'Untargeted' tax reliefs in budget puts Government at risk of abuse, Central Bank warns
Governor of the Central Bank of Ireland Gabriel Makhlouf. Picture: RollingNews.ie
Central Bank Governor Gabriel Makhlouf has warned the Government against introducing “untargeted” tax reliefs in October’s budget due to the risk of abuse.
Mr Makhlouf and senior officials from the Central Bank met with housing minister James Browne in April.
Minutes of the meeting released to the via a Freedom of Information request show the Central Bank team is “skeptical” about introducing untargeted or broad fiscal reliefs, citing the possible risk of abuse.
Tax reliefs for developers were floated as early as February, with Taoiseach Micheál Martin saying it would be a matter the Government would be considering.
The minutes confirm Mr Browne is considering a number of measures, telling the Central Bank these could include “targeted fiscal incentives” or levy exemptions.
However, the minutes note there is no decision made as of yet.
It is expected any changes to tax incentives for developers would be unveiled as part of the budget process.
Mr Browne and his officials also raised some barriers blocking the development of housing across the country including high equity requirements by banks, costs from Uisce Éireann and planning delays.
Briefing notes provided to Mr Makhlouf say there is “substantial balance sheet capacity” within banks to lend more for housing development, but any decision on whether or not to provide finance is a commercial decision for banks.
The note said previous lending practices to developers “did not serve this country well”, but there is capacity within the sector to “do more”.
“But banks naturally have underwriting standards in place which requires a level of equity investment to support this type of lending so as to ensure that their there is prudent risk management and long-term lending standards. It is important that we do not interfere with this, and the Central Bank does not direct banks in their lending decisions,” the note adds.
The briefing also calls for the Government to examine further policy interventions to “incentivise” quicker and more housing completions.
The minutes show the Central Bank raise concerns about the viability of projects, in particular for apartments. They also raise concerns about the productivity within the construction sector, saying there is not enough use of modern methods of construction. The Central Bank offered a number of suggestions during the meeting to improve housing supply, including the introduction of builder co-ops to “achieve scale”.
Both the minister and Central Bank agree there would be a focus on planning reforms, boosting the capacity of smaller builders and increasing the use of modern methods of construction, the minutes read.
