Business

Property lobby group’s ideas for budget changes don’t add up

Cantillon: Flawed logic and populist rhetoric in IPAV’s budget submission

In its pre-budget submission IPAV suggested the higher stamp duty rate is discouraging people from living in rural Ireland. Its logic is inherently flawed. Photograph: iStock

Tue Aug 14 2018 - 05:03

The Institute of Professional Auctioneers and Valuers (IPAV) published its budget submission on Monday. It dusted off the hoary old chestnut that value added tax (VAT) on construction should be reduced to 9 per cent.

It also said stamp duty for first-time buyers of sites should revert to 2 per cent because the current 6 per cent rate "discourages young people and those with fewer resources from living in rural Ireland in particular".

“It’s typically impacting the local nurse, garda or teacher,” it said.

Firstly, stamp duty of 6 per cent does not apply to residential land – only commercial. So the land IPAV refers to is, for example, farmland that has been sold with the purpose of residential development.

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Public servants, gardaí, teachers and nurses earn the same in rural Ireland as they do in Dublin, yet land prices outside of Dublin are much lower than those in the capital.

It follows then that higher stamp duty adversely affects those in Dublin more than those outside the capital. Surely then, those “with fewer resources” would be more encouraged to live in rural Ireland. IPAV doesn’t think so.

Its second suggestion called for the rate of VAT on construction activity to drop from 13.5 per cent to 9 per cent. A similar break was afforded to the hospitality sector in 2011.

IPAV doesn’t address the political distaste for giving developers tax breaks. And there is little evidence that house prices would be lowered as a result of this reduction in tax.

Additionally, with a sector very much in revival mode, basic countercyclical economics would suggest that retaining higher taxation in a time of prosperity is a good thing that can only help avoid overheating. Reducing the rate could potentially do the opposite.

In its pursuit for popularity, IPAV has aimed to appeal to societal cornerstones, such as nurses, gardaí and teachers. That’s fine but it needs to be careful with its populist rhetoric and instead seek to make informed contributions to Ireland’s ongoing debate on housing.

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