Tracker mortgages should be taxed, according to a leading economist and one-time adviser to the Government.
The controversial proposal by Alan Ahearne of the National University of Galway will anger the thousands of homeowners on trackers and prove politically explosive for the Government.
Mr Ahern said the tax was justified because the section of society not on trackers was effectively subsidising those who are.
There are 375,000 tracker mortgage customers in the country.
Permanent TSB has a total mortgage book of €32.9bn — €22.5bn of which relates to trackers.
Bank of Ireland has a mortgage book of €28bn, €17.2bn involving tracker mortgages; while €17.6bn of AIB’s €41bn mortgage book are trackers.
They are a massive drag on profitability. Bank of Ireland is 15% state-owned while the other two banks are 99.8% state-owned.
Mr Ahearne said it is costing the banks huge amounts in capital to fund tracker mortgages and this capital is coming from the taxpayer, which means it is in effect a state subsidy.
“I know it would be extremely politically difficult, but it is a pure public finance issue,” said Mr Ahearne, a special adviser to the late minister for finance, Brian Lenihan.
Tracker mortgages are mostly lossmaking as the interest charged is less than the banks’ cost of funding.
And because the banks are mostly controlled by the State, the taxpayer is stumping up the capital to subsidise tracker mortgages, he said.
At the conference, the ESRI’s John FitzGerald said he was opposed to the idea as changing the terms of a contract after it is signed — effectively what the policy would involve — violates contract law.
It would also tarnish the country’s reputation in the financial world, he said.
The Government had been in talks with the troika about putting trackers into a special purpose vehicle, to be funded by the ECB. However, the ECB rejected the proposal.
The other option is to get funding through the European Stability Mechanism. However, tracker mortgages are considered legacy assets and there is widespread opposition among eurozone creditor countries to such a deal.
Yesterday the deputy president of the German Bundesbank, Sabine Lautenschlager, said: “As these [legacy] risks were created in the past, under the responsibility of individual member states, they should be borne in a national context too.”
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