Economics:With government action in the offing, it's time to revisit the issue of stamp duty. The difference is that this time, the philosophers of the debate need to stand aside for the engineers: passionate argument needs to be replaced by precise and accurate policy making, writes Marc Coleman.
From a tax that originally, affected relatively few - and only genuinely highly priced properties - stamp duty grew as a source of revenue for government as house prices mushroomed.
Its method of implementation - a purchaser pays the higher rate on the entire price of the house once the price goes over a new threshold - makes it a sure-fire moneyspinner.
So while house prices have doubled between 2000 and 2006, stamp duty revenues have increased more than threefold. From €1.1 billion in 2000 - just under 3 per cent of total tax revenues - stamp duty last year accounted for €3.7 billion - or about 8 per cent of total revenues.
That's more than capital gains tax, capital acquisition tax and customs duties combined.
Not all of that take was from residential property owners, but that sector accounted for much of its growth momentum.
While house prices were growing, second-time buyers - most of whom were selling properties - could fund the cost of stamp duty from the windfall of the property they had sold. In a stalled market with flat price growth, that is now much harder to do.
While the regime of stamp duty is not to blame for recent price trends (which are mainly dictated by interest rates and confidence), it is certainly likely to have affected the volume of transactions. Anticipation that the tax is going to be abolished has encouraged many buyers to hold off until the day of reform.
This uncertainty has a circularity to it. By talking about reform, politicians encourage the view that it will be reformed which in turn encourages a slowdown in activity. That slowdown, in turn, will tend to lower the growth rate in stamp duty receipts, presenting an even stronger argument for reform.
From a time when stamp duty receipts were growing at a rate as high as 40 per cent, the figure as of last March is now 12.8 per cent and is likely to decelerate markedly in coming months.
With Fianna Fáil and Sinn Féin not yet committed to change, there is still uncertainty as to whether stamp duty will be reformed although, on balance, it seems that it must. Signals have emerged that Fianna Fáil will commit to reform (the Taoiseach recently said that if it was to be reformed, this should happen before the summer).
If he is contemplating reform, now is the moment to grasp the crucial difference between haste and speed.
A speedy reform, ie before September, is needed to bring torpor in the market to an end. Hasty reform, ie not thought through, must be avoided at all costs.
If it is not thorough and substantial, any reform could lead to accusations that not enough has been done. That, in turn could cause further speculation and uncertainty. Reform will not greatly reduce the price paid by the purchaser of buying a house, however it will reduce the cost.
Take an average house worth about €400,000 which carries a stamp duty bill of about €28,000.
If stamp duty were to be dramatically reduced or abolished, instead of paying €400,000 for the house and €28,000 to the Government, the buyer could end up paying €428,000 for the house, ballpark.
On the face of it, such reform seems like a waste of time from the buyer's point of view. In reality it isn't. The buyer keeps the €28,000 in the form of housing equity and recoups it when he or she goes to sell and, unlike stamp duty, the additional price change that would arise from reform is much easier to fund from mortgage credit.
So by scrapping the tax for the substantial portion of owner occupiers who are trading up for bona fide purposes, market liquidity would be greatly assisted.
It would not undo the impact of interest rate rises but it would remove an important fixed cost for buyers. The most immediate beneficiaries would be sellers, who would see some increase in property prices, but as well as trickling down to buyers in the form of housing equity, reform would give a morale boost to the market. Here it should be mentioned that reform would not, as some claim, kick start rampant house price inflation.
That particularly phenomenon, when it happens, is caused by loose credit conditions. The impact that tax changes such as reform of stamp duty have on asset markets are once off and soon dissipated (but nonetheless helpful in a nervous market).
In the long run, there is only one loser from reform and that is the Government. Although it is considered by some to be a progressive tax, stamp duty revenues are not necessary to fund the quantum of core public services or transfer payments in which the government engages.
The sheer size of this year's projected current account budget surplus, some €8 billion, shows that stamp duty could, for residential payers, be scrapped. If it is to be reformed, one thing cannot be stressed enough: reform needs to target the second-hand as well as the first-time market and needs to be thorough, substantial and well-timed.
