Fears that a lobbying campaign by the property industry could derail the budget’s key revenue-raising measure prompted the Government to seek a Dáil vote last night to treble the stamp duty payable on commercial property transactions.
The Government estimates the new 6 per cent rate of stamp duty on sales of commercial property will raise an extra €376 million a year, but this figure has been challenged by industry players and advisers who say it will reduce the number of transactions.
Minister for Finance Paschal Donohoe included the tax hike as a central part of his budget yesterday, enabling him to fund tax cuts for middle- and lower-income earners and public spending increases across the board.
However, fears that the proposal would be fiercely opposed by the property industry if it was not enacted until the Finance Bill – due before the Dáil later this year – led the Government to include the stamp duty increase in last night’s budget measures put before the Dáil.
With Fianna Fail abstaining, the measure was approved by 64 votes to 31 in the Dáil on Tuesday night.
Jim Clery, head of real estate at KPMG, said the Government's estimated yield from the increase was "highly ambitious".
Capital allowances
A change to reduce capital allowances for intangible assets, which allow multinational companies to reduce their tax bills, was also introduced last night for similar reasons. The change is expected to raise €150 million a year.
The tax increases were the centrepiece of Mr Donohoe’s ambitious revenue-raising which funded a budget day package of €1.2 billion, an increase from previous official projections of €500 million.
Mr Donohoe, who was presenting his first budget, said he would balance the books, provide tax relief for low- and middle-income workers and provide extra resources for welfare, education, housing and health.
He stressed that he would only increase spending by what the country could afford, and he kept the growth in public spending and the growth in expenditure announced yesterday at less than the rate of economic growth projected for next year.
All Government departments will see budget allocations increase, with significant rises for housing and health.
Mr Donohoe announced a welfare package costing almost €350 million, with a €5-a-week increase for most welfare payments.
However, there was no increase in child benefit, although the Department of Children and Tusla, the Child and Family Agency, will receive extra funding to provide childcare and child protection services.
Pupil-teacher ratio
There were extra allocations for recruiting 500 new gardaí and almost 1,300 teachers, while the pupil-teacher ratio in primary schools will be reduced to 26 to 1.
Industry sources said there was “consternation” at the move to increase stamp duty on commercial property sales, with recent investors seeing the value of their investments suddenly slashed.
One senior figure added that the Government’s proposed yield of €376 million was “nonsense” and was based on an unusually high volume of commercial property transactions in 2015 and 2016.
Estate agent Savills also expressed scepticism over the Government’s figures, which it said were “based on evidence from an atypical period of intense commercial property trading during which distressed assets changed hands prolifically”.
At a press conference in Government Buildings last night, Mr Donohoe said he had received assurances from Revenue that the increase in stamp duty on commercial property transactions would deliver the required tax yield without dampening activity in the sector.
Difficult discussions
Ministers said last night that the budget was only agreed on Monday following weeks of intensive and at time difficult discussions.
Sources familiar with the construction of the package said Mr Donohoe and Taoiseach Leo Varadkar concluded some weeks ago that it would not be feasible to maintain a budget day package of just €500 million and began to examine revenue-raising measures.
However, the size of the budget clearly took some Ministers by surprise in recent days.
