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Manifesto Check: PDs on Stamp Duty
Read more about: Housing, Manifesto Check, Progressive Democrats, Taxation
With the auctioneer hoarse already, let’s take a quick look at one of the promises unveiled over the weekend: abolition of stamp duty on house purchases for first time buyers and graduated rates when it is payable.
First, it’s a revenue loser: more people pay a lower amount and no-one pays higher. Bertie’s argument that any surplus revenue should be going to infrastructure gets a little harder to make.
But more importantly, the reform doesn’t address the more serious distortions in stamp duty arising from the differential treatment of new houses (no duty for owner occupiers as long as the house is not “large”) versus second hand housing — duty generally payable except for some concessions for first time buyers. First time buyers will now be able to trade off new versus second hand purchase without the impact of stamp duty but every other purchaser will still be facing stamp duty on a second hand home, albeit at a lower rate than present. However, as Ireland ages, relatively more people will be hoping to “trade up” rather than get their 1st toehold in the market — so fewer 1st time buyers and so the differential treatment favouring new housing will still apply.
McDowell will also have to reconcile his enthusiasm for this reform with a decidedly unenthusiastic Department of Finance report from just two years ago, which expresses concern about the loss of revenue and a fear that any reduction in duty just drives up house prices. A more radical reform might have sought to shift to a simpler single rate tax on the value of the transaction, with no distinction between new and second hand, and left the taxation of rising home values to capital gains or, God forbid, property tax. So all in all, probably a good soundbite proposal, but after a couple of days, likely to attract a lot of additional questions.
from the outset, i have felt that any stamp duty move is likely to benefit developers rather than buyers. I reckon this is especially the case if its done under an FF government.
Your right on the property tax there are more efficient and equitable ways of organising this tax and the easy proposal does little to address the problems inherent in stamp duty itself.
Still, it is hugely complex and the soundbite always wins out.
The whole issue of Stamp Duty has been mishandled by the Government.
Minister Cowen refuses to countenance the issue, partially on the basis that the loss of Revenue would have to be replaced by alternative taxation. It is also clear that he finds suggestions, by the PDs, of financial and fiscal reform, an irritant.
Bertie Ahern consistently refuses to support the initiatives of Minister of Health, Mary Harney, in much the same manner.
As long as Fianna Fail play silly buggers with their partners and seek to steal initiatives (the latest being a FF introduction of an earlier Fine Gael proposal) the electorate will suffer.
A Classic example was The Kenny Report of 1963 and the point-scoring following the change of government. As result, property prices went into the free-fall that has been the biggest issue in Ireland in the last five years.
A direct result of pigheadedness.
Stamp Duty, like Income Tax and VAT is a lazy tax, easy to impose, but flawed.
If property must be taxed, then it should be a Capital Gains Tax (CGT) on windfall gains - often following corrupt planning decisions in the past.
It should not be not be a tax arising from distortions, nor should it be a tax on a Principal Private Residence (PPR).
In order to clarify the basis of a CGT Property Tax, it is necessary to define the valuation to be applied to “Principal Private Residences”. These should be exempt from all property taxes & stamp duties.
A Principal Private Residence (PPR) should be valued on the basis of the reinstatement value for Insurance purposes. This should be a strict, consistent formulaic valuation.
Any difference between this and an ultimate selling price might be regarded as a windfall gain and subject to CGT. Any structural improvements to the building would be factored into the ultimate calculation of the PPR and allowed in any assessment to taxation.
It can be seen that CGT would arise only on the increase in the value of the site upon which the PPR has been built.
The house would bear no tax, which is equitable, as the intention is not to trade.
By adopting a sensible approach to CGT, it can be seen that property, not used as a PPR, might be regarded as a trading investment and bear its share of taxation, whether the property be put to beneficial use or to remain fallow.
Land banks; fallow land; empty properties assembled by developers; holiday houses and idle assets would have to bear CGT on any increase that arises following a sale or swap.
There might also be an argument for an annual tax on fallow land & houses. Such tax might be allowed by way of set-off against any CGT, arising on a subsequent sale or swap.
WHATEVER IS DECIDED, THE PRESENT IMPASSE HAS RESULTED IN CONFUSION AND A DEAD MARKET.
Cowen must Act - and Act immediately.