If the Government today tried to introduce a tax that citizens had to borrow to pay, uproar would ensue, writes John Waters. And yet, over the years, successive governments have developed precisely such a tax, which, now part of the furniture, excites merely occasionally disgruntled mutterings.
"Stamp duty": the archaic and anodyne-sounding title derives from its initially unexceptionable nature. It began life as a minor charge to offset State expenses in the administration of house purchases, but has grown to become the most unjust and irrational of all taxes. With receipts amounting to €3 billion in 2006, the revenues accruing from stamp duty now account for 10 per cent of exchequer income, on a par with corporation tax. In other words, hard-pressed house purchasers make a contribution to the exchequer equivalent to the income from all transnational activity in this economy.
But, while corporation tax is levied on handsome profits and remains among the lowest in the world, stamp duty, paid by ordinary citizens with borrowed money, is in real terms the highest such tax there is.
I read recently that revenues from stamp duty cover about one-third of the cost of the health services. Not long ago, heated controversies raged about politicians borrowing to pay operating costs in the economy. But economists who then adjudged this practice utterly reckless are silent on the fact that ordinary citizens are, in effect, borrowing to maintain the health service.
A couple of years ago, I considered moving house to meet the needs of a growing child. We required one or two extra rooms and a slightly larger garden, and were keen to remain near where we currently live. To achieve this we would have paid in stamp duty roughly twice what I paid for our existing house 15 years ago. Over the lifetime of the mortgage, this one-off payment of tax would have involved expenditure of more than €300,000.
If we needed to move again - for example, to trade down again when the necessity for a larger house had abated - this tax would be rolled over into a new loan, and a further round of stamp duty levied on the total cost of the new property, with no allowance whatever for the duty already paid and still involving significant monthly expenditure in mortgage repayments. If a family moves four or five times during its children's growing years, perhaps 50 per cent of its mortgage outgoings will have accrued from borrowings for several rounds of stamp duty.
Economists constantly prate about the evils of excessive personal debt, but none I know of has produced a study of the malign effect of personal debt occasioned by this tax on growing families.
Before Christmas, the commentariat became delirious in praise of Mary Harney's proposal to enable the State to annex a further stake in the family homes of those unfortunate enough to require residential care in old age. Nobody pointed out that most home-owners will already have paid over a sizeable proportion of the value of their homes for the privilege of calling themselves "home-owners".
It is clear that stamp duty is having a retarding effect on the housing market and leading many to suffer housing conditions unsuited to their circumstances. An elderly couple rattling around in a large family home are disincentivised from moving because they will have to pay the full tax on the value of any smaller property they purchase, without obtaining any relief or concession by relinquishing their existing home.
Similarly, a young couple with children trading up will have to pay tax on the full value of the house they buy. This, in turn, creates a supply problem which shoves prices upwards. This is bad for the housing market and society. A rational taxation policy would seek to liberate housing stock from usage which fails to optimise its benefits. Reform of stamp duty requires to focus not on abolition or even crude rebanding, which would probably result in a boon for vendors and builders rather than the State. What is required is for the purpose of the tax to be clarified and defined.
At present stamp duty has but one purpose: revenue gathering. With a few tucks and tweaks, it could be transformed into something socially useful. The obvious solution is to shift from a tax on the total price of a house to a tax on the difference between the value of someone's existing house and the house they purchase. Those trading down should be entitled to a rebate calculated on the same basis, with first time buyers exempt.
This would remain somewhat unjust but it would make some sense. It would ensure that young families and elderly citizens would have their needs liberated into a mutually-beneficial symbiosis. It would also mean that the rolling-over effect of the tax into a succession of mortgages would be significantly reduced. Undoubtedly, this change would result in a drop in the income from stamp duty, but the loss would in part be offset by increased activity in the housing market, which would for the first time be operating as a tool of social cohesion.