Tuesday, 25 November 2008

Oh no, MIRAS is making a comeback

I am getting exhausted. After yesterday's policy disaster, now I read that some people are floating the idea of reintroducing tax relief on mortgage interest payments. Will the flow of bad ideas ever stop?

The thinking behind the mortgage tax relief is simple enough. Giving tax break on interest payments would put money back into the pockets of homeowners, who would go out and spend. In the narrow world inhabited by New Labour, spending keeps the economy going, and therefore keeps the debt-serfs voting for Brown and the gang.

Relief would also encourage house sales, since there would be an incentive to buy a house and obtain this tax break. House prices would go up, home equity would increase, banks could then re-ignite secured lending to households, and spending would go up.

The idea is of course, totally daft. Suppose Darling woke up tomorrow and introduced interest relief on all new mortgages. Everyone with a mortgage would immediately head down the bank and refinance. It would be hard to stop people with home equity loans from also refinancing. Within a few weeks, Darling would have effectively offered tax relief for a generation of reckless borrowing that had financed years of feckless consumption.

There is a lot of mortgage debt out there. Even a limited amount of tax relief could put an almighty hole in government finances.

But then, the fiscal deficit is already a bottomless pit of New Labour extravagance. Darling might think "in for a penny, in for a pound," and say "why not, mortgage interest relief can not make matters any worse that they already are."

6 comments:

Mark Wadsworth said...

"Will the flow of bad ideas ever stop?"

Nope.

Anonymous said...

The delights of free money will be impossible to stop.

roym said...

Hold your horses,
i didnt see anyone in govt linked to this ridiculous idea.
at least wait until the idiots announce a bad policy before jumping all over them!

vado said...

roym

That is how it starts; a leak in a newspaper column, then it is a policy.

Vado

Anonymous said...

They are probably scared of this guy....

http://www.youtube.com/watch?v=bNmcf4Y3lGM

Nick von Mises said...

"in for a penny, in for a pound,"

Or more hopefully "might as well be hung for a sheep as a lamb"