Personal Finance

Barry McCall gives us a budget review and St. Patrick’s Credit Union provides us with a New Year’s resolution option that won’t be hard to keep.

Tidings of comfort for homeowners

Brian cowen’s fourth Budget saw him stray into the area of direct economic management almost for the first time in his tenure as finance minister.

Up until now he has appeared to content himself with the roles of book balancer, Government fundraiser-in-chief and cost controller.

It has to be said, he did a largely good job. He allowed government spending to expand, but not run out of control; he gave just enough back in taxes to ensure that the overall government take continued to increase; and he ran three successive surpluses in previous budgets.

No complaints there then. Well, except from the myriad interest groups on all sides who either wanted to see lower or higher taxes, more or less spending, and so on, and so on. Finance ministers can’t really help but do wrong for doing right, it’s the nature of the job.

This year, however, was different. There was no real pressure on him to deliver significant tax cuts, as there was general acceptance that deteriorating economic conditions had reduced this scope for such changes to near zero.

Thus he delivered unspectacular changes to PAYE allowances and bands, which will see the majority of taxpayers gain between €400 and €600 a year.

Pensioners did particular well out of the budget, given the circumstances. The tax exemption level has been increased by €1,000 for a single person and €2,000 for a married couple, and the contributory pension has been increased by €14 per week. Also particularly welcome will be the increases in qualified adult dependent payments, which will rise by up to €27 per week in line with the government’s commitment to bring them eventually to the same level as the non-contributory pension.

The biggest change came under the heading of Stamp Duty and this is where the minister was clearly looking to his economic management role. With the housing market heading for a slump, this tax was seen as a significant disincentive to home owners who wished to trade up.

The difficulty was that if they wished to trade up to a home worth, say, €700,000, they would have to find €63,000 just to pay the Stamp Duty. At a time when mortgage repayment rates have increased by around 25% in the past two years and when people are more than a little uncertain about the economy, this cost had become a significant deterrent. In addressing this situation, Minister Cowen took on two issues. The first was the inequity of the existing system and the second was the actual rates levied.

In the first instance, he did what many people had been calling for and changed Stamp Duty payments to a sliding scale. Under the old system, if a house cost just €1 more than the relevant Stamp Duty threshold the higher rate of tax had to be paid on the full cost of the home. Under the new system the higher rate is paid on just that €1 with the lower rates being applied to the remaining amount.

This change lowers the overall tax levied, but the minister went further and he reduced and simplified the rates. Instead of a seven-tier system, there are now just three Stamp Duty tiers, with a much higher threshold for the top 9% rate. The new rates are: zero for the first €125,000; 7% for the next €875,000 and 9% for the balance above €1 million.

So, for a family trading up to a €700,000 house, the first €125,000 is tax free and 7% is payable on the next €575,000. This works out at €40,250 – a lot less than the €63,000 it would have cost back in November.

Only time will tell whether this will give the housing market and the economy generally the boost they so clearly need, but it will certainly make the cost of trading up more affordable for growing families.