Minister for Finance Michael McGrath was strongly advised by officials in his department and the Central Bank not to introduce any mortgage interest relief measures in this year’s budget.
He was told there was no “evidence base” to support any general measure, that it could worsen housing supply issues, would give rise to deadweight, and have the potential to be extremely costly.
Department of Finance officials said even a targeted relief should be avoided on “the grounds of fairness” and that if it were to be introduced, it could be very complex to implement and operate.
In response to an early pre-budget submission, Mr McGrath said he noted their advice and said it was “undoubtedly a complex issue”. However, he said that some people were “really struggling and we have a duty to see if we can provide some help”, asking if a targeted option for those most affected by interest rate hikes could be examined.
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In the budget, a €125 million mortgage relief package was eventually introduced that will save about 150,000 homeowners up to €1,250 per year in cases where their repayments had risen sharply.
Discussions on a mortgage relief measure began in July when the Minister was briefed on six separate options around mortgage interest relief based on tax deductions, interest rates, or tied to household earnings.
However, the submission said: “We would strongly not recommend the reintroduction of mortgage interest relief as a general measure.”
“There is no evidence base to introduce the measure – it would be contrary to monetary policy and could exacerbate the current housing supply constraints and price pressures.”
It also advised against a more targeted measure applying only to those worst hit by a series of interest rate hikes.
“While we acknowledge that a small cohort of mortgage holders, particularly those with non-banks have been effected by rising mortgage interest rates, it does not appear feasible to provide financial assistance to such a group through the tax system,” the submission said.
However, Mr McGrath was determined that at the very least inquiries were made with Revenue about how the worst-hit householders could be helped.
In a note, he wrote: “I would view such an intervention as being time bound and exceptional in nature, and much less costly than introducing mortgage interest relief generally.
“Please do explore these points, engage with Revenue on the practicalities involved and revert in due course.”
In later submissions closer to the budget, department officials provided more detail on two options that had been requested by Mr McGrath but remained vehemently opposed to the introduction of any measure.
One of the submissions said: “As previously advised the department is strongly of the view that the mortgage interest relief is not the best policy approach as it is directly contrary to the monetary policy stance, could further increase or prolong high inflation, runs counter to established international research and gives rise to deadweight.”
It also said there were “fundamental flaws inherent” in both options but that it was feasible that either could be legislated for and in place by 2024.
The concerns of the Central Bank were also detailed in the submissions. It had said it would be extremely difficult to target at those most in need and that it was likely relief would end up being given to people from “higher ends of the household income distribution” as well.
A submission explained: “Support for mortgage holders through tax relief, in instances where borrowers’ repayment capacity is not in fact under stress, represents a deadweight loss to the taxpayer, as well as risking pro-cyclical contribution to aggregate demand at a time of high inflation.”
Its analysis had also found that among those most likely to benefit were people who had long benefited from low tracker rates, who were aged over 50, and owed less on average than other borrowers. The Central Bank said the department should try to find a solution through the social welfare system instead so that the people in most financial difficulty could benefit.
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