The decline in the property market was having a damaging effect on the economy as a whole because it was “an essential ingredient of future growth”, Minister for Finance Michael Noonan said tonight.
On the outlook for the Brussels summit later this week, he said: “It looks promising for the weekend, but it looked promising before.
There are two phases always to European summit negotiations: usually when the communiqué is announced, people get optimistic and the markets react favourably, and then about three weeks afterwards they say, ‘I want another look at that, I wonder is it is good as it was?’
“This time, it has to be for real’.”
On the Budget, he said the Government had to keep promoting economic growth, “because we can’t cut our way out of this and we can’t tax our way out of this, even though cuts and taxes are a major contribution to the fiscal correction”.
He said the poor state of the property market was having “a huge psychological effect in Ireland”.
As a result, property-owners were more inclined, “to save, rather than to spend and invest” and that was why Ireland’s savings ratios were so high.
“Everybody has a rainy-day mentality and they are putting money away.
So I am trying to break that,” Mr Noonan told a news conference after his Budget speech.
First of all, he was providing incentives on the commercial property side. US investors had told him of “astronomical amounts of money” that they were ready to spend on property but they “lacked certainty”.
One of the measures he was taking was to reduce commercial stamp duty to 1 per cent, the same level as in London.
In addition, anyone who bought commercial property before the end of 2013 and held it for at least seven years would not be subject to Capital Gains Tax.
“I want them to come in, buy, invest and stay for at least seven years,” the Minister said.
On the residential side, his predecessor, the late Brian Lenihan had announced previously there would be no mortgage relief on any house bought from 1st January 2013.
“I don’t think there is an awareness of that out there, especially among the young couples who have saved a lot of money,” he said.
He was now offering them a combination of “stick and carrot”. The “stick” was that they would get no mortgage interest relief if they deferred their purchase to January 2013.
“The carrot is, that I am increasing the level of mortgage interest relief that you will get if you buy in 2012,” he said.
He did not know if his property package of low-cost measures would work or not: “But I am certainly not going to sit back.”
Asked if he was in danger of creating another property bubble, he said: “All modern developed economies have a thriving construction and development sector.”
He warned: “There is a danger here that, if we scapegoat the property sector, an essential ingredient of future growth gets no attention.”
On the issue of so-called “tax exiles”, Mr Noonan recalled that his predecessor had brought in a measure last year to impose a lump-sum payment of €200,000 on them.
The criteria were that they had to be domiciled in Ireland and hold Irish citizenship.
The Revenue Commissioners had indicated to him however that “most tax exiles have dual citizenship”.
Some of them were prepared to “cancel out” their Irish citizenship to avoid paying the €200,000 in tax.
“We’re \[changing] the two tests to one test. If you are domiciled in Ireland, you have to pay it, and giving up your citizenship is not an avoidance mechanism any more.”
He said that “only 14 or 15” exiles had paid the tax, whereas Mr Lenihan’s advance estimate had been “significantly more than that”.
This was an experimental move: “It’s a kind of ‘suck it and see’ measure.”
A lot of these exiles seemed to be “patriotic Irish people” and he would like to explore whether there was a way of encouraging them to contribute to a fund that was driving investment in the country.
There were “different ways of skinning a cat”, the Minister added.
