Sunday 22 July 2018

Bank in storm over VAT plea for builders

'Have they learnt nothing?' says minister after AIB calls for tax cut to boost housing market

Eoghan Murphy: Bailed out bank ‘reliving mistakes’. Photo: INM
Eoghan Murphy: Bailed out bank ‘reliving mistakes’. Photo: INM
Philip Ryan

Philip Ryan

Housing Minister Eoghan Murphy has rounded on bailed-out bank AIB for suggesting that the Government should reduce Vat for builders to kick-start the property market.

Speaking at a Dublin Chamber of Commerce event, Mr Murphy said "have they learnt nothing?" when he was questioned about the AIB proposal.

The minister said AIB was a "bailed out bank and supported by the taxpayer" and was now telling the Government to "narrow the tax base to support builders".

He said the bank was "reliving mistakes only four years after we exited the bailout".

The minister's comments put him on a collision course with a bank in which the Government is still the majority shareholder.

Two weeks ago, the Sunday Independent revealed how AIB was pushing to have VAT reduced to encourage developers to get back into the domestic housing market. The proposal was among a number of recommendations and initiatives aimed at stimulating the market.

Fianna Fail housing spokesman Barry Cowen has also been actively seeking to have Vat reduced for the construction industry.

A cut in the rate for the construction sector from 13.5pc to 9pc would cost the Exchequer around €240m a year.

The controversial proposal has drawn a mixed reaction but has been continually shot down by Finance Minister Paschal Donohoe as a solution to fix the housing market.

Mr Murphy said reducing VAT for developers was not a proven measure to increase housing supply. He said his approach to the housing crisis was not to build homes at any cost because this would lead to future problems in the sector.

The minister added that the country couldn't introduce measures which would narrow its tax base and reduce the amount of funding available to build houses and fund other services. He said he would fix the housing crisis in a "sustainable way".

Mr Murphy insisted the Government had introduced measures to reduce costs for developers such as fast-tracking the planning process and establishing a €250m fund to open up land banks for development. He also committed to reducing the cost of building apartments.

In a report on housing, the AIB's head of real estate research, Pat O'Sullivan, said reducing VAT for construction "is not the most palatable of options but it is effective".

He said that while there was a risk the cut would not be passed on, developers ultimately wanted to sell houses. "We've tried to identify blockages in the system," added Mr O'Sullivan who believes that the cost of construction is a key issue.

Barry Cowen previously told the Sunday Independent that he believed reducing Vat on construction should be a key element of the Government's plan to solve the housing crisis.

"I still believe and won't be dissuaded that builders have to be assisted too, including vat reductions, competitive finance, reduced development charges, for example," he said.

"Many of my detractors fail to realise that it's builders that build homes. They fail to realise that builders include carpenters, block layers, plasterers, electricians, plumbers, roofers, labourers etc."

At the height of the financial crash, the Government poured €21bn into AIB to prevent it from collapsing. The bank returned to profitability in 2014 and in 2016 recorded earnings of €1.bn.

Last year, the Government raised €3bn by selling 29pc of its share in the bank. The proceeds from the sale went toward repaying the national debt.

The Government still holds a 71pc share in the bank which it nationalised during the economic downturn.

Sunday Independent

Today's news headlines, directly to your inbox every morning.

Also in this section