I move: "That the Bill be now read a Second Time."
I am glad to introduce this, my fourth Finance Bill to the House. In my first Bill in 2005, I concentrated on reducing the tax burden on low and middle income earners. In my second Bill in 2006, I reformed and refocused the structure of investment tax reliefs and set a minimum tax which the well-off must pay. In my third Bill earlier this year, I sought to ensure that the benefit of strong economic growth is shared by all taxpayers and, in particular, low and middle income earners. In this, my fourth Bill, I am implementing a very specific stamp duty reform, as set out in the programme for Government, to exempt all first-time buyers from stamp duty.
I will take a little time to review where we are now in regard to first-time buyers. In my last budget I indicated it was the Government's aim to help first-time buyers directly and substantially, including those who were already paying their first mortgages. I did this by increasing mortgage interest relief for first-time buyers from €4,000 single and €8,000 married or widowed per year, to €8,000 and €16,000 respectively. This measure helped first-time buyers who were already in their first home, as well as brand new first-time buyers.
This bill is the first instalment in the implementation of the programme for Government. It is testament to the good faith of this Government that the first measure it promised to deliver for the people is the first measure it will deliver. The proposals it contains are timely, affordable, targeted and will support one of the most important sectors of our economy. It will do all this in a way that directly assists those without any housing equity of their own in their efforts to acquire their first home.
Home ownership is one of the primary aspirations of the people. It provides a secure environment in which to grow up and grow old, and it strengthens communities and improves the environment. It provides parents with a valuable asset to pass on to their children. As Minister for Finance, I have always supported home ownership through targeted policy initiatives and these proposed changes mark a continuation of a process of support for first-time buyers which I put in place in my first budget.
The housing market has enjoyed remarkable growth in terms of both output and prices over the past decade or so. We have seen a dramatic increase in the number of homes built. In 1996, 33,725 new homes were built. Last year, that number was 93,419. Huge progress has been made in raising supply to meet very strong demand which has had a moderating impact on price inflation. I welcome that moderation on both social and economic sustainability grounds. I far prefer to see house prices increasing at a modest pace in line with changes in affordability. These increases can be sustained in the long term; double-digit increases cannot be. Therefore, it is in everyone's best interests, including first-time buyers, existing owners, construction workers and the population as a whole, that prices increase at a moderate rate which reflects fundamentals, which I remind the House remain sound.
We have heard much speculation about the economic outlook in recent times, much of it of a negative variety. I accept there are risks to the outlook but I believe our economy will continue to outperform most of our peers. The residential construction sector is easing back towards more sustainable activity levels and this is having an impact. However, it should be noted that commercial property activity remains very strong and that the roll-out of the national development plan will also have a positive impact on growth levels, not least in the construction sector. At the same time, the external demand environment, most notably in continental Europe, is brightening and that is something which all exporters will welcome. Certainly, the impact of tighter monetary policy is serving to dampen economic activity but a moderation of pace should not be mistaken for a substantial and sustained deterioration in our economy's performance.
Our economy is set to enjoy strong growth rates over the medium term, albeit at a lower level than enjoyed over the past ten years. By accepting that more moderate outlook now, we can make it a reality and enjoy the much talked of "soft landing". It is essential that we adapt our expectations in the property market in relation to Government spending growth and in the wider economy to that calmer but still positive growth environment. That is the best means by which we can secure our prosperity for the long term.
The outlook for the Irish economy remains broadly positive. The main impetus for Irish economic growth in recent years has been domestic demand which is set to continue this year. Against that favourable background, in 2007 both GDP and GNP growth are forecast to be broadly in line with our sustainable medium-term growth rate of around 5%. In addition, the labour market has performed very strongly, with employment growth of 4.4% in 2006. Employment is expected to remain strong, with growth of over 70,000 jobs projected for 2007 while unemployment is forecast to average 4.4%. Our economic success in recent years ensures we can face any future economic challenges from a position of relative strength.
Construction has become an increasingly important sector of the economy in recent years. Within construction, home building accounted for 11.4% of GDP in 2006, compared to 4.6% of GDP in 1997. Driven by economic and demographic fundamentals, around 570,000 new houses have been built. Despite this rapid growth in house building, the stock of houses per head of population is still one of the lowest in the euro area, implying there is still scope for a significant level of house construction. However, the housing market has slowed in recent months, in part due to uncertainty relating to stamp duty. In introducing this measure to reform stamp duty, I intend both to remove uncertainty from the housing market and to reduce the cost of home purchase for first-time buyers. This will allow people to buy and sell their homes in a more stable market environment and help to restore necessary confidence to the market.
In the past five years, the number of new homes being built each year has increased from 53,000 to around 90,000 last year. At this stage we can see housing demand levelling with supply and this is reflected in a slowdown in house price increases. This is clear evidence that Government policy is working. With the market stabilising, we have to ensure that any changes that are made must be carefully thought through, given the importance of this sector for jobs in every community in Ireland.
While leading indicators of future output, such as new house registrations, new housing starts, planning permissions and the number of new mortgages drawn down by first-time buyers, point to a lower level of completions this year, there is a general consensus that the level of new housing output will decline from last year's record levels, with the current market expectation at around 62,000 new housing starts this year, which is still a very high output by any standard. Underlying demand remains strong, supported by demographic developments and the positive economic environment.
The annual rate of increase in residential mortgage lending slowed to 21% in April, the lowest rate of increase since August 2002. On the other hand, the rate of non-performing loans remains low, as does the level of repossessions. In line with these trends, the rate of house price inflation has slowed. The level of house prices are now back to the same as those in August 2006.
The main factor impacting on the housing market is the rising interest rate environment. This is impacting on affordability and hence on the demand for housing. Eight quarter-point increases by the European Central Bank over the last 18 months have doubled the key official interest rate for the euro area from 2% to 4%.
While property price increases have moderated, the cumulative increase in house values in recent years puts first-time buyers at a distinct disadvantage. Those who are already on the property ladder have benefited from those increases in value and have built up their own property market equity. First-time buyers do not share in their good fortune and our proposals are designed to help them as they compete with existing owners and investors in the property market. In effect, the measures for which this Bill makes provision will level the playing field for purchasers by directly helping those who come to the property market without the advantage of the house price appreciation of recent years. It will also level the playing field between new and second-hand houses and widen the choice available to first-time buyers with clear social benefits.
As a result of the existing stamp duty regime, first-time buyers are incentivised to buy new homes which, in many cases, are considerable distances away from their families and support networks. The changes that this Bill proposes will make first-time buyers indifferent between second-hand and new homes and will remove an existing financial obstacle to establishing their own homes in the neighbourhoods and communities in which they grew up. This has obvious and desirable social benefits, which flow directly from the provisions of the Bill.
Leaving aside the equitable and social impacts on the first-time buyer, our proposals are good for the property market as a whole because they will bring an end to the speculation and uncertainty about the evolution of policy in this area. In addition, by making these changes retrospective on transactions executed on or after 31 March, we have minimised the potential for market disruption. Where a person who has paid stamp duty becomes entitled to an exemption from that duty when the Bill is enacted, he or she will be entitled to claim a repayment of that duty from the Revenue Commissioners. The latter will, in due course, publish details of how a claim to such a repayment is to be made when the Bill becomes law.
We want to see the output of new housing remain strong in the interests of purchasers, construction workers and the wider economy. We recognise how important the construction industry is to our success. It directly employs 280,000 people across the country and many tens of thousands of others in related industries. It is a major contributor to the health of our public finances. A strong construction sector is vital to a strong economy and is in everyone's best interests.
Let me be clear regarding my position on stamp duty reform. First, what I have been saying is that, as Minister for Finance, I could not speculate on the specifics nor could I say what I would or would not do because the market reacts to what the Minister for Finance says. Second, at all times I made it clear that I would do nothing that would disrupt the market, not that reform of stamp duty could not take place. Third, I indicated that if people wanted to have an idea of how I would be thinking, I asked them to examine the two initiatives I had brought forward in this area in previous Finance Acts, both of which were exclusively for the benefit of first-time buyers.
It is generally accepted that speculation in recent months about stamp duty has had a negative effect on the market. Such speculation was not of my making. In dealing with the situation as it evolved, I was obliged to handle it in a responsible manner in light of the extra attention drawn to comments of a Minister for Finance in this area. The proposals before the House to introduce stamp duty reform with retrospective effect will restore stability and certainty to the market.
The Bill contains two sections. Section 1 provides an exemption for first-time owner-occupying house buyers and for the repayment of stamp duty where it has already been paid in respect of instruments executed on or after 31 March 2007. Section 2 is simply the Short Title and construction of the Bill.
We have planned further measures to support those who are about to buy their first homes or who have done so in recent years. Our policy initiatives are designed to help young people and young families, not just those who are about to buy their first homes but all those who have purchased apartments and houses in the past seven years. They will improve affordability, reduce the burden of higher interest rates and have a positive social impact. Our initiatives pass the test because they are socially fair and economically appropriate, they support those who need State support most, they will eliminate uncertainty and they will support and protect our construction industry.
I do not doubt that I will be asked why I am not introducing other types of stamp duty reform at this time. The answer is simple, namely, I am doing what the Government said it would do in the programme for Government. I am exempting first-time buyers from stamp duty in respect of all houses, regardless of whether they are new or second hand. In doing so, I am removing any uncertainty regarding the stamp duty regime which may have arisen among house buyers during the election campaign.
Taken together, the measures in the Bill, combined with the mortgage interest relief measures in budget 2007 and those proposed for 2008, provide real and tangible benefit to first-time buyers as they seek to purchase a home. I, therefore, commend the Bill to the House.