Minister for Finance Michael Noonan overrode the concerns of his officials to introduce an income tax refund scheme for first-time house buyers.
Officials in the Department of Finance warned Mr Noonan that the introduction of the “help-to -buy” scheme could drive up the price of homes and land, and they recommended against its introduction.
According to documents released to The Irish Times under the Freedom of Information Act, Mr Noonan told officials the idea of the scheme was to drive up demand in order to make it more attractive for developers to build homes for first-time buyers.
The policy was also championed by Minister for Housing Simon Coveney and was included in the programme for government.
Its aim was to help first-time buyers overcome difficulties in accumulating a mortgage because of Central Bank rules which were in place at the time.
A paper sent to Mr Noonan by his officials on September 5th, a month before the budget, said the Central Bank rules were “designed to protect the banking sector and the State from another instance of overheating of the property market, which left a severely damaged economy in its wake when the property bubble burst.
“It is not clear what market failure would be addressed by the proposed tax relief.
“Ultimately, it is not clear whether such an incentive would reduce the numbers in the rental market or instead lead to greater competition for certain properties, thus driving up the cost of homes without having any impact on supply.”
Recommendations
Despite their opposition, officials outlined recommendations on how the scheme should be designed if Mr Noonan pressed ahead.
These included a proposal to end the scheme in 2019 and restrict it to new builds to increase housing supply.
Mr Noonan included both. A recommendation that it should not apply to homes costing more than €400,000 was not followed.
Mr Noonan extended the threshold to €600,000, although the benefits after €400,000 were capped at €20,000.
The upper limit was later changed to €500,000 following Fianna Fáil concerns.
