Coffey warns on housing incentives

By Pádraig Hoare

Short-term measures such as dropping Vat to stimulate the building of houses will not solve the housing crisis, according to economist Seamus Coffey.

The chairman of the Irish Fiscal Advisory Council and UCC lecturer, who was speaking at Cork Chamber’s monthly business breakfast, said tax incentives had not proved successful in tackling housing shortages in the Republic.

“If it was simply a matter of Vat holding back the construction of housing, that might be a step to take. But I don’t think it is simply a matter of Vat holding back the supply.

"Prices have risen substantially over the last number of years. We are beginning to see signs of activity increasing, albeit off a very low base.

“One of the issues we have had over the decade when it comes to housing is that when we have tried to fix things in the short-term, we have made things worse in the long-term. I don’t think necessarily a situation where you have a zero rate of Vat for housing is a good long-term solution.

“It may seem attractive now, for two or three years, but we have to think longer-term than that. It might mean the solution is a bit further down the track in coming, but I don’t think when it comes to housing that tax incentives have a strong history in Ireland and I’m not sure it is the way to go,” Mr Coffey said.

Mr Coffey said it was entirely possible to run a budgetary surplus yet still invest more in the likes of housing and education.

“It is a political choice. Choices have to be made. But in 2006 to 2008, we tried to be all things to all people,” he said.

Mr Coffey said the level of corporation tax receipts would be €18bn this year, which were “almost unprecedented”.

One in six euro collected was now from corporation tax, he added. There was little doubt the economic recovery has “exceeded all expectations”, Mr Coffey said.

While that brought a whole new set of problems such as the possibility of overheating, Mr Coffey said that an existential threat to the economy was unlikely.

While there were possible “huge distortions” to economic calculations because of the impact of multinationals, it was hard to distort the real evidence of people currently in work.

The net influx of migrants, foreign and returning Irish, that will be needed to sustain growth in the economy will bring its own problems in the future, such as further housing shortages, he said.

Medium-term risks to the economy included Brexit, the “inward-looking” policies of the Trump Administration, and the international tax environment, Mr Coffey said.