Why is Michael McGrath backing tax breaks for the wealthy?

The portents are promising with Fianna Fáil ahead of Fine Gael in opinion polls in the race to lead the next government, and the polls also suggesting that a majority of the electorate is in the mood for a change of government.

Sitting in the café in the millennium wing of Leinster House, McGrath plays it cool.

“There is undoubtedly a mood for change. People are very frustrated with the lack of delivery in housing, in access to healthcare, in tackling the insurance crisis, and crime has climbed the political agenda as well.”

The outgoing Fine Gael-led minority Government was propped up by a confidence and supply agreement with Fianna Fáil. If things are so bad in housing, health and crime, why didn’t Fianna Fáil pull the plug at some point over the past four years?

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“Most people understand that Fianna Fáil wasn’t in government for the past four years. I had no department to run, no advisers or civil servants reporting to me. We had no executive authority. We did the best we could with the limited influence we had in the agreement to bring about change in certain areas.”

McGrath says Fianna Fáil is “bringing forward a strong message of change, and competence to tackle the issues that really matter to people”.

But many would argue that it was Fianna Fáil’s incompetence across 14 years of government that led to the post-2008 economic crash. Why should voters trust Fianna Fáil now?

“Because we have learned from the past, and we have demonstrated that in our policies. We have advocated a responsible approach to managing the public finances from opposition.

“We proposed the rainy day fund in 2015, we have facilitated four budgets within the overall budgetary constraints with no drama, no massive rows. We did our business professionally, we argued our case.

“Even looking forward to the next five years, we are being very straight with people that the projections everyone is making are based on assumptions. What we will not do is risk the economy or extend the public finances beyond where they should be.”

Within the €11 billion fiscal space that Fianna Fáil believes will be available to the new government over the next five years, the party has proposed a reserve of €1.2 billion and a four-to-one split of the balance between expenditure and taxation.

On the spending front, Fianna Fáil has borrowed from the Bertie Ahern election playlist by producing some eye-catching populist policies.

It wants to introduce an SSIA-style savings scheme for first-time buyers that could be worth up to €10,000 towards the purchase of a new or second-hand home.

This is free money and an artificial support for the market that many experts believe will simply lead to higher prices and do little to remedy the issues around supply. It would also cost the State €250 million a year.

McGrath explains that people will have to save for a minimum of one year with a maximum sum to be saved each month of €600 up to a ceiling of €30,000. So people will have to save for 50 months to receive the maximum 33 per cent top-up.

The number of people that can benefit in any given year is 25,000, which McGrath notes is “considerably higher” than the number of first-time buyers who typically purchase a home each year.

“It’s a modest contribution,” says McGrath. “We’re not holding it out to be a panacea in terms of affordability for first-time buyers, but it will help people, it will make a contribution. And we don’t accept the argument that it will have a distortionary impact on the housing market.

“Home ownership levels are falling, and owning a home is just getting further and further out of reach for too many people. We believe in home ownership, and think it should be supported by government. There are limited levers at your disposal, and this is one of them.”

New homes

Fianna Fáil has also promised to deliver 200,000 new homes over the five years of the next government – some 40,000 annually. Yet it is estimated that just 21,500 new units were built in 2019, and stockbroker Goodbody this week forecast that this will rise to just under 24,000 this year and 25,300 in 2021.

There is also the obvious issue of capacity within the construction industry to deliver 40,000 units a year at any point before 2025. How will Fianna Fáil reach its magic number?

“We want the State to do a lot more on social and affordable building. So this year on social builds we might see around 7,000 actual new builds – we’d like to see that rise to 10,000 each year for the next five years, and we think that’s achievable.

“We’d also bring in an ambitious, national affordable housing scheme with 50,000 houses built so that people see some prospect of being able to buy a home.

"In the Fine Gael manifesto they've put no money whatsoever behind their Rebuilding Ireland plan. If you look at housing, no extra social houses, no additional money into affordable housing. That is a standout difference between them and us."

Bizarrely, Fianna Fáil has promised to bring a "Dunkirk-style approach" to the housing market here, although it's not clear what the emergency evacuation of British troops in 1940 from the beaches of northern France has to do with the Irish accommodation crisis. McGrath says only that there are "many strands to tackling the housing crisis".

McGrath is also proposing to end the situation whereby developers can sell housing schemes as a job lot to institutional investors, who then rent them out. Instead, he wants local authorities to require that a certain number of houses in any scheme must be made available for people to buy.

He is also proposing to hire 200 staff to police new regulations around short-term lettings to ensure that properties are not being used for Airbnb lettings year round. That is costed at €10 million a year, and might not sit well with Airbnb, which has located its European headquarters in Dublin and employs a lot of people here.

“We have to ask ourselves, is it right that a proportion of the stock of accommodation is used for short-term lettings when there are people who need homes? Regulations have been brought in but our experience on the ground is that there really is no enforcement whatsoever,” says McGrath.

Also in the suite of measures on housing is a proposal for a €600 annual tax credit for those renting, which McGrath describes as a “modest relief”.

In addition, Fianna Fáil is proposing changes to the local property tax (LPT), which was introduced in 2013 and generates about €500 million a year for the exchequer. While light on precise detail, its manifesto has suggested “localised rates” instead of the 0.18 per cent current tax rate. This won’t yield extra revenue for the State but is designed to be fairer, according to McGrath.

There is bad news, however, for the owners of an estimated 80,000 homes who have been exempt (self-build or new builds by a developer) from LPT as they were built post-January 1st, 2013, with McGrath planning to bring them within the scope of this tax net for the first time.

“We recognise that the new properties built since 2013 need to come into the net. People can’t remain exempt forever in newly-built homes.”

Taxation measures

Fianna Fáil has also proposed taxation measures that could be said to benefit the wealthiest in our society. For example, it is proposing to cut the rate of capital gains tax – paid on the disposal of an asset – to 25 per cent from the current level of 33 per cent.

It has also promised to increase the lifetime relief on capital gains tax for entrepreneurs to €15 million from the current level of €1 million.

“We believe that cutting it will be transformative, and that it will encourage investment and encourage those who create jobs and take risks in the Irish economy,” McGrath says, adding that the SME community has been “neglected” by Fine Gael.

Isn’t this just a tax break for millionaires?

“It’s a scheme for entrepreneurs who are creating jobs in this country, and the nature of investment today is that it’s highly mobile, and after Brexit more than ever. We are going to be competing with the UK, and they have a much more attractive offering than us at this point in time.

“We think that it will put Ireland right at the top of the list of countries where people want to invest and do business.”

In the UK, entrepreneurs pay capital gains tax at a rate of 10 per cent on the net amount made from the disposal of qualifying assets up to a lifetime limit of £10 million.

McGrath comes from a working class background in Cork. His late father grew up on a small farm in Bantry, west Cork, while his mother hails from Togher, just outside the city.

“He did several jobs over the course of his life, manual labour, working in factories, worked as a delivery man, farming and fishing,” McGrath says of his father.

McGrath grew up in Passage West as the second youngest of five children, brought up with "good values of respect and work ethic".

He studied commerce in UCC, before training as a chartered accountant with KPMG. He left there to become financial controller of Red FM, a successful independent local radio station in Cork. "Had a really great time there, it was really dynamic, and I was there for the whole start-up and going on air."

Management information

McGrath then moved to a role in University College Cork as head of management information and systems in its finance department. In 2005, he quit this job to go full time into politics, essentially to give himself the time and space to run for a seat in the Dáil.

“I took a chance. I had been elected a county councillor at that stage, and I went bald-headed for the general election. It was a big financial risk for the family – we had one child at that stage.”

A boundary redraw that took sitting TD Batt O’Keeffe out of the constituency proved helpful, and McGrath was elected to the Dáil in 2007, just a year before the economy imploded.

"I was fairly green as a backbench TD in 2007, and the crisis unfolded fairly quickly. I would have gotten to know Brian Lenihan very well, and while I was only a backbencher he would have taken me into confidence quite a bit because I would have been put out on the media as someone with a financial background able to talk about the issues."

He describes the 2011 election, in which Fianna Fáil was reduced to just 19 seats, as “brutal”. McGrath did well to hang on, especially as he shares the constituency with party leader Micheál Martin.

“It was something of a miracle that I did come through that. But I had been working hard on the ground, and I think that is probably what saved me in the end.”

McGrath took on the finance brief, acquitting himself well over the past eight years, gaining a reputation for working hard and being on top of his brief.

And now he could be the next minister for finance. Is he ready for the responsibility?

“I’ve responded now to nine budgets from opposition. I believe I have the qualifications as a chartered accountant, the professional experience to do this job. I certainly have the political experience having done it nine times from opposition. And having been a little closer to it in the past four years through confidence and supply has been helpful too.

“I’ve learned more about the budget process and where it can be improved. So I know I’m ready for the job. It’s a matter for the next taoiseach obviously as to the make-up of their Cabinet, but I know I’m a safe pair of hands and can be trusted with the public finances and the Irish economy.”