PD meeting/Analysis: The stamp duty issue is tailor-made for the PDs, writes Marc Coleman, Economics Editor.
Monthly Exchequer returns data might not usually float your boat, but last August's set of figures were remarkable in one respect: they revealed that in the year to August over €2.3 billion was paid to the Government in the form of stamp duty.
The most interesting comparison is that this is almost level with the €2.5 billion paid in corporation tax. The increase in revenues from this category has been drastic. In the same January to August period six years before - several years into our prolonged housing boom - stamp duties accounted for only €749 million of government revenue, roughly one quarter of the €2.9 billion paid in corporation tax during the period. From representing around 4 per cent of total tax revenues in 2000, stamp duties now account for 9 per cent. By comparison, the share of corporation tax paid has fallen from around 17 per cent in 2000 to around 10 per cent now.
The rapid growth in the burden of stamp duty reflects sky rocketing house prices during the period: The average house price in mid-2000 was just €158,508. Six years later it has risen to over €300,000. A good question to ask is why have stamp duty revenues trebled when house prices have "only" doubled? The answer highlights the controversial way in which the tax is calculated, along with the fact that the rates applied have barely changed since 2000.
Unlike corporation tax, where a single rate applies, stamp duty is paid at rates of between 3 and 9 per cent depending on the value of the property.
A brief outline of how the rate has applied to average house prices in 2000 and 2006 can help to illustrate. In August of 2000 an average house price of €158,508 would have carried a stamp duty liability of 3 per cent. The thresholds for the next three higher rates of 4, 5 and 6 per cent were €254,000, €317,500 and €381,000 respectively.
But except for first-time buyers, these thresholds have not been updated to keep pace with the dramatic rise in house prices. With an average house costing at least €300,000 nationally and €400,000 in Dublin, those who are not first-time buyers pay a rate of 5 per cent or higher. For houses costing over €635,000 - now not uncommon in major towns and cities - a rate of 9 per cent applies.
The issue of stamp duty appears tailor-made for a Progressive Democrat party seeking to mark out its territory in advance of the election. Targeting families with children who need to move home, they yesterday announced their intention to tackle the issue "head on", describing it as "an issue of huge concern to thousands of homeowners and would-be homeowners around the country".
But what shape might reform take? One criticism of the tax is that it makes no distinction between those purchasing for investment purposes and those purchasing for the purposes of occupation.
Families and speculators pay the same rate. Only first-time buyers are given preferential rates and these are of marginal benefit in a fast-rising market.
Reintroducing a higher rate for investors could work if it was applied to houses rather than apartments. This would draw investors away from buying houses needed by families and encourage them to purchase apartments, thus keeping the rental market well supplied.
Another reform could relate to the manner in which the tax is calculated. Whereas a PAYE worker only pays the higher 42 per cent rate of tax on that portion of income above the higher tax threshold, once the price of a house rises to the next higher rate of stamp duty, that higher rate applies to the entire price. Applying the underlying principle of graduated and staggered liability to stamp duty would make it less onerous.
But perhaps the most important reform is to ensure that bands are henceforth indexed to house price inflation. When introduced, the duty was never designed to apply to average house prices which until the beginning of the housing boom in the 1990s were mostly lower than the €127,000 below which no tax was payable.
Restoring the thresholds to anything resembling this original calibration vis-a-vis house prices will require all the radical instincts the PDs can muster.