Wednesday 12 December 2018

First-time buyers to get savings top-up in Budget housing plan

  • Budget rows over VAT as €5 pension hike set to be delayed

  • Older people will have to wait until end of March for €5 pension increase

Photo: Bloomberg
Photo: Bloomberg
Kevin Doyle

Kevin Doyle

A special savings scheme to help first-time buyers is being considered as part of Budget 2019, the Irish Independent can reveal.

Finance Minister Paschal Donohoe is examining how such a scheme might work on foot of demands from Fianna Fáil. The initiative would see house hunters entitled to open a savings account for their deposit which the Government would top up with a generous donation when they go to buy a house.

Sources in both Fine Gael and Fianna Fáil confirmed the idea is a real prospect with just five days until the Budget.

A similar scheme in the UK, called the 'Help To Buy ISA', pays an interest rate of 25pc.

This means for every £200 (€225) saved, the government adds £50 up to a maximum of £3,000.

It comes as both sides are set to agree that older people will have to wait until at least the end of March before getting an increase in their pension. Mr Donohoe is preparing to top-up the weekly pension by €5 but sources have indicated that due to financial constraints it is unlikely to kick in straight away.

Budget negotiations are now entering their final phase.

However, they risk being derailed at the last minute by a growing row between the Independent Alliance and Fine Gael over the 9pc VAT for the tourism sector.

Mr Donohoe is keen to raise the VAT rate by as much as 2.5pc, in a move that would give him an extra €500m that he could funnel into social welfare hikes and income tax cuts.

However, the Independent Alliance - led by Tourism Minister Shane Ross - is putting up a furious fight behind the scenes. Mr Ross told the Irish Independent that he will not allow the tourism industry to become "the sacrificial lamb" of this Budget. 

"The threat of Brexit looms large and we must protect it," he said. "Outside Dublin, there are large swathes of communities who depend purely on this industry to survive. An affordable VAT rate means the difference between people being able to remain in their localities rather than be forced to emigrate to bigger cities.

"If we're serious about protecting and rejuvenating rural and regional Ireland, we need to safeguard tourism. It's that simple."

However, Fine Gael sources said that the Independent Alliance was "stoking tensions" and needed to come up with an alternative way of raising €500m.

Talks between Mr Donohoe, Fianna Fáil and Independent ministers are intensifying as the clock ticks down to next Tuesday's announcement.

All sides have agreed that an increase to the State pension and a raft of other social welfare payments must happen.

Separately, the Independent Alliance is seeking increases to the fuel and telephone allowances, as well as the return of the €850 bereavement grant which was abolished during the recession.

Pensioners are also likely to benefit from a reduction in the €2 prescription charge for medical card holders.

Sources within Fianna Fáil confirmed to the Irish Independent that the pension hike "will happen, but not immediately".

"We'll be lucky to get March," they said, adding that massive overspends in the Department of Health is complicating the talks.

There is precedent for delaying the pension rise in the past two years when the Government argued that around €13m can be saved for every month the increase is not applied.

This year's increase was introduced on March 26, which is now being viewed as "the new norm".

"Doing something similar would mean the next increase will come 12 months after the last, which is reasonable," said one minister.

The increase in the pension will also be accompanied by hikes in other areas, including the carers' allowance and disability allowances.

However, ministers have questioned whether the Jobseekers' Allowance should be hiked again this year.

A €5 dole increase was included in last year's budget - but Mr Donohoe will now have to decide whether to repeat that as the economy edges towards full employment.

"There is a genuine question as to whether the dole should go up when we have full employment. It's a policy question as it could lead to poverty traps," said one Government source.

Taoiseach Leo Varadkar wants to be in a position after Budget Day to say that his Government reversed the cuts made to weekly welfare payments during the recession.

The non-contributory State pension is currently paid at a rate of €232 per week.

"Pension payments are already above 2008 levels but this will make them comparable in real terms," sources familiar with the Budget talks said.

In a pre-Budget statement yesterday, Age Action called on the Government to recognise the contribution made by "more than 600,000 workers, homemakers, carers and entrepreneurs who are now pensioners".

Among their demands is a €106m increase to the Home Supports.

Irish Independent

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