Cut in VAT to revitalise building industry

The Government is eager to kick-start the construction industry again, getting workers off the dole while also dampening any hint of a new property bubble by providing more family homes in city areas.

A VAT cut for construction work now looks on the cards for next week’s Budget, while serious consideration is also being given to scaling back the 80pc land rezoning tax introduced by former Green Party leader John Gormley.

And the Government is going to give more grants to make houses more energy efficient – with strict conditions to ensure that the builders who carry out the work are tax compliant and not part of the “black economy”.

Mr Noonan wants to see the number of houses built nationally increase from an estimated record low of 8,000 this year to 25,000 – and possibly even to 35,000.

The Government believes that boosting the construction industry is the single fastest way of tackling the unemployment rate – given that one in four people on the dole is a construction workers.

It also wants more housing to avoid the development of a new property bubble in Dublin in particular, where house prices are increasing fast and families are finding it harder to locate quality homes to rent or buy.

Mr Noonan has been involved in intensive discussions with the Construction Industry Federation about

dropping the 13.5pc VAT on building activity to 9pc.

It is understood that such a cut could easily pay for itself – Mr Noonan has been given industry projections that costs would be covered if building activity increases by just 12pc next year.

There are 12,000 housing units with planning permission in the capital so a temporary VAT cut might encourage many builders and developers to start building them next year.

Junior Minister for Finance Brian Hayes confirmed that the Government wanted to get the construction industry back on its feet again. “There are a large number of people on the Live Register who can go back to work immediately if you can get construction going,” he said.

Although Fine Gael and Labour are locked in negotiations about the spending cuts in the looming Budget, there is cross-party support for a construction stimulus package.

Taoiseach Enda Kenny and Mr Noonan have emphasised the need to rebuild the shattered industry, while Tanaiste Eamon Gilmore told the Irish Independent that the Government saw potential for more employment in the construction sector.

“Construction is about 4pc of the economy. In the boom years it was 20pc – not that it should ever get back to being that size again. But it probably has the potential to double in size,” he said.

Mr Gilmore said that construction projects such as new schools represented a win-win because they were needed and they boosted employment.

“So the focus of Government policy will be to try and encourage construction activity,” he said.

Although Mr Noonan is keen to increase jobs in the sector, he is also under pressure to keep a low VAT rate in place for the service and tourism industries.

A cut in VAT has already boosted jobs in these industries over the past two years. Fine Gael sources predict that the reduced VAT for these sectors may also be extended further, or at least tapered off rather than axed completely.

Construction Industry Federation director general Tom Parlon argued that treating VAT for building work the same way could be the big “push” that finally creates new jobs. “When you consider that one in four of the people on the Live Register are former construction workers, and that 60pc of the people who have lost their job since the crash are construction workers, you can see the massive opportunities an increase in construction activity offers,” said Mr Parlon.

As part of the construction stimulus package, Mr Noonan’s department is also examining the potential effect of scrapping or reducing the 80pc rezoning tax introduced by John Gormley in 2010.

It was aimed at eliminating the type of windfall profits – which led to some developers giving corrupt payments to councillors in return for their rezoning votes.

But Mr Noonan recently confirmed in response to a question from Fine Gael TD Brendan Griffin that there was no available record of the rezoning tax generating any income for Revenue over the past three years.

The Government also has access to €6.5bn of funds left in the National Pension Reserve Fund to boost construction activity directly with more investment in schools, roads and water treatment facilities.

However, government sources have declined to comment on whether the pension reserve fund will be used to fund construction stimulus projects.

A Department of Finance spokesman said that it could not comment on any potential measures being included in the Budget on October 15. Source: Irish Independent