Wealthy sectors will gain most from stamp duty changes
Almost all of the debate ensuing from the changes to stamp duty announced by Brian Cowen in this week's Budget has focused not on the merit of the changes in themselves but on whether they will be effective in defibrillating the property market.
Although described as a reform of stamp duty, what the Minister announced was above all else a reduction in stamp duty - and a substantial reduction at that.
Moreover, it is a reduction which will be of considerably more benefit to the wealthier sectors of society then it will be to average house-buyers.
The impact of the changes is such that a person buying a house worth €285,000 will benefit to the tune of just over €3,000, while a person buying a house worth €1.7 million will benefit to the tune of over €30,000.
Despite this, no voices were heard this week to question the wisdom of a tax change which is so unequal in its impact. All of the commentary centred on whether Cowen has been too late in making these reductions and not on whether reducing stamp duty is, in itself, a good idea.
Stamp duty as a tax has received an inordinate amount of attention in the last 12 months.
The narrow community of interests which wields most influence over policy-making in this country includes many who have a vested interest in the property boom.
Much of the print media relies on lavish property supplements for a large portion of its advertising revenue. Most economic commentators, politicians and higher civil servants, if and when buying houses, are more likely to be in the market for larger and more expensive properties, and so will benefit most from these stamp duty changes.
A very hefty portion of the political donations received by the larger political parties and by many individual politicians comes from donors in the construction and property sector.
The disproportionate influence and power which the property sector wields explains the prominence of, and support for, the calls for reductions in stamp duty received in the media during the election campaign.
It also goes far in explaining the peculiar consensus in favour of reducing stamp duty which has emerged across the political spectrum, which even includes supposed left-wing parties like Labour and the Greens.
We are a nation obsessed with home ownership, and so the property boom which we have experienced until recent months has been a phenomenal bonanza for the overwhelming majority of Irish people.
While investors have been the main beneficiaries of the boom, hundreds of thousands of average citizens have also seen the value of the asset which is their home soar.
After employment growth and the rise in education levels, the growth in average home values has been the most significant feature of the Celtic Tiger.
Even though prices have softened in recent months, most homes are far more valuable now than they were a decade or two ago, and they are likely to maintain most of that increased value despite the recent stalling in the market.
Notwithstanding this increase in property values, Ireland is almost unique in western societies in still having no annualised tax on domestic properties. In Northern Ireland and Britain the average householder pays hefty bills for domestic rates, which, depending on house size and location, can run to thousands of pounds, whereas south of the Border we have not had domestic rates for more than a quarter of a century.
Bitten by the backlash which greeted proposals for a land tax in the 1980s and proposals for a property tax in the 1990s, our politicians have shied away from even discussing the introduction of any type of tax on property. This absence of taxes on the ownership of property is the reason why our exchequer had been happy to rely instead on stamp duty which, of course, is a tax on the acquisition of property.
There was some merit in the criticism of the previous system of graded rates of stamp duty as being unfair, but overall stamp duty is actually a relatively fair tax.
It is a tax which is paid by a very small portion of taxpayers each year. Once first-time buyers had been removed from the stamp duty net, stamp duty became a tax on relatively wealthier homeowners which was payable at a time when they had made a windfall on the other property they were selling.
There is a cohort of homebuyers, who, because of growing family size, needs to trade up to larger properties. This group of people has actually benefited from the recent fall in house prices. Although the house they are selling may be going for a lower price than expected, so too is the house they wish to buy.
This cohort does deserve some relief from the stamp duty burden but the reductions announced this week are not targeted at these people alone but have been made available to all house-buyers, including property investors.
If the housing market improves in the coming months - assuming that an increase in house prices can be regarded as an improvement - then Cowen will be seen as having been inspired for introducing these changes.
If not, then taxpayers will still have to pick up an annual tab for this stamp duty reduction. Cowen estimated this week that the changes will costs €200 million per annum.
Cowen announced a substantial increase in funding for social and affordable housing in this week's Budget. It was open to him to add this €200 million to that Budget line.
In his Budget speech he also announced an intention to establish a Commission on Taxation which, among other things, will be charged with exploring the possibility of introducing a carbon tax.
This commission should also be asked to take a look at how our tax system could be made more equitable by more effectively taxing asset wealth, particularly property.