Taoiseach Leo Varadkar put mortgage interest tax relief back on the budgetary agenda last week. No promises, he said. Instead, he left it swinging in the wind and harder for Minister for Finance Michael McGrath to control politically. Speaking blandly is a skill taoisigh should acquire. In the circumstances it was a lost opportunity to keep his mouth shut.
Let’s be clear what mortgage interest tax relief is – Housing Assistance Payments (HAP) for homeowners. It is a transfer of wealth to those who have got over the bar of getting a mortgage, at the expense of those who have not. Yet again, it further imbalances an already out-of-kilter tax system against the young. It pushes house prices upwards.
As fiscal policy, it undermines monetary policy of higher interest rates, which are intended to tackle inflation. Inflation is the underlying contagion that higher interest rates confront. Instead, subsidies funded with public money are used to fuel inflation in a policy mayhem that is the worst of all worlds.
People buying houses with mortgages are getting older and wealthier. The first means they are having to wait longer to buy. The second means they are increasingly wealthier than those left behind. Subsidising this subset, which is what mortgage interest tax relief does, doubles down on the difference.
It is straight out of the political playbook that stopped an increase in the age of eligibility for the old-age pension. It pushes intergenerational obligations on to the young, who are unhoused, unpensioned, and up the creek. It is the classic them versus us subsidy. It is like duty free, a subsidy for travellers levied on those who stayed at home.
The median age of those buying a house with a mortgage is 37, and the income of Irish home buyers has risen by nearly 50 per cent to €71,300 over the past decade. Average income in the State rose by just 25 per cent over the same period. Those left behind are falling further behind. Sixty two per cent of those aged 18-34 live with their parents in Ireland.
This is the land De Valera imagined would be joyous with the contest of athletic youths and the laughter of comely maidens. It is a John B Keane culture in a Tinder world. There is little laughter from the youths or maidens, and the joke is at their expense.
Sinn Féin wants what it says is a targeted mortgage interest tax relief measure costing €400 million. The Minister for Finance says it is uncosted and, at €1,500 per mortgage, could cost up to €600 million in a full year. Sinn Féin says its proposal is for this year only. I say: stuff that. It took decades to uproot mortgage interest tax relief from the Irish tax system.
Tax reliefs are like ragwort: almost impossible to uproot. The 9 per cent VAT rate for tourism is one example. Introduced as an emergency measure in 2011, it has applied continuously except for 20 months since. Ferocious lobbying power accumulates instantly to retain every tax break once applied. Reductions in excise duty on diesel and petrol are another inflationary and carbon-emitting example of the stubbornness of so-called emergency measures.
The Taoiseach’s support for a position similar to Sinn Féin’s should not surprise anyone. The squeezed middle in this case is Fianna Fáil and its Finance Minister. This is not the politics of collective responsibility at Cabinet. It is about the sharpest elbows getting to almost the last cohort of voters – besides the rich and the elderly – who are not completely lost to one or other of the two larger parties in Government. It is toxic economics, but tactically smart.
It is a short-term political response to the wider political failure engineered by Fine Gael and Fianna Fáil for themselves in Government. Having cannibalised their own political base, this is a scrap for the seed potato. For Sinn Féin, it is another brilliant adaptation of mé féin politics in its relentless colonisation of the centre.
There is, however, a fundamental difference between a tax cut and a tax break. The Taoiseach insists his priority remains increasing the threshold to pay the higher rate of tax above the current €40,000. But in exciting support for a tax break for mortgage holders, he is politically pledging the tax package in a different direction.
It doesn’t matter that he left his own Minister for Finance stranded and looking foolish. It matters that a so-called housing emergency is just politics as usual by another name. The divvy out of the tax package on budget day is one issue. The fundamental interests of the unhoused, probably living at home or possibly even homeless, is another.
On the issue of interest rates, central banks are independent because governments can’t be trusted, especially at the end of an electoral cycle. High interest rates are intended to take money out of the economy. Historically, interest rates have been low, not high. Negative interest rates were an extraordinary abnormality. Current levels of mortgage interest rates cannot be an emergency of any kind; the suggestion that they are leaves only cynicism as an explanation.
With unemployment at 3.9 per cent, we now have full employment and an overheating economy. Every subsidy adds to the problem and each tax relief justifies another. Reliefs keep tax rates and prices higher than they would be. The mortgage interest relief dangled by the Taoiseach before the put-upon counteracts the lower taxes and higher spending he interchangeably promises them.
I have experience of what constitutes the response to an emergency in Government; loose talk and kite flying it is not. Neither is it the incontinence of constantly tinkering with the details of schemes to constitute a rolling, but directionless, housing policy.
It requires a plan that enjoys the confidence of its authors, the ability to see it through, and the ballast to avoid being blown hither and thither by every gust of wind. Everything is being thrown at it except clarity or continuity. Compelled to do something, anything goes. Words matter; in politics they are hard currency.