It is notable that Government discussions this week on housing did not focus on potential tax breaks for developers. This idea had been floated by Fianna Fáil as a way to accelerate building, with suggestions that it could be tied particularly to so-called “brownfield” locations – former industrial, office or retail sites close to city and town centres.
However, Minister for Finance Paschal Donohoe came out against the plan. He cautioned that he would not reintroduce “the very tax reliefs that did such harm to our economy and then the building of homes for many years in Ireland.”
And so the idea seems to be at least parked for now, though a number of Ministers insist that everything remains on the table. More focused tax incentives could still come into consideration.
During the Celtic Tiger years tax breaks such as section 23 incentives led to development happening in inappropriate locations, driven by tax savings for investors. They were costly to the exchequer and contributed to exposure for both investors and the banks. Tax breaks tend to either apply too widely to have any focus or too narrowly to be of much use.
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The Minister for Finance is correct to note that there are other things the Government could do to accelerate the supply of housing – including faster provision of energy and water infrastructure and planning reforms.
The Government is committed to spending billions on housing over the coming years. The key issue is using this money to deliver the right kind of development. In areas where the State has direct control – such as the activities of local authorities and the Land Development Agency – clear direction can be given.
In other areas, such as newer financial supports for developers for apartment development, the State has less direct control. A clinical assessment of these supports is needed, as well.
It would be unwise to rule out tax measures completely – some reliefs are already part of the system. But as a general policy, the return of Celtic Tiger style property policies must be avoided.
