THERE is hardly a more salient topic of political electioneering today than a stamp duty. As rising interest rates are chipping steadily away at our ability to finance consumption and investment, there is an added threat of a general economic slowdown looming on the horizon. The strengthening of the euro is putting pressure on exporters, unnerving hundreds of thousands of workers employed in internationally trading sectors. Public sector avarice for wage increases is starting to reach catastrophic proportions. The last thing any Irish person needs these days is an end to the windfall gains in housing prices.

It is virtually irrelevant to an average consumer whether the current housing markets woes are temporary in nature or not.

At current levels of valuation the majority of Irish households would not be able to afford the homes in which they are living today. This places us all, buyers and sellers, in a conundrum. In order to sell a property, there must be people who can afford to buy it. And this boils down to more than a price-value ratio analysis. It boils down to affordability question.

To be affordable, average property in any area in Ireland should not exceed in price the value of the average disposable household income, multiplied by a factor of 4-5, adjusted for the existent risk of unemployment and potential adverse income shocks, such as the future interest rates increases. For Dublin, this figure stands at around 280,000, or 35% below that of the current average price of a house.

Given this gap between what is affordable and what is on offer there are two possible scenarios for the Irish housing market.

Scenario 1: a drastic contraction in prices of Irish homes, or scenario 2: a dramatic improvement in the homebuyers' purchasing power.

Scenario 1 will lead this country into a deep recession. Scenario 2 will require some creative thinking on behalf of the largest villain in the property game . . .the state.

By the majority of estimates, through the stamp duty, VAT on new homes, social housing requirements, taxes on land and rezoning costs, levies on development linked to stateprovided services, etc. the Irish states gobbles up between 25% and 40% of the value of each home sold in Ireland. Effectively, it is the state's penchant for raising revenue that is to be blamed for the lack of affordability in the Irish housing market. And this brings us to the issue of a stamp duty reform.

Two questions must be asked in assessing the changes proposed by the political parties in their elections manifestos.

Who are the direct beneficiaries of the reforms, and what is the likelihood that a party proposing reforms will be able to implement them?

Consider first the Fine Gael's (jointly with Labour) proposal, outlined in the Policy Briefing for April 2007, to "Abolish stamp duty on second-hand homes up to 450,000 bought by first-time buyers and levy stamp duty only on the excess." FG limits all of its stamp duty proposals to the first-time buyers only. Given today's prices, these proposals will have only a marginal effect on affordability of second-hand homes in the main urban areas of Ireland . . . the areas that account for over 80% of unfulfilled market demand.

Instead, the reform will favour purchases of homes in rural and extra-suburban locations . . . areas where the first-time buyers already predominantly purchase stamp-duty free new houses.

The FG/Labour proposal will not alleviate one of the most problematic aspects of the stamp duty tax . . . the disincentive that it presents for those who might consider trading down from larger family homes. This means that stamp duty reform proposed by Fine Gael will simply add fuel to the market demand, without adding anything to the supply side of the second-hand property market. It is a purely inflationary measure.

Within the constraints of the FG-Labour coalition, any reform of the stamp duty must be scored against the promises of massive spending increases across the parties' pledges so far.

No one in their right mind can believe that with Labour in coalition, FG will be able to achieve any savings from reforming public spending.

Labour simply too much of a vested interest in preserving the public sector perks to allow for any rationalisation of our state's spending addiction.

In the absense of a direct Fianna Fail commitment, the PDs offer their own version of reforms. The PDs' proposal is to "abolish stamp duty for firsttime buyers in its entirety and to 'band' rates so that all owneroccupiers pay the higher rate only on the portion of the price over each threshold". Their proposal achieves much greater savings for the first-time buyers, without penalizing urban families to subsidise rural and suburban buyers. It also generates substantial savings for all other owner-occupiers.

The former means that the PDs' reforms are more likely to increase both the demand and supply of the second-hand homes. The PDs' proposal does not skew incentives for the firsttime buyers in favour of choosing a remote suburban of rural properties. It simply leaves it to the consumer to decide where they would like to live.

Speaking last Monday in Kildare, Michael McDowell posed a rhetoric question that goes to the heart of issue of the parties' ability to reform the public sector, necessary, among other things, to support stamp duty changes. McDowell asked the public to think, "which parties really subscribe to the terms of Article 45 of the constitution, which commits the state to favouring private enterprise? The Irish economy is a balance between the public sector and the private sectorf While different in certain respects, both sectors must face up to economic realities. Neither sector can be made beasts of burden of the other."

Article 45, paragraph 3.1 of the constitution reads: "The State shall favour and, where necessary, supplement private initiative in industry and commerce." In setting out the guiding legislative principles for the relationship between the public and the private sectors, Article 45 delivers both the argument against monopolies and the potential justification for restricting public spending where such spending interferes with the functioning of private enterprises. Thus, at least in theory, the PDs are equipped with a ready argument to reform public sector and achieve the savings necessary to finance their other proposals. This is more than can be said about the other parties.

Dr Constantin Gurdgiev is an economist and editor of Business & Financemagazine