The Government is at sixes and sevens on the issue of stamp duty and the problems faced by first-time buyers. There is scope for a great deal of imaginative tax reform in this area, but the Government seems unwilling or unable to act on the issue, I told the Seanad this week.
To be fair to the Government, this is a massively complicated issue. The abolition of or reduction in stamp duty is not a simple issue. It is not easy to work out what would happen in certain circumstances. In fact, nobody knows the answer to that question.
This is a complicated issue and arguments exist – which have not been made by the Government side because they are frightened of making them, as they do not know what their Minister will do next week and it would leave them flat-footed if they did – to the effect that the abolition of stamp duty would hand the amount forgone to developers.
There is also scope for a great deal of imaginative tax reform in this area which might help first-time buyers. I do not know what would be the effect of the abolition of stamp duty but let us be honest and say that, one way or the other, we are looking for a subsidy for first-time buyers. I have no problem with that. Worse people get subsidies than young people who badly need their first house. I see no point in denying this. We are saying let us take this cost away from them one way or the other without giving it to the developer. That is the honest truth of what we are asking.
The Government does not appear to have the scope or the imagination to do that at present. We are only talking about first-time buyers at this juncture. They are the most afflicted and the ones who most need to get on the property ladder. If first-time buyers are not made to pay this stamp duty, the cost to the Exchequer is only €70 million. That is a pittance. I recall Senator Mansergh previously referring to €180 million as being a pittance. We are only talking about €70 million here. That is nearly a third of what he dismissed as so little in the past.
Quite honestly, I do not care if this comes about through the abolition of stamp duty, mortgage relief or by injecting that money straight into people’s pockets. This is a justifiable cause and a justifiable expense. Other than for first-time buyers, stamp duty should be a different kettle of fish.
I also told the Seanad that reform the graded form of stamp duty whereby one pays the full amount rather than paying the steps up. This is a source of great inequity:
One goes from 3% to 6% to 9% and then one pays 9% on the whole lot at a reasonably low level. That is pretty inequitable. However, I do not think it is inequitable for old people to be exempt from paying stamp duty on the new houses they buy if they trade down. The reason for this is twofoldFirst, it would save old people a certain amount of money but, second, it would get some mobility going in certain areas where old single people occupy large houses and young people with families occupy small houses. It is as simple as that.
We live in a dysfunctional environment. It would be simple to have a system whereby a person could sell his or her house without paying any capital gains tax if he or she lived in it, move into a smaller house and pay no tax on the move. People would begin to move, which would allow younger people with families move into larger houses. In north Dublin and probably in other areas of which I am unaware, there are many old people hanging on in large houses feeling paralysed about moving at their old age because they do not want to spend that 9% or perhaps less on stamp duty and removals.
That is an imaginative proposal the Government could happily take up and it could also take up the same proposal for disabled people. It would not cost much and would obviously have a beneficial social effect. It is not beyond the imagination of anybody in the Government to devise a means whereby a removal of the stamp duty would not go straight into the hands of the developer. That should be done quickly, in fact, it should be done in next week’s budget. I note Senator Mansergh did not have the mandate to come out and say it would not be done.
There are one or two other problems in this market which should be highlighted. The problems of moving are huge for people, not for first-time buyers. If one moves from a €1 million house which is not exorbitant any more, one pays auctioneers fees of probably 2%, approximately €20,000, and solicitor’s fees of €10,000. If one moves into an equivalent house it will cost one €90,000 in stamp duty plus the fees. Therefore, the actual cost of movement in the market is approximately 15%. What does one expect to happen with these costs? One expects a certain amount of paralysis and that is what is happening in the market. As pointed out by Senator John Paul Phelan, rather than moving, people are building small or vast extensions for €45,000 or €50,000 rather than paying the extra stamp duty of €40,000 or €50,000, which means mobility in the housing market is paralysed as well. People are prohibited and obstructed from moving by this tax.
There is a very good case for removing the stamp duty or changing it in such a way that there is more mobility in the market