To ask the Minister for Housing; Planning and Local Government the potential impact of a €650 million increase in the Housing Finance Agency borrowing for the Rebuilding Ireland home loan scheme on the general Government debt, general Government balance and calculations of available financial resource fiscal space under EU and national rules; and if he will make a statement on the matter.
Initially, funding of up to €200 million for the Rebuilding Ireland Home Loan was raised by the Housing Finance Agency (HFA) from a variety of sources, on a fixed rate basis for periods out to thirty years maturity. Based on the pricing achieved, local authorities could offer a first tranche of fixed-rate annuity finance to eligible borrowers at rates of 2.0% and 2.25% per annum, for twenty five and thirty years respectively, up to an aggregate maximum of €200 million. Subsequently, owing to the success of the scheme, sanction was given for further RIHL lending of €363 million. This brings total available funding for the scheme to €563 million for the period 2018-2019.
This funding is not allocated to individual local authorities but rather will be drawn down by local authorities from the HFA to match their lending under the Rebuilding Ireland Home Loan. Local authority borrowing from the HFA that is loaned by local authorities to individuals, as long as it is provided on a commercial basis, is classified as a financial transaction, and so does not count as General Government Expenditure nor impact on the general government balance.
The HFA is an on-balance sheet entity and therefore its debt to the non-government sector counts towards general government debt. The effect on the general government debt is determined by the extent to which borrowing by the HFA to fund the scheme requires additional borrowing by the NTMA.
Queries regarding the effect of the RIHL on available fiscal space under EU and national rules is a matter for my colleague the Minister of Finance.
To ask the Minister for Housing; Planning and Local Government the status of the proposals to modernise the electoral registration process following public consultation in early 2019; and if he will make a statement on the matter.
Following an initial consultation with local authorities on a set of policy proposals, I launched a public consultation on the electoral register modernisation project in December 2018. 187 submissions were received from a broad range of stakeholders and I intend to publish a report on the consultation very shortly.
Cost of allowing a deduction against rental income for the capital cost of the property in the initial years of ownership of a rental unit
To ask the Minister for Finance the first and full-year cost of allowing a deduction against rental income for the capital cost of the property in the initial years of ownership of a rental unit; and the corresponding reduction in the base cost of the property on a future disposal.
The Report of the Working Group on the Tax and Fiscal Treatment of Rental Accommodation Providers (published by my Department on Budget Day 2017) identified the measure suggested by the Deputy as a possible medium-term option. The report does not cost the measure but notes that three factors relevant for the costing would be:
I am advised by Revenue that as capital allowances in respect of the purchase of a property are not allowable, tax returns do not capture information in relation to the purchase price of the properties for which rental income is declared. As this information is not available, it is not possible to estimate the tax cost associated with the measure outlined by the Deputy.
To ask the Minister for Finance the annual anticipated number of recipients of the help to buy scheme in 2020 and 2021; the anticipated median payment under the scheme; and the anticipated expenditure per annum.
The number of recipients, and associated tax cost, of the Help to Buy (HTB) scheme in 2020 and 2021 depends on a wide range of factors, such as market conditions, housing supply, amount of income tax paid in previous years by the applicants etc. It is therefore not possible to estimate the take-up in these years.
On the basis of the projected outturn for 2019, my Department estimated that the Exchequer cost of extending the measure beyond the original sunset clause of 31 December 2019, could be of the order of €100m per annum for each of the next two years, provided current trends persist.
I am advised by Revenue that the most recent data on cost and uptake indicates that between January 2019 and end November 2019, some 5,933 HTB claims were approved at a cost to the Exchequer of €93.9 million; these figures are broadly in line with the projections made by Department in advance of Budget 2020.
The Deputy may be interested in detailed figures on the HTB scheme from its introduction to date which are available on the Revenue website at the following link: https://www.revenue.ie/en/corporate/information-about-revenue/statistics/tax-expenditures/index.aspx.
Cost of establishing an enhanced loss relief for landlords to allow relief for rental losses against other income sources
To ask the Minister for Finance the first and full-year cost of establishing an enhanced loss relief for landlords to allow relief for rental losses against other income sources in the same year.
The Report of the Working Group on the Tax and Fiscal Treatment of Landlords was published by my Department on Budget Day 2017.
Ten policy options were put forward in the report, divided into short-term, medium-term and long-term timeframes. Option 3 is to enhance loss relief for landlords (or a sub-set of landlords), to allow relief for rental losses against other income sources in the same year.
Currently, landlords can carry-forward their rental losses for offset against future rental profits, but cannot offset rental losses against other net taxable income in the current year, other than other rental profits from other properties. However, rental losses can currently be carried forward indefinitely against future rental income, even after the loss-making property has ceased to be a rental property. This is in contrast to the treatment of trading losses under Case I, where the loss relief effectively ceases when the trade ceases. The current system of rental loss relief has the effect of encouraging landlords to remain in the market, in order to avail of the loss relief against future streams of rental income. Allowing offset of rental losses against all other income could potentially encourage landlords to exit the market at an earlier date, once their losses had been fully relieved against other income.
I am advised by Revenue that in 2017, the latest year for which tax returns are currently available, there was approximately €1.45bn in rental losses from prior years that were available to be offset against rental income in that year. Assuming losses of €1.45bn to be available for offset and applying an average (blended) tax rate, the tax cost could be tentatively estimated at €420m.
Revenue advise that approximately 10% of those with rental income in 2017 did not have other income sources, in which case there would be no extra tax cost for that segment. For all other taxpayers, the tax cost associated with such a change would vary for each taxpayer, depending on the nature of their income, their level of available losses carried forward, and their level of income. Also, tax returns do not separately capture unused losses for residential and commercial properties, therefore this estimate includes losses in relation to commercial properties as well as residential properties. For these reasons, the estimate presented above should be considered highly provisional.
To ask the Minister for Finance the first and full-year cost of allowing local property tax deductibility for landlords when calculating rental profits.
The Report of the Working Group on the Tax and Fiscal Treatment of Landlords was published by my Department on Budget Day 2017.
Ten policy options were put forward in the report, divided into short-term, medium-term and long-term timeframes. Option 2 is for the introduction of Local Property Tax (LPT) deductibility for landlords.
I am advised by Revenue that the estimated cost of allowing LPT as an allowable expense against rental income for Income Tax purposes is in the region of €12 million in the first year and €20 million in a full year. This estimate is based on LPT returns that indicate a property is a non-principal private residence and assumes that each relevant owner has sufficient rental income against which to offset the LPT paid.
LPT is a relatively small expense and therefore the measure is unlikely to make a significant difference to the position of any individual landlord in cash terms, so may not be regarded by landlords as a sufficient measure to encourage them to stay in or enter the rental market. The measure would also have a deadweight cost in respect of landlords who do not intend to leave the rental market and would create a more favourable position for landlords of property compared to owner-occupiers, as owner-occupiers cannot claim a tax deduction for LPT. I note that one of the recommendations of the 2015 review of the LPT carried out by Dr. Don Thornhill on behalf of the Minister for Finance was that LPT payments should not be allowed as a deduction to landlords against income or corporation tax. Dr. Thornhill’s view was that deductibility for landlords does not rest easily with the concept of the LPT as a tax on the amenity value of residential properties rather than as a business cost. Owners and tenants of rental properties both derive value from the amenity value of these properties (the owner in the form of the rent and the tenant from living in the property). This contrasts with the situation regarding local authority rates on commercial properties. Owner occupiers are not allowed to claim LPT as a deduction against income tax. It is not appropriate on conceptual and equity grounds that they should. Dr Thornhill considered that there was a need to ensure equity between owners of all residential properties, whether owner occupiers or landlords, and that it would be inappropriate to allow LPT as a deduction against the taxation of income from rents on residential properties. The Inter-Departmental LPT Review Group that reported to me in 2019 was in agreement with Dr Thornhill’s recommendation and the rationale which underpinned it.
The estimated first and full-year cost of introducing a special 9% VAT rate on residential construction
To ask the Minister for Finance the estimated first and full-year cost of introducing a special 9% VAT rate on residential construction.
I am advised by Revenue that a tentative estimate of the cost of introducing a 9% VAT rate specific to residential construction is in the region of €270m in the first year and €310 for a full year.
This estimate is based on extrapolation from data held by Revenue, the Central Statistics Office and the Department of Housing, Planning and Local Government in relation to the projected level of residential completions for 2020 and the average selling price of such properties. It does not take account of any behaviour change in the market as a consequence of the proposed measure.
To ask the Minister for Education and Skills the outcome of the review of a decision not to expand a pilot shared apprenticeship scheme for the construction sector in 2018; his plans in this regard; and if he will make a statement on the matter.
Registrations on craft apprenticeships have grown strongly in recent years following a very significant collapse in the number of apprenticeship registrations between 2008 and 2011. SOLAS, in partnership with Construction Industry Federation (CIF) and Waterford Wexford Education and Training Board (WWETB), operated a pilot initiative to test the viability of a shared apprenticeship scheme.
Following analysis of the pilot outcomes and in consultation with both the CIF and WWETB, I understand that SOLAS decided not to operationalise the pilot initiative more widely. In particular, it was found that the pilot did not attract employers in sufficient numbers to suggest that the scheme had the potential to have a significant impact on apprenticeship recruitment.
However, I understand from SOLAS that they are currently in discussions with representatives from the construction industry to assess how the scheme could be made more viable. CIF are currently seeking support from their members and employers for the shared apprenticeship scheme in order to progress the matter.
To ask the Minister for Finance the first and full-year cost of developing a separate method of taxing rental income, for example, a flat tax or a separate rate of tax, as a policy lever to support the sector as a whole; and if he has considered supporting specific sub-sectors, for example, affordable housing and urban housing.
Rental income, after deduction of allowable letting expenses, is subject to tax as part of the total taxable income of a landlord. Individual landlords are subject to income tax, including USC and PRSI where appropriate, at the current applicable rates. Expenses incurred in connection with the letting of a property are generally deductible under the Taxes Consolidation Act 1997, and wear & tear allowances are allowed for furnishings and fittings. A landlord may also claim mortgage interest deductibility, which in Budget 2019 was fully restored to the 100% rate, with effect from 1 January 2019.
I am advised by Revenue that it is not possible to determine the cost of a change to the present method of taxing rental income, as proposed by the Deputy. Although income streams may be identified separately in tax returns, this segregation is not maintained throughout the tax calculation process. As a result, it is not possible for Revenue to associate particular portions of net tax due with particular income streams, and therefore it is not possible to cost a proposal regarding a flat tax or a separate rate of tax on rental income.
The Report of the Working Group on the Tax and Fiscal Treatment of Rental Accommodation Providers, published by my Department on Budget Day 2017, identified the measure suggested by the Deputy as a possible long-term option. The report noted that this measure would represent a significant departure from current tax policy and, in addition to the cost of tax foregone by the Exchequer, there would also be significant administration costs associated with the development and implementation of a new system of taxation for rental income.
Following due consideration, I have implemented certain options contained within the Report over a number of Budgets. Specifically, in Budget 2018 I announced a new, time-limited deduction for pre-letting expenses incurred on properties that have been vacant for one year or more (option 4). The objective of this measure is to increase the supply of rental accommodation by incentivising the owners of vacant property to bring these properties back to the rental market. As already stated, in Budget 2019 I provided for accelerated restoration of full mortgage interest deductibility for landlords of residential property (option 1).
As the Deputy will be aware, taxation is only one of the policy levers available to the Government through which to boost rental and overall housing supply. Ireland’s past experience with tax incentives in the housing sector strongly suggests the need for a cautionary stance when considering intervention in the rental sector. There are many competing priorities which must be considered when deciding which policy measures to introduce and the rental sector is just one of many other sectors that may require assistance and intervention.
To ask the Minister for Finance the first and full-year cost of allowing CGT relief for properties acquired and retained as rental accommodation.
CGT becomes payable on any gain made on the disposal rather than the acquisition of an asset.
It would be difficult to cost the Deputy's proposal in the absence of further detail for example on the number of qualifying rental properties, the duration for which such rental properties were retained and any gains made on their disposal.
I would say that the issue of a tax incentive to encourage landlords to enter into longer term leases was put forward as one of the ten options for consideration in the Report of the Working Group on the Tax and Fiscal Treatment of Landlords. This was published as part of the Budget documentation in 2017.
Using a set of modest assumptions, the Department of Finance Tax Division modelled the above option in order to provide a high-level estimate of the potential costs of implementation. The assumptions used included the following elements:
The modelling suggests that the cost to the Exchequer in terms of CGT foregone could be of the order of €78 million if landlords held their properties for 5 years and then sold in year 6. The potential costs would be higher - of the order of €157 million - if the properties were held for 7 years and sold in year 8. Notwithstanding the cost of such a proposal, other issues arise. These include the potential for abuse of any such relief; the incentive effects provided by such a relief to sell the property after a specific time and how to provide for rental properties purchased between 2011 and 2014, which attract no CGT on any gains made on their sale.
This work was provided to the Committee on Finance and Public Expenditure during the Finance Bill process.
However, it should be borne in mind that the above option, which goes down the Capital Taxes route, is only one approach that might be taken. Thus, it might also be possible to incentivise the renting of property for longer periods through the provision of an incentive using the income tax system.
My Department is aiming to have a broader piece of work completed on the benefits and potential costs and disadvantages of changes in this area and whether it could play a role in future budgetary and fiscal policy.
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