Paul McGrath
Ceist:49 Mr. P. McGrath asked the Minister for Finance if he has satisfied himself with the balance of tax incentives in the housing market. [25592/02]
Priority Questions. - Tax Incentives.
A range of tax incentives exists regarding the housing market in the case of first-time buyers and other owner-occupiers, investors and tenants. For owner-occupiers, mortgage interest relief at the standard rate is granted in respect of interest paid up to a ceiling on loans used for the purchase or improvement of a person's sole or main residence. Preferential arrangements exist for first-time buyers over other owner-occupiers. The existing higher ceilings for first-time buyers on allowable interest were increased in the budget. The period for which these increased ceilings will apply is being extended from five years to seven years.
All owner-occupiers, including first-time buyers, are generally exempt from stamp duty on new houses where the property is 125 sq. m. or less. In addition, there is more favourable stamp duty treatment for first-time buyers of second-hand houses up to €381,000, as compared to other purchasers. Owner-occupiers also are not subject to capital gains tax on the gain from the disposal of their main residence.
In relation to investors, in budget 2002, against a background of increasing rents and a shortage of rental stock, I reintroduced mortgage interest relief in respect of borrowings for use in the rented residential sector. For tenants, tax relief at the standard rate is available to individuals in respect of rent paid on their accommodation.
Last year was the seventh successive year of record housing output. Total housing output for the first six months of 2002 was 25,418 units, up 5.2% on the same period in 2001. The housing market is a complex and dynamic one and demands continuous monitoring and adjustment to address changing circumstances. I consider that the tax incentives currently available represent the optimal mix and are adequately balanced in light of the current state of the housing market.
Is the Minister satisfied that the relief now available to a first-time buyer has a maximum of €8,000 spread over five years—
That is the interest.
Yes, interest, allowable at the standard rate of 20%, which is €1,600. Ordinary first-time buyers had a tax credit of €1,600 when buying their own house, whereas investors have an open-ended claim on their investments. The rent they receive is totally allowable, even at the marginal rate of 42%. If one takes a house which is rented for €12,000 per annum, which is cheap even in rural areas, that gives the investor relief of €5,000 per annum as a tax credit. How can one balance the first-time buyer at €1,600 and the investor at €5,000?
The Minister took away new house grants. In his documentation on the budget he said that new house grants were costing €38 million per year. He said that the replacement scheme which he put in place cost €8 million. He took €30 million from first-time buyers by that stroke of a pen.
On the question of VAT on houses, does the Minister not think it is mean to add VAT from 1 January even for first-time buyers who have contracts in place? They will pay the additional money on VAT over the course of the coming year. By the Minister's stroke, first-time buyers will lose €5,800 as a result of the budget.
The Deputy has raised three aspects. The main purpose of the first-time buyer's grant, which was introduced in 1977, was to encourage the building industry. It was not necessarily meant for the first-time buyer. It was to pump up the building industry. Most reasonable people would agree that over that period the benefit has gone to builders rather than first-time buyers. It has been recommended for many years that it should be withdrawn. I replaced it in the budget by mortgage interest improvements for first-time buyers.
It was not an improvement.
I increased the number of years from five to seven and increased the allowable interest, in the case of a married couple, to €8,000. That is more targeted, it will go to the first-time buyer. The old grant scheme meant that the first-time buyers of second-hand houses did not receive it at all, whereas the mortgage interest relief applies to a first-time buyer, irrespective of his or her buying a first or second-hand house.
Over the past five years we made many changes to the house market and some fiscal changes also.
And reversed them.
And reversed them.
Will they be reversed again?
I was strongly encouraged to reverse them by the Deputy and others in the Opposition. When we made the changes recommended in the first Bacon report, I did not say strongly enough that making changes to an area where supply and demand should rule is usually fraught with difficulty. The reversal of the tax for investors has increased the supply of rental accommodation and most auctioneers would agree that the rental market has stabilised as a result. I was encouraged to do this by many people in the Opposition.
I did not get the second supplementary.
It was a long first supplementary.
Lest the Minister mislead the House, the new house grant existed long before the mid 1970s. It was there in the 1960s and the early 1970s. I got it. There were two elements to it.
That is correct, but it was in a different form. The Deputy would not recognise it. The mortgage interest relief is far greater than the increase of 1% in the VAT rate.
Gormanstown did not teach the Minister very well.
I will send the Deputy the charts.