THIS WEEK, SINN Féin proposed a plan for the temporary reintroduction of Mortgage Interest Relief in response to the ECB (European Central Bank) raising interest rates.
“In the grip of a cost of living crisis, with sharp and significant rises in interest costs, now is the right time to introduce timely, targeted and temporary mortgage interest relief,” Pearse Doherty told the Minister for Finance.
Saying it would be different to past reliefs, the Donegal TD said, “it would provide mortgage interest relief equivalent to 30% of increased interest costs relative to June 2022 up to but not exceeding €1,500 per annum”.
This is a terrible idea from both an economic and equity perspective, regardless of whether you would directly benefit or not.
There are six major objections, which take a little further explanation.
1. To start, few benefits introduced by the State remain temporary. The measure itself
creates an interest group which will fight to retain it. Because Ireland has small, multi-seat constituencies, even risking a few hundred votes is too much for many TDs.
One of the major flaws in the Irish political system is actually that its politicians are too responsive to the demands of their voters, which has repeatedly been to our collective cost.
2. From an equity perspective, mortgage interest relief is obviously skewed entirely in favour of homeowners with outstanding mortgages. The main losers are renters, who are disproportionately young.
The 2016 Census (we are still waiting on the 2022 data) showed that 67% of households own their own home. Half of 50 years olds owned with a mortgage or loan, but less than a quarter of 30 years olds, and just 6% of 25 year olds.
Given that Sinn Féin is disproportionately popular with the young, one can only assume that the gamble is that the proposal will win more new supporters than it alienates.
3. To compound the equity issue, just 23% of lone parents were mortgage holders in 2016, compared to 55% of couples with children. Households with a single parent have a shocking deprivation rate of 45%, almost three times that of households with two parents.
Deprivation is measured using 11 indicators, including being able to heat your house properly or buy presents for relatives. If the State wants to tackle poverty these are the households to target. Mortgage interest relief would do the opposite. It is anti-poor, almost by definition.
4. From an economic point of view, the reason the ECB is pushing up interest rates is to reduce inflation. Higher mortgage costs reduce demand across the economy, which eases the upward pressure on prices.
If Ireland – in its wisdom – decided to counteract this it would be the equivalent of pressing the brake and accelerator at the same time. Rather than allowing the higher rates to address the cost of living crisis quickly, we would be dragging it out, while only providing support for a relatively well-off segment of the population.
5. Ireland has historically had awful housing policies. We are so used to them that we take them for granted, but international analysts spent years during the boom marvelling at just how distorting they were.
The OECD considered the bias unparalleled, as Ireland provided homeowners with mortgage interest relief while opting not to tax them on property values, capital gains, or imputed rent (what a renter would pay for the same house).
Once someone owned a house the ongoing costs were minimal, contributing significantly to the upward spiral in prices.
6. In the same period, Ireland also arrived at some of the worst tax policies in any developed economy, with a myriad of exemptions and reliefs that baffled outsiders.
Astonishingly, by 2005, the State was losing more income tax revenue through these reliefs than it was actually collecting. Proportionately, the scale of all this was about three times as high as in the rest of the European Union.
The scattered nature of the reliefs suggested no overarching plan or strategy, just excessive political and lobbyist influence. This left Ireland particularly exposed when the crisis hit.
One benefit of the IMF bailout was that it offered political cover to finally make the system fairer and more efficient.
Judging by the negative reactions to this new proposal from Sinn Féin, many of us at least seem to have learned something from the last time.
Ciarán Casey is an economics lecturer at the University of Limerick. He is author of ‘The Irish Department of Finance, 1959-1999′ (IPA, 2022) and ‘Policy Failures and the Irish Economic Crisis’ (Palgrave MacMillan, 2018).
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