The Department of Finance Tax Expenditure Guidelines, published in October 2014, sets out guidelines for best practice in ex-ante and ex-post evaluation of tax expenditures and is used by my Department when considering whether or not to introduce a new tax expenditure, or in reviewing an existing measure. These guidelines indicate that tax expenditures should only be used in limited circumstances of demonstrable market failure, and where a tax based incentive is likely to be more efficient than a direct expenditure intervention.
In relation to the particular incentive being proposed by the Deputy, I understand that there is already a targeted direct expenditure measure in operation under the remit of the Minister for Housing, Planning and Local Government, i.e. the Repair and Leasing Scheme.
I am advised that this scheme, developed under Pillar 5 of Rebuilding Ireland, is targeted at owners of vacant properties who cannot afford or access the funding needed to bring their properties up to the required standard for rental property. The scheme provides upfront funding for any works necessary to bring the property up to the required standard, and in return the property owner agrees to lease the dwelling to the local authority to be used as social housing.
In relation to taxation measures which are targeted at increasing the supply of property available in the rented residential sector, as the Deputy may be aware, in 2017 my Department published a report on the Tax and Fiscal Treatment of Rental Accommodation Providers. Ten policy options were put forward in the report, divided into short-term, medium-term and long-term timeframes. Five potential short-term options were identified as measures which could potentially be implemented within 18 months, i.e. within Budgets 2018 and 2019.
In Budget 2018, I introduced one of these measures: deductibility for pre-letting expenditure for previously vacant properties. This option was prioritised as it was specifically designed to encourage an overall increase in housing supply by bringing currently vacant property back into residential use. This measure applies to residential premises which have been vacant for at least 12 months and which are then let after 25 December 2017. The expenditure is allowed as a deduction against rental income from that premises and applies to expenses that would be allowable if they had been incurred while the property was let, such as the cost of repairs, insurance, maintenance and management of the property. The total deduction allowed is capped at €5,000 per vacant premises and the deduction will be clawed-back if the property ceases to be let as a residential premises within four years of the first letting.
Finally, it should be noted that taxation is only one of the policy levers available to the Government through which to boost rental and overall housing supply. Ireland’s past experience with tax incentives in the housing sector strongly suggests the need for a cautionary stance when considering intervention in the rental sector. There are many competing priorities which must be considered when deciding which policy measures to introduce and the rental sector is just one of many other sectors that may require assistance and intervention.