Is stamp duty all that important?

The biggest issue of the election campaign to date, stamp duty, has received too much attention, said NUI Maynooth economics lecturer Jim O'Leary in yesterday's Irish Times (sub. req'd.):

"The attention devoted to stamp duty is a measure of how preoccupied we have become with property and seems entirely out of proportion to the objective magnitude of the matter. Last year the total yield from the tax was €3.7 billion, of which €1.3 billion came from residential property. The latter figure amounts to less than 1 per cent of GNP and compares with receipts of over €13 billion from VAT, €12 billion from income tax and a total tax take of €45.5 billion.
Another way of contextualising the discussion is to compare the coverage afforded to the stamp duty issue with the amount of time that has been devoted to debating the future of our education system. Spending on education amounted to €7.6 billion (5 per cent of GNP) last year, and the quality of that education will be a key determinant of our economic and social well-being for many years after election 2007 has become a distant memory."

More interestingly, perhaps, he thinks that not much of the recent "softness" in the housing market is due to uncertainty over the fate of stamp duty. First the statistics:

"House price growth has clearly run out of steam in recent months. According to the Permanent TSB/ESRI index, prices nationwide fell by 0.6 per cent on average in March, after being flat in February and rising by just 0.1 per cent in the months November through January."

Rather than suggest this is due to the stamp duty debate, O'Leary sees "other potentially powerful negative factors at work, including a sizeable hike in interest rates and a shift in sentiment." Indeed, "the softening of prices has been as pronounced in the first-time buyer market where stamp duty is effectively a non-issue (first-time buyers accounted for 5 per cent of the total raised in residential stamp duty last year) as it has been elsewhere." O'Leary's conclusion is that "uncertainty about stamp duty has had little or no impact on house prices and probably no more than a modest effect on volumes."As an interesting footnote, he suggests cost projections of reform put forward by Fine Gael-Labour (€460m) and the PD's (€355m), which are "based on the constellation of house prices and sales volumes that obtained in 2006 ... are likely to exaggerate the cost, perhaps by a very large margin."

Irrespective of the importance of stampt duty, the reform proposals put forward by the PD's. then Labour and then Fianna Fail are all commendable. Fine Gael's proposed three-year timeframe seems to have gone by the wayside - and justifiably so.