Department of Finance officials warned against introducing tax breaks for landlords in last October’s budget, documents released to Sinn Féin show.
In official documents submitted to evaluate options for tax relief for landlords before the budget, officials warned of the “unintended consequences” of allowing landlords to pay less tax.
The officials assessed seven options, argued that each of them had “relatively high associated tax costs” either up front or in the final reckoning and “could have contagion for other tax measures” as they were targeted to landlords specifically.
They also had “substantial dead-weight elements” and carried a “risk of unintended consequences”, according to the records which were released following a Freedom of Information request by Sinn Féin’s finance spokesman Pearse Doherty.
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Opposition in the department to property-related tax incentives is deeply ingrained, with the briefing document recalling the effect of such tax breaks during the Celtic Tiger period. “Previous experience in the not too distant past was that such measures were ultimately disastrous,” the officials told Minister for Finance Michael McGrath, also warning that there was a “significant amount of tax relief” already available to landlords and that “Ireland’s past experience with tax incentives in the property sector strongly suggests the need for a cautionary stance in this area”.
They said that a tax relief would only work if tax was a primary factor causing people to exit the market or influencing their decision on becoming a landlord. “The evidence available does not appear to support this case, as such, it raises the question how effective will tax relief be in achieving this aim.”
The Government ultimately announced a tax break for landlords who agreed to stay in the market for the next four years, with the ability to earn between €600 and €1,000 each year – but the amount will be clawed back if the landlord doesn’t remain in the market for four years. The officials cited research by the Residential Tenancies Board which found that only 6 per cent of those exiting the market did so because of taxation, arguing that the strength of the housing market and the incentive to sell a property was a more important factor.
Mr Doherty said that the tax break was “unjustified”, warning that as a result of the decisions taken on budget day, thousands of landlords would be able to reduce their tax liability to zero when the new tax breaks were combined with capital investments in property which can be written off.
”Officials were also right to warn that this tax break raised serious issues around fairness for our tax system – why should nurses, gardaí, teachers and other workers pay more tax than landlords will on their rental income?” the Donegal TD said.
“Given what we and the Government know, recent comments by Minister Darragh O’Brien that landlords will need more tax breaks make clear how out of touch this Government is.
“Despite all the evidence and advice from their own officials that this tax break was unfair, costly and ineffective, the Government pressed ahead with an unequitable sop to landlords that will do nothing to increase housing supply or improve affordability.”
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