and the absence of security of tenure in the private rented sector. Home ownership confers many benefits, both to the household and to society, especially in the stability and pride in place which it brings.

However, this policy increasingly marginalises those who are not homeowners. The promotion of home ownership is not inherently problematic but our worry is that it has been promoted at the expense of other tenures and that the sector of the population which cannot afford to buy accommodation has suffered as a result. There is a disturbing trend towards ever increasing social segregation in housing which reflects and contributes to greater polarisation within society. The shortcomings of national and local housing policies have exacerbated urban decay and environmental degradation. These trends have been further exacerbated by rampant house price inflation in recent years.

The Government's response to this crisis has been too much delayed, is limited in its ambitions and may in the long-term result in effects that are as bad as, if not worse than, what currently exists. The Government's response to date highlights the lack of a coherent and co-ordinated housing policy. The primary aim of this policy should be to ensure that every person has access to secure, comfortable accommodation in an appropriate place and in a clean and pleasant environment.

The right to adequate accommodation should be stated in legislation. Moves should be made to determine whether such a right is implicit in the Constitution and, if not, a suitable constitutional amendment should be moved.

Alternatives to greenfield site developments must be facilitated. Only small developments should be permitted. Planning permission for housing schemes should be dependent on the provision on a mixture of housing sizes and tenures. This is vital to counter the increasing polarisation of our society and the ghettoisation of certain groups. The crucial element in the planning process must be proper assessment of housing need so that current problems can be dealt with and potential problems forestalled. Planning laws should be altered to allow people work more from home as we move away from the conventional notion of work.

It is essential to lower housing costs. We propose the introduction of a scheme under which lands which have been increased in price by local authority works or because of planning decisions and which are in areas designated by the High Court could be acquired by local authorities and the owners compensated by reference to existing use value.

Most of the cost of housing to the individual and the community stems from the rate of interest on housing loans. We propose that alternatives to interest, for example, the introduction of fixed handling charges, should be investigated and the scope of the Housing Finance Agency should be re-examined and redeveloped. The greater availability of fixed interest loans over longer periods should be encouraged. The reintroduction of the system of certificates of reasonable value as a means of assessing house construction costs should be provided for in an attempt to curb developer profit margins. In addition to these major changes, any uncompetitive practices in ancillary services related to house purchase, such as surveying or conveyancing, should be ended.

The current substantial State subsidies of housing are inefficient and unjust. With regard to efficiency, they generally encourage the construction of new buildings rather than the renewal of old ones, thus causing unnecessary waste of resources and worsening problems of urban sprawl and inner city decay and thereby increasing the price of accommodation.

On taxation, in the event of our proposals on land price stabilisation not being accepted, the Green Party will seek the introduction of a windfall tax on the increase in value of development land caused through local authority rezoning or proximity to other development. Mortgage interest relief should only be available at the standard rate of income tax and should be fully matched by similar relief for those in the private rental sector. The inequities have been well documented in that mortgage interest relief discriminates in favour of owner occupiers over the holders of other housing tenures. It is also believed to increase the price of all accommodation and to direct private investment toward housing and away from more useful areas.

It is hard to see how what is being suggested in regard to further capital gains tax cuts is supposed to help first time buyers. That said, this is a Government that does not need any help in furthering regressive tax policies. If the interest exists to tackle the anomalies in capital taxation, attention should be drawn to how inheritance tax on property is affecting those on low and middle incomes, particularly in light of rampant house price inflation. This is apparent in my constituency. Many of my constituents in Ranelagh, Rathmines and Donnybrook have contacted me about this problem.

Greater subsidies, whether in money, sites or materials, should be directed towards non-profit housing organisations, including housing co-operatives and voluntary housing associations. In this regard, we welcome the increased subsidies for local authority shared ownership schemes. In addition, there should be funding for schemes which promote housing renovation and refurbishment and self-build schemes under which local authorities subsidise the cost of sites and-or materials for people on low incomes to build their own homes.

In general, the Green Party supports the replacement of all stamp duties on housing with economic charges for the administrative processes involved in house purchase. Government proposals in this regard, while welcome, are too half-hearted with the abolition of stamp duties for houses up to the value of £60,000 not even reflecting current average house prices. The Green Party preference would be to promote a site value tax as opposed to a property based tax like the former domestic rates which discouraged the improvement and upkeep of houses.

In considering housing design and construction, two themes are of primary importance — the environment and conservation of resources and the changing nature of households. The Greens believe it is important that building materials come from local renewable sources. Household sizes are decreasing and the composition of households is also changing with an increase in the number of single parents. These changes must be recognised in the design of houses in the private and public sectors with more emphasis on smaller dwellings and greater flexibility to meet the special needs of some groups.

Proposals for greater housing density are viewed with concern by the Green Party because no distinction is made between greenfield development which increases urban sprawl and brownfield development which assists urban renewal. Housing density cannot be addressed without properly addressing the issue of housing type. The primary aim of urban renewal should be the maintenance and development of local communities. Emphasis should be placed on the provision of low cost housing in inner city areas so that local people will not be excluded from new accommodation.

We welcome the measure being proposed in relation to section 23 relief. As long time critics of many of the flaws which undermined earlier urban renewal schemes, we are happy to see that many of those criticisms are now being accepted and given legislative redress.

Imaginative housing policy can play a part in the regeneration of rural communities. This has been demonstrated by the work of the voluntary agency, Rural Resettlement Ireland. There should be greater involvement and greater Government support in helping to move people from towns and cities to the countryside where there is much vacant and derelict accommodation.

Unless current housing policies are radically changed, it is likely that a two tier housing system will develop. The upper tier will comprise owner occupied accommodation with householders in paid employment and the private rented accommodation occupied transiently by future owner occupiers. The lower tier will comprise local authority housing and low quality private rented accommodation.

In an article in The Guardian yesterday an economist from a British university stated that, having looked at the economies in Europe in which there is a low rate of home ownership — he referred specifically to Switzerland and Holland — he has come to the view that low rates of home ownership are a help in terms of economic competitiveness. As we enter the new millennium, in a new Ireland, in order to compete we may need a lower rate of home ownership. That would be regrettable.

Mr. O'Flynn

In Cork, where building costs amount to £57 per square foot, one can purchase an apartment for £120 per square foot. In Dublin it can cost anything up to £300 per square foot. That is the magnitude of the problem confronting us. Builders in the capital are making huge profits which is a major factor in the increased price of residential accommodation in Dublin. A bad example has been set in Dublin which is reflecting on the rest of the country. I hope on Committee Stage to make a few suggestions to the Minister for Finance.

Minister for Finance (Mr. McCreevy)

We are engaging in a Committee Stage style debate at 8.30 p.m. and I am sure the Chair will be open to any requests in that regard. I will use the hour between 8.30 p.m. and 9.30 p.m. to elaborate on some of the points raised by Deputies.

Dr. Bacon and his consultancy team looked at the whole problem in this area in order to try to develop a package of measures but he says quite clearly that no one individual measure taken alone will make a difference. It is basically a question of supply and demand. I agree with Deputy Noonan that the market rules in these matters. It is no secret to the House, the public and, least of all, the officials in my Department that I believe in the market and market principles. Many of the proposals in the report——

Mr. McDowell

I thought we had persuaded the Minister.

Mr. McCreevy

Not yet, and I do not think that will happen while I am in politics. Bacon and associates are also convinced by market forces. The report, and the Government's response to it, are an attempt to tweak the market for a period of time to stop this mad escalation of prices by addressing some of the problems and redressing the existing imbalance.

As I pointed out when I moved the resolution, if we allowed house prices to continue to rise at current rates, given Irish people's propensity to own their homes we would soon arrive at a very serious situation because people would inevitably come under pressure to meet their repayments. That pressure would filter over into pay adjustments which would decrease competitiveness. We would then lose our world market share which could set off an inflationary spiral. That would also give rise to problems in the public sector pay area and Government finances, because public sector pay constitutes an ever increasing proportion of total Government current expenditure. That would create other difficulties which would mean we would have to reduce some social programmes to which we are committed. We would also have to curtail tax reduction programmes which are an integral part of the partnership approach.

The Government, in attempting to address this matter and taking on board the Bacon report, has tried to tweak the market in order to take some of the heat out of it. However, neither Dr. Bacon nor I believe that any individual measure on its own can address this problem for all time. People should bear that in mind when assessing the Government's response to this matter. It seems, from the comments of some Members, that many people can take umbrage or offence at some of the individual measures and point out their downsides. However, as I said when I moved the resolution, we should not cherrypick measures because inevitably there will be hard luck stories.

We are also trying, as far as possible, in the stamp duty regulations and in the Finance Bill, which will come before the House in a fortnight's time and which I hope to publish next week, to have transitional arrangements which should be adequate. However, there are inevitably hard luck stories when any new scheme with cut off levels is introduced. We must try to balance those as best we can with the overall objective of the Bacon report, which has been adopted by the Government, and the Government's proposals.

In regard to Deputy Noonan's comments on the supply of and demand for residential property, I take heart from Deputy McDowell's comments that supply will not be cut. The issue is clear. If investors are taken out of the market, owner occupiers will be in a better position to purchase. I find it hard to believe the supply will dry up because investors leave the market. It is fair to say builders will not be able to charge as much, but I do not think there is any doubt they will be willing to sell to owner occupiers, many of whom have been priced out of the market by investors, as noted by Deputy Gilmore.

Deputies Noonan and McDowell gave a cautious welcome to the reduction in stamp duty rates but felt measures could be better targeted for first time buyers. A total relief for first time buyers of second-hand houses would cost in the region of £55 million. Vendors would know if they were selling to first time buyers and that measure might lead to an overall increase in the price of second-hand houses for first time buyers. It was thought better to reduce the rates generally in order to open up mobility so that a first time buyer could get a leg on the housing ladder by buying a house vacated by an existing owner who decided to trade up because of the general reduction in stamp duty.

I readily recognise there is a danger that stamp duty reductions will be pocketed by the seller. I referred to that danger on Committee Stage of the recent Finance Bill, and it has also been pointed out by other commentators. However, as I said, this package of measures is to be taken together.

The total stamp duty yield for property up to £60,000 in value was £38 million in 1997. It is estimated that houses accounted for about 70 per cent of that yield. This suggests that many houses costing less than £60,000 are sold, although I accept that the greater proportion of such houses are outside Dublin. I hope the stamp duty exemption which I am introducing for such houses will make it more attractive to buy houses in need of refurbishment and thus increase the supply the houses available for owner occupation.

One Deputy queried why most new houses were traditionally exempt from stamp duty. One of the reasons is that new housing is subject to VAT at 12.5 per cent while second-hand houses are not.

I agree that high standards of planning design and layout are required to ensure a good quality living environment in higher density developments. This point was made by Deputy Noonan and is of considerable importance to me. I represent North Kildare, which is the most densely populated area of that county. There has been a major debate over the past two years between residents' groups and the councillors of Kildare County Council in regard to the rezoning of land. This debate has held up development in the county but I have said publicly on many occasions that there are definitely two sides to the argument. The question of housing density has been one of the points debated. I am very conscious that when one refers to housing density, as the Bacon report does, one must bear in mind people's living environment. I accept, however, that with good planning and design it should be possible to increase housing density.

The Department of the Environment and Local Government has commenced an initiative to promote higher densities, particularly in brown field sites near town centres, public transport nodes and access points, and has consulted with planning authorities, the architectural, planning and auctioneering professions and the house building industry in relation to the greater Dublin area. My colleague, the Minister for the Environment and Local Government, has indicated planning guidelines will be issued in relation to residential densities. In advance of this, planning authorities will be requested to promote increased densities in appropriate locations and will be advised of the safeguards required and the steps which should be taken in this direction.

Deputies Noonan and McDowell said they were not in favour of the reduction in capital gains tax on the disposal of serviced land which is zoned residential. I should point out this measure was proposed by the consultants whose report has been praised by several commentators.

It is a targeted measure aimed at increasing the supply of land for housing. As everyone recognises, the basic problem in the housing market is caused by an excess of demand over supply. I am delighted Dr. Bacon came to the conclusion I reached a long time ago, which I put into effect on 3 December 1997, that high rates of any tax keep down supply. I will be happy to continue to debate this point on Committee Stage.

Debate adjourned.

Acting Chairman (Mr. Kirk)

Consideration of the Financial Resolution will continue in committee of the whole Dáil after Private Members' Business.

Dáil Éireann díospóireacht - Tuesday, 28 Apr 1998

Financial Resolution, Stamp Duties: Motion.

Dáil Éireann díospóireacht -
Tuesday, 28 Apr 1998