May 10, 2006

FG should scrap stamp duty if it wants to win the next election

Posted in Irish Independent · 7 comments ·
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So what’s the big idea? What would make you sit up and listen? What’s the pitch to the average person?

Listening to the Fine Gael Ard Fheis over the past few days, it is difficult to see what it might do differently. It is also easy to conclude that Fine Gael hasn’t yet twigged that it is in opposition. It sometimes does not seem hungry enough.

You’d think that the manifesto of an opposition party would be like the aggressive sales pitch of a company trying to take business from a rival for the account of a valued and prized client.

We, the electorate are the client. It seems reasonable to suggest that the first lesson for the opposition is to realise that it is not the people’s choice and as they voted for the incumbents, they are happy with the status quo.

So the opposition’s pitch has to be forceful and different. It has to say to you that your life will be different if you vote for, in this case, Fine Gael.

Logically, it would seem that the first thing a party must do when trying to identify extra seats is identify the future battle ground.

Like all parties, Fine Gael has to tap into the ‘Baby Belt’ – the huge suburban arc that encircles our major cities. Here the population is growing rapidly. Meath and Kildare are the most fertile counties in the country and, looking beyond Leinster, the population of counties Cork, Limerick and Galway are rising faster than the respective cities.

These new estates are brimming with young commuters, creches, teak lacquered decks and Jackie Skelly workouts. Stats from the GAA – always one of the best indicators of social dynamism in the country – reveal that more clubs are springing up here than anywhere else in the country.

Today’s GAA clubs signal tomorrow’s election terrain. Their presence shows that the area is full of young married couples of voting age. We would expect therefore, that these countries would have seen a huge increase in their electorate last time out. But no, that did not happen. The young commuting parents did not turn out to vote in the election.

In fact, Ireland shows bizarre electoral trends. In Europe and the US, the more educated you are, the likelier you are to vote. Elsewhere, it is those with education who are more likely to get exercised, agitated and involved and who tend to believe in the political system’s ability to change society.

In Ireland, the opposite is the case. For example, one of the best barometers of levels of household education here is internet connectivity at home.

You would expect therefore that those “logged on” regions would vote most but again, they don’t. There is a better chance of seeing at the polls an elderly bachelor farmer in Leitrim with no formal education, than a young university-educated couple in Kildare. So our educated opt out politically.

On top of all that, Ireland also breaks the other golden rule of voter behaviour. Everywhere else, the minute people have children, they vote. It is as if the baby reawakens some sense of community in previously hedonistic individuals. In Ireland, this is not happening. Young couples in the baby belt are queueing to enrol their children in schools but not lining up to vote.

So it is clear that Fine Gael needs to get inside the heads of these putative voters. But how does it do that?

By saying that it will not tolerate public sector waste? Well maybe, but it’s not a credible position because most people realise that government overruns are in no politician’s interest. (It is not as if there is an explicitly profligate party running on a money wasting ticket.)

So they need to do something that grabs attention, makes economic sense and gets the voters’ juices flowing. Why not go for the big one? Why not abolish stamp duty? Homeowners hate stamp duty, even if they are not actively moving at the moment.

Every aspirational voter, trader upper or seller hates stamp duty. It is seen as a money-making exercise for the state. What exactly is stamped? Why does this particular stamp cost so much?

Equally, stamp duty is a regressive tax. As a tax on transactions it prevents the market from working properly and if it were abolished, more properties would come on the market.

More importantly, for a political party it is a popular move which might just ease pressure on the housing market because prices would automatically fall to the pre-tax level. Obviously prices could go right back up as many people who couldn’t face giving between 7pc and 9pc of the cost of their new house to the state, jump back in.

But the age-old adage that taxes tend to impede the market must surely hold true, whether it is income tax or stamp duty.

How popular could it be? Well, every day we spend an extraordinary �85m buying houses. That is �31.5bn each year. In all, about 108,000 houses are sold each year of which 80,000 are new and 28,000 are secondhand. About one in three of these new homes are sold to investors, who pay stamp duty – implying that over 54,000 people paid stamp duty last year.

The department of finance reckon that stamp duty from houses netted �2bn last year out of a total tax take of �40bn.

In total then, nearly 55,000 people – the majority working families – paid on average �40,000 stamp duty last year.

There are big variations in this headline figure, but politically, cutting stamp duty would constitute an enormous tax cut, it would be enormously popular and it might also ease some pressure on the housing market.

By targeting stamp duty, Fine Gael could target the very aspirational class – those young families who will be looking to trade up in the next few years – that have so far remained uninterested in voting. (Sceptics might rightly say that we need tax increases not tax cuts, but that is not going to happen and anyway, it is credit rather than government tax breaks which is driving the economy.)

There are two sound ways in which the state could recoup this foregone �2bn.

One would be to increase taxes on petrol, which are comparatively low by European standards.

This would be green and the cash could be ring-fenced for public transport spending exclusively.

A second way could be to reintroduce rates or some sort of localised tax take, thereby giving local authorities the wherewithal to run affairs locally.

Both of theses taxes would be far preferable to stamp duty.

More important for the opposition is to present the voters with something that grabs our attention, enhances our wealth and affords a redirection of the tax system.

Stamp duty is a regressive tax which angers people and the higher house prices go, the more stamp duty goes to the state.

If Fine Gael really wants to win this time next year, it will have to go for the “big one” and accept that with the electorate undecided, “fortune favours the brave.”

* Figures courtesy of Joan Henry at HOK auctioneers


  1. adrian

    ready steady go… Make these points Enda and win.

    When the housing market was starting to slow in 2000-01
    fine fail protected builders and developers and investors
    by re introducing tax relief for investors. Home buying
    families were squeezed, beleagured, and ripped off.

    In 2004 when the investors were feeling the pinch with too
    many vacant houses and falling rents fine fail encouraged
    the arrival of our Polish colleagues to fill the empty
    houses and the pockets of fine fails cronies, the
    developers.

    Targeted increases in mortgage interest relief to those non
    investors who purchased between 2000 and election day will
    win the election. Additional relief to be targeted on those
    with children. The relief will help offset the burden of
    increased interest rates on the squeezed and beleagured.
    The polls will be busy.

    After a market correction the eradication of stamp duty
    will be necessary to get the paralysed market moving again.

    The election win will likely be a poisoned chalice as
    economic fundamentals are currently a tad dicey. Best to
    lose the election and take the reins after fine fails
    economic miracle is exposed as a debt driven sham.(We said
    that last election, god this is boring…)

  2. dee

    Two points I find fault with
    1. Stamp duty targets young families living in “the huge
    suburban arc that encircles our major cities” who I am
    certain commute to work every day. Your answer to this
    problem is that stamp duty should be scrapped and
    increased taxation on petrol introduced to fill the €2bn
    shortfall. Those young families you suggest would vote for
    this proposal, they have to travel a fair distance to work
    i would imagine, I’m not sure they’d appreciate the
    increased cost of travel.

    2. Stamp duty is regressive taxation. Is tax on petrol
    not also regressive? As a student living 30km away from
    university a car is essential (the nearest bus stop is
    4km, so reinvesting my petrol tax in public transport
    doesn’t interest me), should the tax on petrol rise it
    would have an effect on me just as it would on someone in
    full employment.

    To answer your question what would make me an average
    person sit up and listen? Put simply someone talking
    sense, which unfortunately is in short supply. Plato
    points out “those who are too smart to engage in politics
    are punished by being governed by those who are dumber”;
    this is something which I have become painfully aware of.

  3. Kevin

    I think that politicians are scared to death of changing
    anything in the housing market right now in case they get
    blamed for the ensuing collapse. Something along the lines
    of replacing stamp duty with an annual property tax (with an
    exemption for owner-occupiers) would certainly be popular
    though and I think ‘fairer’. You certainly wouldn’t get so
    many people holding on to their old houses as they trade up
    (thus inadvertently joining the landlord class and depriving
    the FTB of stock) or investors willing to sit on empty
    properties and wait for capital appreciation if something
    like that was in place.

  4. Declan

    Well David, I think that you must be loosing your marbles!
    Cutting Stamp Duty is going to reduce the price of
    houses??? This is the best suggestion you could give Fine
    Gael! I agree that they will need to do something big to
    boost their chances of being successful but I wouldn’t
    agree that cutting stamp duty is the way.
    By the way, what happened when stamp duty was cut on second
    hand homes for FTBs? The stamp duty went to the vendor so I
    understand the overall economic logic but the short term
    reality would be a transfer of stamp duty to the vendors
    and no reduction in prices.
    Fine Gael and Fianna Fail are the same as all political
    parties, they are self serving for the interest of the
    elected TD’s they have no real interest in evolving our
    society any further.
    Fianna Fail are living off past glories and successes and
    using spin to its maximum to keep them there.
    Fianna Fail had an ideal opportunity to take our society as
    a whole further but due to a lack of political will this
    hasn’t happened!
    At the moment, we do have a major problem with government
    fiscal policy. They have pursued fiscal policies that have
    compounded our economic cycle. To suggest a cut in stamp
    duty would compound it further. If this happened I’m pretty
    sure that we would have a complete systematic failure in
    the real estate sector.
    Once again I would agree that FG needs something big but I
    don’t think that this is the big idea they are looking for.
    MAYBE Energy or Health or Transport??
    A proper thoughtout plan and not some of the wishwash that
    was bantered around at the ard fheis.
    They got to use some spin too!!! if they want to get the
    point accross to the disinterested electorate!

  5. Darren

    I’ve got to agree broadly with Declan. Revenue lost from
    falling stamp duty would have to be raised elsewhere (or not
    be spent somewhere which amounts to the same thing).
    Meanwhile, house prices would simply rise by the value of
    the stamp duty.

    The policy would be a direct transfer of cash from those who
    pay the replacement tax to homeowners. This might win votes
    but it’s not going to help the people it purports to.

  6. john bennett

    Well an obvious way where fine gael could bring in
    something radical is with regard to immigration policy.
    This would be a radical departure from fine fail and would
    also be in line with pat rabbits controversial remarks
    earlier in the year. It is also something which alot of
    people are worried about. But you are right political
    parties are too timid for radical policies like this so
    they will let things be. It is clear Bertie Ahern is
    worried about it as he castigated other EU members
    recently for not lifting restrictions to the new EU
    entrants. However as election date approaches I think that
    this issue will become a big election issue.

  7. Darren

    John,
    Can you imagine the campaign? “Are you thinking what Enda is
    thinking?” It didn’t exactly work for Michael Howard.
    The opposition can’t win an election. Fianna Fåil has to
    loose it. Everyone’s very happy with the value of his or her
    property and people like getting their cappuccini from
    foreign servers that are on the minimum wage. The only thing
    the government are vulnerable on is Health and conveniently
    for Bertie that can be shrugged off on the doorstep as
    something the PD’s messed up.
    I suspect Enda needs to set his sights on another election
    sometime in the next decade.

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