McGrath’s first budget delivered significant tax breaks for landlords, a risky move with elections looming
By Conor O’Carroll
After much speculation, Fianna Fáil TD and Minister for Finance, Michael McGrath, delivered his first budget on Tuesday, ahead of what could be a hugely significant year for Irish politics.
Local and European elections are already scheduled for next June, and the prospect of an early general election looms large on the horizon, meaning this may be the only chance McGrath gets to impress voters.
However, while a raft of temporary measures to tackle the cost-of-living crisis were introduced or extended, it was landlords who are probably the happiest with today’s budget, with large tax breaks provided.
Tax on rental income up to €3,000 is to be “disregarded at the standard rate”, equating to a roughly €600 tax break. Should the landlord remain in the market for four years, the rate will increase up to €4,000 in 2025 and €5,000 in 2026 and 2027, bringing the value of the tax break to landlords up to €1,000. Leaving the market will see any tax relief recouped.
It’s possible that the tax breaks provided to landlords will also have a knock-on effect on housing prices
This comes on top of the income tax cuts which saw the reduction of USC and an increase in the cut-off for the standard rate of tax.
The rationale behind this cheque to landlords is to incentivise their continued presence in the rental market and prevent the mass exodus that has been muted in the media.
However, the numbers behind this exodus don’t stack up. While the number of registered landlords with the Residential Tenancies Board (RTB) has been dwindling for many years, the most recent Census results show that the number of landlords has grown by 7% since 2016.
The discrepancy between the Census and RTB data is over 50,000, suggesting that landlords aren’t leaving the rental market at all and many are instead not registering with the RTB.
Speaking before the Oireachtas Committee on Housing today, Dr Michael Byrne, an Assistant Professor at the School of Social Policy in UCD, said the lack of concrete data makes it difficult to assess how many landlords are fleeing the market, as has been suggested.
For renters, on the other hand, an increase to the Rent Tax Credit from €500 to €750 will be welcomed, provided it isn’t eaten into by subsequent rent increases. The latest RTB Rent Index for Q1 2023 shows that nationally, the average rent in newly registered tenancies was €1,544 per month, a year-on-year increase of 8.9%.
Relief of €62.50 a month isn’t going to make much difference to those forking out over €18,500 a year just to put a roof over their heads.
There was also no increase in capital spending on housing, however, with an underspend of €1 billion intended for social and affordable housing between 2020 and 2022, money doesn’t seem to be the issue causing housing targets to be missed.
For prospective buyers, the Help-to-Buy scheme has been extended through to the end of 2025, though with property prices increasing by 1.5% in the past 12 months to July, affordability remains a significant issue.
It’s possible that the tax breaks provided to landlords will also have a knock-on effect on housing prices.
Writing for RTÉ Brainstorm last September, Dr Bryne says that “tax breaks for landlords might seem an obvious way to increase supply of rental properties, but it can also increase demand for housing”, leaving those in the rental market seeking to escape in competition with landlords seeking to invest.
Elsewhere in the budget, the allocation to the Department of Health has been reduced by just under €1 billion, following an overspend of similar amounts this year. However, last year’s figure included €2.6 billion in disability services, which has since become the responsibility of the Department of Children.
In his interview with Village (October – November issue) prior to the budget, McGrath said that he was “brassed off” at budgetary overrun and stressed the importance of improving results at the Department.
Much of this year’s health budget is being used to maintain current levels of services. However, with almost 550 patients waiting on trolleys today according to the INMO, ballooning waiting lists for appointments and diagnoses, maintaining current levels is far from satisfactory.
Other budgetary headlines announced today include further energy credits, a significant jump in the minimum wage to €12.70 and tax relief on mortgage interest up to €1,250 per property. There was no word on the rumoured RTÉ bailout, though if TV license receipts continue to fall, this may come later in the year.
An increase to the Rent Tax Credit from €500 to €750 will be welcomed, provided it isn’t eaten into by subsequent rent increases
Despite some much-needed measures to blunt the impact of the cost-of-living squeeze, McGrath’s budget seems measured and controlled as opposed to lavish. The coup for landlords will certainly provide fuel for the government’s detractors and the lack of change in housing policy will put the Department of Housing under significant pressure to deliver.
With elections on the horizon, this may be the last chance they get.
