The Construction Industry Federation (CIF) has made its pre-Budget submission and is suitably self-interested as you would expect from any special interest group. And nothing in itself wrong with that – construction still accounts for 7% of all employment in the State (nearly 12% of all male employment) and the sector has traditionally been a solid contributor to the national economy. The key proposal in the submission calls for the abolition of stamp duty on residential and commercial transactions because, according to the Independent, “persisting with a high transaction tax when there are no transactions makes no sense, either from the economy’s or the Exchequer’s perspective”. An entry on here last week examined recent years’ receipts and the tax will contribute an estimated €210m to State coffers this year.
But you have to wonder whether a 6% commercial rate stamp duty for most transactions or a 7% residential rate on transactions over €125,000 will deter many buyers. After all 58% of mortgages granted in Ireland by Irish Banking Federation members in the first half of 2010 were to First Time Buyers who are largely exempt from stamp duty for most purchases at an entry level. It is not clear how many vacant new homes are less than 125m2 but again these will generally be stamp duty exempt. CIF say that there are “no transactions” which is of course untrue. Stamp duty receipts are on track to generate €210m this year which is considerably down from peaks of €3bn in 2006. Of course the cheaper property becomes the more likely there are to be transactions and the abolition of the tax might help. But you would have to ask whether it is stamp duty or the wider economic catastrophe (credit drought, falling property values, unemployment, negative or low growth, the shadow of the IMF) that is stopping transactions at present – the opinion on here is that is the latter. And for what it’s worth if stamp duty were to be extended (and not abolished) there is evidence that it may increase takings into State coffers because First Time Buyers who make up the most significant cohort of mortgage-based purchases would be captured.
It is bewildering why the CIF pre-Budget statement didn’t concentrate on the State’s failure to spend its existing capital budget on projects this year which would have long term value. There may be more than ministerial dithering in spending the capital budget this year (like we simply mightn’t be able to afford it) but public pronouncements from ministers indicate delays as opposed to cut-backs. Not only are these delays costing jobs but they are preventing the creation of infrastructure, such as schools, which has long term economic benefits.