After all the leaks, there wasn’t much in the budget that was surprising. But there was one thing. A decision that illustrates with crystal clarity how a key focus of the package was to give bits of money to defined groups to sweeten them up for the general election.
A year ago Michael McGrath, then finance minister, went against the strong advice of his civil servants and the Central Bank and pressed ahead with a reintroduction of mortgage interest relief, effectively a tax break for certain borrowers. At the time civil servants warned that it would be unfair, costly and difficult to operate, while the Central Bank cautioned it might further inflate the housing market and would give cash to a cohort of over-50s with lower outstanding loans, who had benefited from low interest rates for years.
But McGrath pushed ahead, telling civil servants, according to notes released later, that people needed to be helped through a measure that would be “time bound and exceptional in nature”. In the budget and in subsequent Dáil debates the scheme was repeatedly referred to as the “temporary, one-year mortgage interest relief scheme”. But TOYMIRS was to ride again in the 2025 budget.
Everyone assumed the relief would, indeed, end after one year. There was no big campaign to extend it. Interest rates are on the way down. Tracker mortgage holders, the target audience for this relief, are the first to benefit. Never mind all this, however, with a budget designed to appeal to defined demographics of voters.
Minister Jack Chambers told the Dáil on budget day: “In light of the impact high interest rates continue to have on households, I am extending this relief for one further year.” Sinn Féin had previously called for an even wider relief scheme, so it was not going to complain. Some 130,000 to 140,000 tracker holders would be happy, even though a majority of them did not bother to even claim the relief. The Coalition can go on the campaign trail and tell them they are being “looked after.” Another €40 million is wasted – and when we consider that the valuable extra tax credit to renters will cost €65 million, this is not just small change.
This cost of the mortgage interest relief is well below the estimate in last year’s budget, which was €125 million, presumably because of the limited take-up of the scheme. Fewer than 25,000 had claimed on their 2023 returns, according to information given in the Dáil earlier this year, though this figure will have risen somewhat in the meantime. But it is worth up to €1,250 for people who do qualify. The rules for this year are based on the difference in repayments in 2024 compared to 2022 on mortgages between €80,000 and €500,000. Again, tracker holders will be the main beneficiary, together with small numbers from other borrowing groups.
Sure don’t tracker holders deserve a break? Well, actually, no. And there are a few reasons for this. One is that they benefited from much lower repayments than many mortgage holders during the decade of super-low rates, with many paying at less than 1 per cent. As interest rates increased, the average tracker rate did not go much above that of other mortgage holders and is now falling again.
[ Mortgage interest relief: How do I qualify for the tax credit of up to €1,250?Opens in new window ]
And then there is the small matter of fairness. If you are a younger person who bought a house at higher interest rates over the past few years, you have every right to be annoyed. Because your repayments have not increased you cannot claim the relief, even though your monthly bill will be well above that of the average tracker holder. And as interest rates fall, tracker rates are now dropping to levels similar to many other newer borrowers.
Meanwhile, at least some of those whose loans were sold by the main banks to funds – and were assured by Government at the time that they would not be at a disadvantage – are still paying mortgage rates of up to 9 per cent. Having bought the loans at a discount, they are now cashing in big time. The credit history of many of the borrowers means they cannot switch, even if regulation has tried to make this a bit easier. They, too, will not get a cent in mortgage interest relief.
Fairness is not the only reason why the extension of mortgage interest relief is a mistake. Like all the “once-off” measures now being repeated – energy credits, double child benefits and so on – it is going to make Budget 2026 a nightmare for whatever minister has to frame it. As the Economic and Social Research Institute’s post-budget research pointed out, the once-off payments have had a role in supporting household income – and this means not continuing them will leave people worse off. But, clearly, a sensible budget position needs to transition back to an older-style formula of permanent measures. Otherwise what happens when the once-off can’t be afforded and how do less well-off groups have any security and certainty?
The other problem for the Coalition is that it is now open to a cacophony of “whataboutery” as it heads towards the election. Budget ministers Jack Chambers and Paschal Donohoe have said, for example, that they could not afford to reinstate the 9 per cent VAT rate for the hospitality sector, as doing so would not have left enough money for the budget income tax package. But when you spend €2.2 billion on once-off measures, around half of it on universal payments, this undermines that argument.
True, the once-offs are not – necessarily – recurring, while the €750 million plus annual cost of the VAT cut would be. But you would suspect that nuance will be lost in an election campaign where the cry will be “you had a load of money but you ignored us.” Anyone who saw Katie Hannon’s Upfront show on RTÉ last Monday will have seen the anger of small businesses. A “ day of action” being held by the hospitality sector next Tuesday will provide further evidence of this. And they will not be the only constituency taking up the cudgels and claiming they did not get a fair share of the goodies.
The danger, against this backdrop, is that the budget now turns into an all-out auction. Prudence and profligacy will live together on the campaign trail as the current surge in tax revenue allows trade-offs to be suspended.