Let me explain. The Senator can come back to me whenever he wishes. I did not initiate this debate. When this debate was initiated in a pre-budgetary context, the Government discussed it and came to a conclusion on it and spoke on it. Within two months, as we headed into an election campaign, the matter ignited again. It ignited in the first quarter of the year within eight weeks of a budget having been completed and a strong signal having been sent. That signal was sent not because of any reluctance on my part but to give people an indication that this was what we were trying to do. Subsequently, the Fine Gael Party brought forward its proposal, the annual effect of which, following full implementation, would be more than €600 million per year, would benefit 50,000 people and would be paid for by 2.15 million people who were not in the market. Where was the equity in that proposal?
Senator Quinn mentioned that people who buy a house for their children costing in excess of €1 million are exempt from stamp duty. The fact is they are liable for gift tax. For any amount over €500,000, one is liable for 20% gift tax. If, as he claims, somebody bought a house for €4 million for a son or daughter, they would pay 20% tax on that sum, in which case they would pay much more in gift tax than in stamp duty.
There is a wider point to be made to the Opposition on that point. In its proposal, it was giving a better deal to everybody, including those who were able to buy houses of that magnitude of price, whether in the new or second-hand market. The benefit of its reform of stamp duty went to 40,000 or 50,000 people. That is what the Opposition was proposing to do. The whole scatter-gun, generalised approach was also unaffordable because of the cost of going through the thresholds. This was proven in the context of budgetary parameters when the Opposition outlined its plans in this area. Suddenly all its figures had gone through the roof.
In response to that situation, on 30 April I introduced a Government proposal stating that if elected we would implement this from that date. The only reason for retrospection is that I needed to make a proposal outside the budgetary context. In the normal course of events if I were dealing with the issue within a budgetary context I would simply stand up on budget day, make the proposal and from that day on we would have our change of regime. It is that principle that I must protect and not the idea that I have provided for retrospection because that is the way I want to do the business. I did it in order to let people know that if Fianna Fáil was returned to office with a mandate commensurate with the support we had and which we hoped and expected to receive with the people's agreement, I would take this specific action.
I am coming into both Houses of the Oireachtas to do specifically what I said I would do, not because I sought this debate but because I wanted to bring finality to the debate and end the damaging speculation that was taking place in the knowledge that my opponents during the general election campaign did not have a clear idea when they would implement the proposal. It moved from a period of three years to a period of one year to a period where Deputy Quinn, a former Minister for Finance, said they would need to be subject to budgetary requirements and the exigencies of the industry on the day, and that no responsible Government could make any such commitment prior to going into government. We then had the Labour Party leader saying that he would have it done before he returned from the Áras with his seal of office. Here were three or four movements on the proposal by the Opposition parties in the period in which they had initiated the proposal.
My position was simple. I said I would do nothing to disrupt the market. I also said I would help first-time buyers who are the only people who have no equity in this market. I also said that if people wanted to see what I would do they should consider what I had done in two of my three previous budgets. In my first budget I increased the threshold at which stamp duty became payable. When I became Minister for Finance the threshold set in 2002 was €190,500, which I raised to €317,500. In the last budget I doubled mortgage interest relief which I saw as the best way to spread the benefit not only to those who were coming into the market with no equity, but also to those who came into a buoyant market in the past seven years. The purpose was to assist those first-time buyers whose major squeeze would be in the first seven years in the hope that they are progressing economically with the improved economy we now have and the increased buoyancy we have achieved.
The Opposition is now suggesting that I said I would do nothing and then did a volte-face. I did no such thing. I did not initiate the debate. At budget time I stated what I believed was the right thing to do, which was what I did. Senators will recall that a debate was taking place prior to that — people are entitled to conduct such a debate. We brought certainty to that position at that time. Subsequently in the context of a general election campaign, in an effort to buy votes, a scattergun, ill-thought out, though well-intentioned approach, I am sure, by Fine Gael, subsequently supported by the Labour Party, was put to the people and subsequently modified on four occasions from the time of its publication to election day at a cost which is at least six, seven or eight times the annual cost of what I am able to provide by bringing stability to the market in the first instance.
Let me say without adding any speculation that in every year's budgetary process it is open to a Minister to consider the best mix of tax and spend policies he or she wishes to pursue based on the relative strength of the economy at a particular time and what room for manoeuvre the Minister may have, given the political commitments as set out in his or her programme for Government. What was new in this case was that as a correction was taking place and with a general election imminent, people decided to play politics with the property market. Those who thought that the scattergun approach of suggesting that as many people as possible would be sorted out regardless of the cost, which would run to hundreds of millions of euro, did not win the argument because it offended people's sense of common sense. People have discernment and can determine the logical, sensible and appropriate response at any time in order to be supportive of a housing market, which is important to us.A number of people have said I have not included a trading down mechanism. However, people in that position have accumulated significant equity in their properties and if they wish to dispose of them, they can move to smaller houses, presumably at a lower cost. They are in a much better position to make that move than young single people or couples who are trying to get on the first rung of the ladder in a buoyant market against a background of increasing interest rates, even though in a historical context the interest rate regime is benign vis-à-vis the position 15 or 20 years ago. At the end of the day, the responsible thing for the Minister for Finance to do was not to enter into that speculation but to give an indication that I would do nothing to disrupt the market, which the proposal before us at the time did, as I suggested. It did not exclusively contribute to where we are now but the uncertainty that erupted as a result of that debate did nothing to help the correction that is taking place. Now that the argument is over and certainty will be restored to the market through the enactment of this legislation, it is incumbent on us all not to continue to suggest the correction under way is something greater than that.
We should encourage positive sentiment about the housing market on the basis that it is not only important for house purchasers but it is also important in an employment context. I support the 280,000 people who go to work in the construction industry every morning. Their families depend on a healthy industry in order that workers can continue to earn a decent living in their own country. In the past, when the State experienced boom and bust, slump and improvement, this cohort of people had to leave our shores and work elsewhere because they could not get a job here. Demand and supply are coming into sync as a result of the increases in prices and housing output. A total of 88,000 houses were built last year whereas 34,000 were built ten years ago and that is a tribute to an industry that has improved and increased its output to meet demand. The fundamentals are right and the demographics are such that demand for housing, even on a per capita basis, has not reached European levels. It must be ensured the market is given time to correct and is not subject to negative sentiment in order that people can maintain equity in their homes. A more sustainable rate of increase in house prices will be achieved to bring stability to the market and to encourage investors and those in the construction industry to build houses on the basis of demand. Housing output will reduce from 88,000 units annually to 65,000, which the Central Bank suggest is sustainable over the medium to long term, and that would still be 80% greater than the output ten years ago. That is a critical build factor in our economy and the public capital programme should arrange for a national development plan commitment on the capital side that would result in Government activity to improve our physical and social infrastructure through additional schools, hospitals and so on increasing as a percentage of GNP. This would make sure overall activity is such that we do not experience a major disaggregation in employment intensity in the industry. That is important and too often when a necessary change takes place, particularly in residential housing, individuals create the worse case scenario, which feeds negatively into market sentiment and deprives people of the opportunity of entering the market on the basis that it is stabilising in a way that was unsustainable previously. We need to be mindful of that.
When reference is made to housing affordability, commentators usually talk about the ratio of house prices to earnings, which has steadily worsened in recent years. However, the ratio is misleading because it does not take account of the impact of several factors such as changes in interest rates, the number of dual income households and the incomes of younger, better educated people tend to be higher. A more accurate picture can be obtained by examining household expenditure and mortgage repayments as a percentage of total net disposable income. According to the latest EBS/DKM affordability index, from June this year, monthly repayments for a first-time buyer working couple on average earnings, as a percentage of net income nationally, was 25% on a 90% percent mortgage, compared to 26.4% at the end of December last year.
The improvements in housing affordability, according to the research, are due to two factors. These are the doubling of mortgage interest relief from January 2007, a Government initiative; and the moderation of house prices, which is the market response to the unsustainable double-digit house price inflation we have seen recently.
The proposed stamp duty reform before the House is a highly-targeted measure that will further support affordability for first-time buyers who, as I have mentioned before, are critically important. They are the lifeblood of an orderly and sustainable housing market. On the basis that people coming into the market are doing so in the numbers one should expect, those in the construction industry can enable a planned and continued build and a continued level of activity. This reinforces Exchequer receipts and employment.
We must be careful not to over-react to the current easing from the very high levels of activity we spoke of in recent years. House prices have fallen back slightly in recent months, although prices still remain above their levels at this time last year. I share the view of most commentators that house price increases in recent years have been underpinned by many factors, including a strong economy, increases in employment and earnings, reductions in taxation and lower interest rates resulting from participation in monetary union.
In its 2006 survey of the Irish economy the OECD noted, based on international comparison, that residential investment internationally is often characterised by a boom-bust cycle. However, in the same analysis, the OECD stated that a soft landing appears the most likely prospect for the Irish housing market. That is the policy objective all of us are agreed on.
I do not mind when people criticise me as that is part of the debate but we should be mindful not to send an overly pessimistic message to the market, the electorate or those wishing to get into the housing market by suggesting an imminent collapse or something which would make people step back from the market again. We have seen enough of that hesitancy, which has a dislocating and unnerving effect, sapping confidence at a time it needs to be reinforced. We should try to consider the matter in a helpful manner.
Senator John Paul Phelan also spoke about site purchases. A gift from parent to daughter or son, if the site value is less than €254,000 and less than one acre, is exempt from stamp duty because it is an inter-family voluntary transfer. Stamp duty is payable on the site mentioned by the Senator, although there is no stamp duty payable on the build. A builder buying a site on which he builds a house for subsequent sale will incur a stamp duty, which is usually passed on to the purchaser anyway, therefore, there is no real difference between both those purchasers.
It is also important to make the point on the canard of people of means being able to buy a house on behalf of their children and being exempt from stamp duty. That is not the case in terms of Exchequer return because we would get it in capital gains tax beyond €500,000 anyway.
With regard to putting a price or size limit on this, it is very important that we get a simple message out to the public in order to steady the situation. The simple message I wish to get out is that all first-time buyers are exempt from stamp duty regardless of what house they buy. That message is important.
What is the precise detail of the Opposition proposal? Can anybody say with accuracy what was intended? We all know, during the heat of debate, when we were totally au fait with the arguments, that we can rattle it off against each other, be it on television, radio or newspapers. It reinforces the point I am making at this remove that there was a need to send a message that was understandable, which would reinforce the market and settle nerves, as people began to wonder what was going on.
The simple message that everyone now knows is that this Government has brought forward a proposal. I am not here to speak about a redesign of the entire stamp duty code, which has been with us for more than 200 years. I am referring to returning stability to a market that was unnerved and dislocated as a result of the speculative nature of the proposals——