The ruin of a traditional cottage on just under two acres, 2.5 miles from the village of Doolin, Co Clare, is on the market with an asking price of €85,000. It comes with full planning permission. Danielle Kavanagh of selling agents Sherry FitzGerald Hussey Madden says that on completion, the interior space of the permitted new build would be 120.5 sq m, with accommodation comprising a living room, kitchen, bathroom and three bedrooms. "The extension will take full advantage of the superb countryside and sea views. There is no residency clause or restriction in the planning conditions and there has never been a better time to build."

There are obvious reasons why the property market has collapsed, and standing out amid the irresponsible lending of the banks and the international credit squeeze are previous interventions by the government.


While property-related tax incentives – from urban renewal to rural regeneration, student accommodation to seaside resort schemes, and nursing homes to hotel tax breaks – might have seemed a good idea a decade ago, they were allowed to linger for so long that supply has far outstripped demand, developers have gone bust and owners are in negative equity. So, as the budget approaches, should the government intervene now to stimulate the property market?


Absolutely not, says Dr David Duffy, researcher with the ESRI who compiles the monthly ESRI/ Permanent TSB house price index. Duffy says the market is going through a major correction that it sorely needs, and should be left alone.


"It's difficult to see how government could intervene in a beneficial manner – we've seen the consequences of that before. But in line with the Commission for Taxation, I would be in favour of a move away from stamp duty because it is reliant on economic activity. An annual property tax would be a more easily factored-in and reliable source of revenue."


Duffy's research includes those households in negative equity and he estimates that, by the end of this year, the number will have risen to 196,000. If homeowners can still pay their mortgages, the worst effect will be that they won't be able to move or trade up. But when unemployment is factored in, it's a much more serious, he says.


Everyone would love to pay a smaller mortgage, but the difficulty for the government is in introducing measures to benefit those who really need help – the people who are about to default. Figures last week show there has been a marked increase in uptake of the mortgage interest supplement by people who are struggling with their loans. The latest research on house prices shows the national average is now back to 2003 levels, although there are significant differences in different parts of the country. In Dublin, prices continue to fall fastest due to over-supply.


Just how important is this in regard to the overall economic situation? According to Paul Murgatroyd, economic consultant with Myhome.ie, no economy elsewhere in the world has bounced back without a well-functioning, robust housing market. He agrees that one prudent intervention in the budget would be the abolition of stamp duty, or even its reduction, to trigger more interest from buyers.


"Previously, stamp duty wasn't a barrier for people buying homes, even when prices were rising. But now it not only discourages transactions, it doesn't reap a significant amount of revenue for the government, either. In 2006, for example, stamp duty brought in €1.3bn in revenue; this year the estimate is that it will be less than €200m. In effect, stamp duty has almost abolished itself at this stage."


Taoiseach Brian Cowen has effectively ruled out a residential property tax on the primary home, largely because so many people in negative equity who paid stamp duty on homes bought at the peak would be irate if they had to pay more tax on their properties.


The €200 tax on second homes imposed in the last budget is now being collected. About half of the 100,000 owners of second homes have paid the tax which, in a full year, is estimated to bring in €40m.


"I think the government has taken discussion of a property tax off the media agenda prior to the budget," says Murgatroyd, suggesting that it may feel that by the time it's up and running, the government will be back in opposition and it will be someone else's problem.


"A transitional allowance period of about two years should be factored in for those who've paid stamp duty in the past few years, while for those new to the market, it means they won't pay any stamp duty."


He also says it might be the time to introduce another old favourite – a grant for first-time buyers (remember them?) Or even better – so the money doesn't go back into developers' pockets – a tax credit, similar to measures introduced in the US and Australia to revive the collapsed property markets there. The amount could be €6,000, restricted to new homes purchases solely, but perhaps higher in the midlands, and commuter counties, where there is still a huge amount of unsold housing.


"But this would only be a temporary measure, to give an incentive to those estimated 14,500 first-time buyers who have loan approval and just need a little push along. It would also help the construction industry and provide a revenue gain for the government by releasing the VAT on transactions."


The Construction Industry Federation also recommended the abolition of stamp duty and the introduction of tax incentives for buyers in its pre-budget submission just under two weeks ago. Jobs in construction have halved in the past two years from 400,000 to 200,000. Another 100,000 jobs are now at immediate risk, says the CIF. The body has urged government to press ahead with its estimated €6bn worth of capital projects to save construction jobs.