Market view

Voters may now be ready to snap back at the 'Rottweiler' stamp duty, writes Marc Coleman.

Fianna Fail won't touch it, Labour and Fine Gael will reform it for first-time buyers and - maybe - for those trading up for family reasons. Even the tax-cutting party - the Progressive Democrats - won't abolish it entirely.

Despite being hated, none of our politicians will consider abolishing stamp duty outright. Why? Stamp duty is hated for good reason. Simply put, it is the anti-Christ of the taxation system: a tax which violates most core canons of morality that should apply to any good tax.

There are five such canons. The first is that a tax shouldn't interfere with the workings of the market, something which stamp duty clearly violates. Its existence drives down the price of property but this is of no benefit to the buyer, who pays the amount of the reduced price to the Government, which promptly wastes the money. Incidentally, this is a point that needs to be made: it is a fallacy that abolishing stamp duty would lead to an increase in the cost of houses. It would not. It would increase the price of a house, but that increase would be more than recouped by non-payment of stamp duty.

House owners' would gain from the increase in the value of their property. The only loser would be the Government, which has been extracting money at virtual gunpoint from house buyers since 1997. This brings us to the second canon of taxation and the only one on which stamp duty scores pretty well; it is simple to administer and collect and this is why the Department of Finance loves it.

The third canon of taxation is that a tax should flexibly adapt to changing economic conditions. If banded, and if band thresholds were kept up to date, stamp duty might conform to this principle. Now it does anything but. Substantially unreformed since its inception in 1997, the stamp duty regime imposes huge taxes on low and middle income earners, a group it was never intended to affect. This is because the thresholds for house prices - above which various rates apply - have not been updated in line with astronomical house price growth.

Another wicked feature of the tax is that once the house value rises above a higher threshold, the higher rate is paid on the whole house price, rather than just the part in the higher tax band.

The next canon of taxation - that a tax should be fair and equitable - is the one that stamp duty most violates. In a country where tenants have no security of tenure (and where rented accommodation is inadequate to sustain family life anyway), house purchase is a must. Trading up is also a must, unless you want to die a bachelor or spinster. By its very existence - even if it were abolished for first-time buyers - stamp duty is regressive; forcing those on low and middle incomes to pay several years worth of income tax simply for the right to have stable accommodation.

The final canon is that a tax should be transparent. In theory stamp duty is transparent in that you can see how much you pay. In reality, it is cleverly designed to be the least transparent of taxes and that answers the question at the start of this article: why do politicians love this tax so much? Imagine that you are walking out of your house when the neighbour's Jack Russell takes a small bite at your leg. A solicitor's letter to that neighbour would, no doubt, ensue. But suppose that - just as that same Jack Russell is about to make contact - a Rottweiler runs over and chews off your forearm. In that case, if you remember what the Jack Russell did, it's likely to be an afterthought.

In a rising property market, house prices became the proverbial Rottweiler and the Government knows this, allowing it to take its pound of flesh relatively unnoticed. With the market no longer rising in the same way, voters now might just be ready to bite back.

Marc Coleman is Economics Editor of The Irish Times.