Vat cut for construction worth trying - Housing builds

AT the height of the property boom, we in Ireland were building more private houses annually than in the whole of the UK.

Fri, 17 Apr, 2015 - 01:00

Editorial

That was madness.

Nowadays, we are building hardly any.

That, equally, is madness.

So, how to re-establish some sanity in the construction industry? Developer Michael O’Flynn has come up with a plan which, though it may not solve everything, is a worthwhile suggestion that should be taken seriously by the Government and planners.

As Mr O’Flynn sees it, the biggest brake on housing construction is tax. According to his figures, almost 40% of the cost of building a private house goes back to the exchequer in tax.

That, surely, is unsustainable. It is not good for the developer, not good for the home buyer, and, ultimately, not good for the exchequer. If there is little or no construction going on, that percentage is meaningless — 40% of nothing is still nothing.

Mr O’Flynn points to the tourist industry as an example of how a well-thought-out and dedicated system of tax reduction can have a beneficial effect. The reduction in Vat from 13% to 9% has been an unqualified success. A study by Fáilte Ireland shows that since the reduction was brought into effect in 2011, almost 25,000 jobs in the sector have been created.

Not only has that meant the tourism sector is now on the cusp of recovery, it has also brought in increased revenue in tax. And 9% of a thriving industry is worth far more than 13% of a diminishing one.

Reducing or abolishing Vat altogether on housing construction need not be a permanent fixture. If it works, and the industry recovers to sustainable levels, there is no reason why it cannot be reintroduced, once it is shown that it will not have a detrimental effect on recovery and growth.

Paudie Coffey, the minister of state at the Department of the Environment with special responsibility for housing, planning, and co-ordination, concedes that more must be done at Government level to give construction the kickstart it so badly needs. He has promised to publish a planning bill before the summer recess which proposes a reduction in development charges, a drop from 20% to 10% on the social housing obligation on developers, and the introducion of a vacant site levy.

However, this carrot-and-stick approach may not be enough to encourage developers to start building again, whereas an indication that they will not continue to be taxed out of existence might do the trick. Considering that Ireland is now the fastest growing economy in Europe, we can ill afford to have a Cinderella industry.

We need more houses and the only way we will get them is if developers start building again. Mr O’Flynn’s suggestion of a Vat reduction on construction should be given careful consideration. Otherwise the Government will continue to be part of the problem rather than contributing to the solution.