The Minister for Finance, Mr McCreevy, has been accused of doing "a spectacular U-turn" and bowing to moneyed interests, following his decision to shelve tax measures designed to dampen property speculation.

Stamp duty for investors buying new residential property will be cut from a flat rate of 9 per cent to a sliding scale beginning at 3 per cent and reaching 9 per cent at £500,000 (#635,000).

In addition, the Minister has decided not to implement the two per cent anti-speculative property tax, which was supposed to have gone ahead in April.

The Minister was severely criticised in the Dail yesterday by Labour Party leader Mr Ruairi Quinn. Accusing the Minister of "a speculator Uturn", Mr Quinn said: "The abandoned measures were designed to protect first-time buyers.

"Does this mean that the Government believes it has solved this problem, or can he explain why it capitulated to the moneyed interests which brought pressure to bear?" he asked. However, the Taoiseach, Mr Ahern, said the anti-speculative tax was not necessary "in the light of developments in the housing market since the summer."

Mr Ahern said that 50,000 houses had been built last year, an increase on previous years. "The measures last year removed the investors from the market," he said. "It took the heat out, but also the supply. The Government has to maintain the supply side and the number of first-time buyers," he said.

The study carried out by economist Mr Peter Bacon last year did not recommend that stamp duty should rise to nine per cent. Elsewhere, the Minister's decision was welcomed. The Irish Auctioneers' and Valuers' Institute (IAVI) said it had been asking for the nine per cent tax to be changed since it was introduced last year. IAVI chief executive Mr Alan Cooke said the institute believed then that the move would be counterproductive and anti-tenant.

"It killed the holiday home market and stopped major apartment development in Dublin. The types of development that have always appealed to investors don't generally appeal to owner-occupiers and the stamp duty hike undermined confidence in this sector needlessly," he said. Mr Cooke said he expected the reduction in stamp duty to have a positive impact on the new homes sector within a very short time.

Sherry FitzGerald economist Ms Marian Finnegan said the announcement was very welcome. "This announcement is the first acknowledgement that investors are a necessary ingredient in a properly functioning property market," she said. The nine per cent rate was introduced last June and it applied to all purchases by investors of new and secondhand residential property. Mr Ciaran Ryan of the Irish Home Builders's Assocation, said it was the final straw pushing the investor out of the market. "The level of apartment development fell dramatically in the second half of 2000, partly due to the fact that the investor market was squeezed out."

The chief executive of Threshold, the tenants's lobby group, Mr Kieran Murphy, said that the change to investors's stamp duty rates should ease the pressure on rent inflation but it was not going to radically transform the private rented sector.