Dublin Opinion

This post arose out of a discussion over on Irish Election with Simon on Michael Taft’s C’mon Ye Know-Nothings, (18 September 2007). Fianna Fáil has produced an abundance of tax incentives to aid the construction industry. One of these schemes, the Rural Renewal Scheme 1999 (PDF FILE, 887KB), is set to run until 31 July 2008. According to the brochure, “the scheme covers all of the counties of Leitrim and Longford as well as certain areas in counties Cavan, Roscommon and Sligo. It is based on District Electoral Divisions.” The scheme is intended for commercial, owner-occupied, and rental residential properties.

In 1999/2000, the Department of Finance’s Task Strategy Group produced a review paper of the scheme, intended for Budget 2000. first of all, it outlined the terms of the scheme with regard to residential property, before moving on to its findings on the possible benefits of the scheme.

25 The scheme also provides for tax relief for both owner occupiers and lessors of residential property. The reliefs are similar to the relief available generally under the Urban Renewal Scheme with 2 major exceptions. In the case of the owner occupier relief the maximum allowable residential floors space is 210 square metres which is in excess of the maximum size in all other schemes. The relief available for lessors of rented residential property is conditional on the lessee of the property using the house as his or her main or sole residence for a lease of at least 3 months duration. This condition is important in that it is designed to discourage very short term letting and the availability of the tax incentives for holiday homes. The removal or further alteration of this qualifying condition would effectively cancel the incentivising effects of the tax incentives available to encourage people to reside in the area. A proliferation of second homes owned by affluent non residents would push up property prices to the detriment of locally-based investors.

26 It is far too early to give an estimate of the eventual cost of this scheme but media reports of late have detailed an upsurge in both residential and commercial property development in the area in the last few months. However, it must be taken into consideration that a lot of developers and property owners held back on the commencement of planned projects while the scheme was under consideration by the EU Commission.

Among the Task Stratgey Group’s conclusions was the following:

34 The question of equity also arises since the majority of the beneficiaries of property tax relief schemes are high net worth individuals or corporate investors. The intr oduction of further tax incentive schemes even in times of exchequer surpluses does not assist the policy of continuing to lower tax rates and widen the base from which taxes can be levied. The possibility that tax incentives for property development have contributed to the emergence of asset price inflation cannot be discounted. Such reliefs may not be the most appropriate and cost effective way of promoting the development of an area or promotion of a undertaking given the present economic climate with record growth and increasing construction costs.

Conclusion

35 The TSG may wish therefore to give its views on;

- the rationale for such continued tax reliefs in the light of the substantial tax cost involved,

- the practicality of limiting the number of such tax relief schemes by focusing on a small number of deserving areas in the light of the actual experience of trying to do so,

- the tax equity and base broadening aspects of taxation policy in relation to such reliefs,

- the feasibility of further caps or limits on the tax reliefs available to investors e.g. by restricting the percentage of investment that can qualify as in the case of film relief.

There appears to be limited public support for restricting these type of reliefs with many requests being made for additional and more extensive designation of particular areas.

Given the fact that the scheme was extended to July 2008, it is reasonable to assume that the group’s findings were ignored by Fianna Fáil.

So. What has been the effect of the scheme? Very few things in this world are mono-causal. However, even by 2000, the Department of Finance had noticed a rise in interest in construction in the areas covered by the scheme. We have the figures for construction in Leitrim and Longford, so let’s see what happened. First of all, Leitrim.

From 1999 to 2006, a total of 6,452 housing units were constructed in Leitrim - almost one quarter of which (1,545) were constructed in 2006 alone.

From 2002 to 2006, the number of households in Leitrim rose by 1,547. This figure has been easily absorbed into the available housing in the county, and as of April 2006, the housing situation in Leitrim looked like this:

Almost 22% of housing units, according to the 2006 census, are empty. Hardly surprising, given the fact that from 2002 to 2006 there were 4,648 housing units built, yet the household numbers increased by 1,547.

Least it be thought that Leitrim be an exceptional county, a similar pattern is found in Longford, the other main beneficiary of the Rural Renewal Scheme. From 1999 to 2006, 5,842 housing units were completed in the county. From 2002 to 2006, 4,604 units were completed, a period that saw an increase of 1,736 households.

In April 2006, the housing situation in Longford was thus:

Again, I’m not arguing that the Rural Renewal Scheme alone is responsible for all of this. However, it is part of a wider government policy to place incentives for construction investment at the front of economic policy. Even in 1999, the Department of Finance was clear on who would be the beneficiaries of these type of schemes: “the majority of the beneficiaries of property tax relief schemes are high net worth individuals or corporate investors.”

David McWilliam’s theory that there is a generational battle going on in Ireland, is one that believes that the exhaust fumes run the engine. Some middle class people have benefited from these schemes, but the main beneficiaries have been those high net worth individuals and corporate investors the Department of Finance talks about, the type who give Fianna Fail a helping hand every now and then.