Some thoughts on stamp duty reform

The biggest headline in today’s budget was probably the reform of stamp duty and it seems to have drawn generally favourable reviews. Certainly the estate agents were happy as they expect the market to recover in the new year as a result and stimulate activity in what had been a dead calm for some months.

As always there were critics but one analysis I strongly disagree with – it was suggested the changes will in reality apply to very few.

To assess the veracity of this claim this one has to consider the whole gamut of groupings who are stakeholders in the construction and property industries. To some extent we all are.

A commentator recently had described the tax, under the old regime, as “a tax on hope” and with some justification. All of us in Ireland aspire to home ownership and when we have one we aspire to a bigger one. It is the Irish dream perhaps and there are historical reasons why.

There is nothing wrong with this and it is an ethos fostered strongly from our first pay packet – “rent is dead money” etc.

It is also desirable that the many immigrants to this country in recent years should be in a position to purchase their own homes. Greater levels of home ownership would help to foster integration, stability and confidence in our new composite communities. Again affordability and stability are key to enabling this.

Unfortunately in recent years property prices had spiralled, development quality in many places had fallen below par, stamp duty bands and rate tables had become hopelessly outdated in a meteoric market place with the result that many were paying over the odds for a toy-box townhouse or in many cases not even managing affordability for that..

But like the Tulips, the rise was not sustainable and when it crashed it did so with alacrity.

In every corner of Ireland the pinch was felt, not only by the reluctant would-be purchasers watching the market with confusion and foreboding, but also by the hundreds of thousands of ordinary workers employed in the construction industry. I was down home last weekend and down the pub on Saturday night it seemed a recession was upon us as one by one everyone I met appeared was being laid off, were doing the laying off or were looking around for alternate work before they heard the worst.

So it is not just multi-millionaire property tycoons that have an interest in a buoyant property market – our economy and most importantly many of our people have thrived on it over the last several years and it was the sustenance of many households through the last decade.

All of that appeared in danger of collapse recently. The reform promises to refloat the becalmed boat and in a way that is modest and equitable. Whereas tweaking around the edges may have affected the few, a step change in operation and resuscitation of an industry benefits the many.

Arguments that the reform gives more to the €4M house buyer than the 400K one are simplistic and facetious – the tax is a proportional one and scales up, but like any linear equation the effects of change are higher the bigger the stake in question.

From a revenue point of view the duty has been a huge earner the last couple of years and a stalled market yields no income there. Whether we like it or not that tax goes into the greater pool to pay for health, education, transport and all the other vital services and if it doesn’t come that way it has to come from somewhere else. Whilst prices had veered into the silly money end of the spectrum leading to some particularly bumper revenue windfalls, a more steady but revived market will still provide an income for the exchequer. And on the question of whether the tax should exist in the first place, most economists will tell us if it was abolished in the morning it would soon be absorbed into prices leaving no net change for the buyer and a large loss for the state and subsequently the rest of us.

In conclusion I think we all benefit from an overhaul of the building tax, which leads to a more affordable climate for buyers, stimulated but value-driven growth for the industry, continued employment for that very significant workforce, revival of a vital revenue stream for the state and a return to sanity and equity in every sense of the word.

Tags: Budget, Building, Economics, Stamp Duty, Tax