Adjournment Debate. - Tax Code.

I raise this serious issue because of the major negative impact of the 9% stamp duty and the 2% tax per annum on second properties introduced in the Property Act in June on the recommendation of the third Bacon report.

When the Property Act was introduced Fine Gael spoke against the tax for two reasons: first, it would have very little impact on first time buyers who are finding it next to impossible to purchase a house in large urban areas and, second, it would reduce the incentive for people coming into the private rental market which would leave less property available for renting and, in turn, drive up rental costs as is happening in large urban areas.

This Government has failed to put in place the one measure which would allow first time buyers into the market and reduce rents in the private sector, namely, increasing the supply of housing stock. There is a major housing crisis in cities like Dublin, Cork and Galway but in the region I represent the housing issues are vastly different. The BMW region was established by the EU for Objective One status because of the need for future development and to ensure viable population levels which would require the necessary infrastructure and service developments. We are supposed to be receiving preferential funding from EU and central government to sustain and improve our population levels. Furthermore, the Minister for Finance introduced rural renewal schemes for counties Leitrim and Longford, and parts of Sligo, Roscommon and Cavan, as an incentive for much needed outside investment to be attracted into these counties. I have complimented the Minister for this initiative on numerous occasions.

This scheme has the potential to be very successful but since the introduction of the 9% stamp duty and the 2% annual tax on second properties, the interest expressed by investors has dwindled to a trickle. The logic of the Government's policy in this matter is inexplicable and is further proof that no coherent plan is being advanced by it to sustain growth and development in our region.

Houses for first time buyers are not a problem in the rural renewal scheme area. I contacted three auctioneering firms in Leitrim this afternoon and they informed me that, between them, they have over 100 properties ready to be occupied selling at £80,000 or less. A former Leitrim county engineer whenever asked by councillors to provide houses for bachelors would say, "When you provide the bird we'll provide the house". The men can now provide the women but we cannot provide the houses. The Government has a lot of work to do.

If the Government wishes to help first time buyers it could put in place a policy which would allow them to reclaim all the VAT paid on the purchase of a new house. For example, a house costing £100,000 would result in a refund of £12,500 to the purchaser, a major increase on the paltry grant of £3,000 currently available.

The rural renewal scheme and the BMW areas need property investors. However, since the introduction of the Property Act the purchase of a house for £100,000 has increased from £103,000, including 3% stamp duty, to £115,000. Many potential investors are now looking at property outside the State.

This proposal has been a dismal failure and before further damage is caused to the housing market I am calling on the Minister of State to give a commitment that the Government will rescind the 9% stamp duty and the 2% annual tax in the budget. If it does not do so the current policy will have the opposite effect to that intended.

As the House will be aware, the context for the recent taxation measures on housing, which the Minister for Finance, Deputy McCreevy, introduced in the Finance (No 2) Act, 2000, is the difficult housing market at national level. These market conditions, which are fully elaborated on in the most recent study into the housing market by Peter Bacon & Associates, economic consultants, required prompt action. There was a pressing need to strengthen the position of first time owner-occupier buyers compared to investors. The third Bacon report pointed to speculative demand which was helping to drive up housing prices. The restructuring of the stamp duty regime is one of the measures designed to help first time owner-occupier buyers. Given the constraints on resources in the building sector at present, there is also need to focus more on provision for people who need homes in which they will live throughout the year.

The Finance (No 2) Act, 2000, introduced a three-tiered stamp duty structure for first-time buyers, owner-occupiers other than first-time buyers and investors. The exemption from stamp duty was raised to £150,000 in the case of first-time buyers and for other owner-occupiers to £100,000. Rates of duty for first-time buyers at values up to £300,000 will now be 25% less than for other owner-occupiers. The House will be aware that a flat 9% stamp duty rate will now be charged on all categories of investors buying new or second hand residential property. The Government decided to apply this rate of 9% to all non owner-occupier purchasers of new and second hand residential property, irrespective of the value of the property, as it was considered that the previous graduated scale of rates might encourage investments in the lower end of the market. This would not be a desirable development from the point of view of the first time owner-occupier purchaser as it would bring further pressure on prices at the lower end of the market.

Stamp duty is a relatively simple self-assessed tax which is applied on a once-off basis. It is not a tax that readily lends itself to exemptions on a regional basis. There is a risk that such exemptions could lead to distortions. These could hinder the overall national goal of increasing the supply of new homes especially to meet the needs of first time buyers who are trying to get a foothold in the housing market.

The new 2% anti-speculative tax will apply to second and additional residential properties acquired on or after 15 June 2000. The tax will be limited to a three year period. In addition, there are exemptions in specific instances including section 23 type properties under various tax incentive schemes.

These new measures should also assist in applying resources in the home building sector to the construction of homes for first time owner-occupier purchasers. As the Minister for Finance stated during the passage of the Finance (No 2) Act, 2000, 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 people who reasonably aspire to it. As well as the social problems that this would cause, it would present difficulties for the wider economy in the shape of adding to wage demands and in reducing mobility in the labour market.

The Minister for Finance considers that the latest package of measures should assist in restoring balance in the market and curbing price-increases. This price moderation is in the interests of all in the property sector, whether first time buyer, owner occupier or investor.