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Paschal Donohoe rules out cut to VAT on building houses

Minister calls Fianna Fáil proposal a ‘repeat of the mistakes behind the crash’

Paschal Donohoe would rather the money would be “spent by the State directly” on new construction rather than given to developers. Photograph: Clodagh Kilcoyne/Reuters

A cut to the rate of VAT on house building in next month’s budget has been ruled out by Minister for Finance Paschal Donohoe.

Mr Donohoe’s stance puts him at odds with Fianna Fáil, which has called for the rate to be dropped from 13.5 per cent to 9 per cent in a bid to help developers build more badly needed homes .

Fianna Fáil’s abstention will be needed for next month’s budget to pass.

The Minister made his comments at a private pre-budget meeting with groups such as employer’s body Ibec and the Construction Industry Federation earlier this week.

He said there is “no guarantee” the cut would lead to the construction of more houses, and called it a “repeat of the policies of the past”.

He also said he would rather the money be spent by the State on building homes directly.

Mr Donohoe’s comments were a response to statements from Fianna Fáil housing spokesman, Barry Cowen, who said the measure would help developers build more homes by bringing construction costs down.

Fine Gael also proposed the same policy of reducing VAT on construction during talks on government formation last year, but Mr Donohoe has set his face against it. Mr Cowen said it would cost €240 million.

Mr Cowen wants the rate cut for a period of three years and he said this would “stimulate activity in order for [builders] to be in a position to build more homes”.

In recent days the Offaly TD repeated a call made during the summer for the VAT rate to be cut in a similar manner to how the rate on the tourism industry was reduced during the economic crisis.

Retain Help-to-Buy

The Construction Industry Federation, which has repeatedly called for the move, is understood to have already accepted that the VAT rate cut would not happen and has instead focused on asking the Government to retain the controversial Help-to-Buy scheme of grants to first-time buyers.

The scheme, which gives a maximum €20,000 income tax refund for first-time buyers of newly built homes, was expected to be abolished by Taoiseach Leo Varadkar and Minister for Housing Eoghan Murphy.

However, Government sources say this approach is now being reassessed. The scheme could be retained in the budget but recast, such as allowing the State take equity in a home rather than providing grants.

Mr Donohoe sought to rule out the VAT cut at a meeting of the Labour Employer Economic Forum on housing earlier this week, which was also attended by Mr Murphy. The forum brings together representatives of employers and trade unions with Government Ministers to discuss economic, employment and labour market issues.

The Dublin Central TD said it would be “a repeat of the mistakes that caused the crash” and that he would rather that the money would be “spent by the State directly” on new construction rather than given to developers.

It comes as Cairn Homes reported its profits had increased by 191 per cent for the first half of the year, with the home builder selling almost as many units in the period as it did in 2016 as a whole and disposing of some unwanted development land.

Gross profit for the first half of 2017 came to €7.7 million, up €5.1 million on the same period last year, as the company completed 94 sales and revealed it had forward sales on 474 units in place.