Landlords could pay less tax on rental income in an effort to persuade them to stay in the market, under proposals put forward in advance of budget talks intensifying this week.
One proposal circulated by the Department of Housing is a “distinct income-based approach”, according to a source with knowledge of discussions, which could entail a lower rate of tax or increased exemptions for landlords.
While Minister for Housing Darragh O’Brien has been clear in his goal to do something in the budget for both landlords and tenants, tweaking the tax system to favour income from rental has been stiffly resisted in the past by the Department of Finance and would likely face significant pushback again.
In a pre-budget paper published last year, the department dismissed the idea of a separate method of taxing rental income, objecting to the idea that “passive income from property rental” should enjoy better tax treatment than earned income. Sources said that anything like this would be strongly resisted. “There won’t be a separate method of taxing rental income,” said one person involved in negotiations.
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However, the approach is seen in other quarters as a “meaningful measure to stanch the bleed of landlords” leaving the market. “We think reducing tax on rental income is the key way of doing it,” said one Government figure who favours the approach.
The source added that it would have to be a “substantial package” to make a meaningful difference. A second source said that proposals had not been agreed “but tax reduction is the request”.
It comes against the backdrop of fraught pre-budget negotiations on healthcare spending, with an anticipated €1 billion over-run by the HSE this year raising the prospect of constraining spending in other departments.
The Cabinet Committee on Health met on Monday evening, with the Department of Health blaming inflation and demand for rising costs.
While exact figures are a closely guarded secret, it is understood that the Department of Health has made a pitch for a significantly increased health budget again next year at Monday’s meeting.
Discussions are expected to continue between officials over the coming weeks, though ultimately the decisions will be made by politicians in advance of the budget. Ministers and senior officials are understood to have considered various options and the costs and impact of potential budgetary decisions.
It is understood that the health officials and Minister for Health Stephen Donnelly presented a strong pitch for more resources on the grounds that inflation and an increase in demand for services means that the existing level of service will cost several hundred million euros more to provide next year. However, the health side also accepted the need for tighter budgetary control in some areas, sources said.
Officials from the Department of Public Expenditure and the Department of Finance, as well as from Government Buildings, are concerned that big increases in the health budget will mean few resources are available for the spending increases sought by other departments.
Government sources said on Monday that the overspend has led to “significant frustration” from Minister for Public Expenditure Paschal Donohoe, and speculated that the increased level of spending could curtail Mr Donnelly’s ambition to add more services before the next election.
“Battle lines will be between Stephen’s over-run plus service expansion,” one Minister said on Monday evening. “If we’re all being placed into restricted expenditure plans and health can have this open-ended level of expenditure, it undermines wider budgetary planning.”
