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Estia will cost the state more than €800m over 25 years

FINANCE Minister Harris Georgiades is expected on Monday to unveil the final version of the Estia scheme, which is supposed to be targeted at vulnerable homeowners who are in arrears with their mortgage payments but as it stands it only appears to be a godsend for strategic loan defaulters.

At the end of last month, even the European Stability Mechanism added its voice to those who fear that the scheme poses a ‘moral hazard’ and has urged the state to tighten criteria.

The scheme as proposed enables households and small and medium-size enterprises which have non-performing loans with primary residence worth up to €350,000 as collateral, an annual income of up to €50,000, and net assets worth up to 125 per cent the value of their home (e.g a household with a home valued at €350,000 and other assets valued up to 125 per cent of that, which is €427,000 is still eligible for this scheme) to benefit by having one third of their monthly loan repayment subsidised by the taxpayer.

Many articles have been written about the unfairness of the scheme on those who, by contrast, scrimp and save to meet their loan payments and who will not qualify for relief. Also, how must they feel knowing the bank has taken a 20 per cent hit on the loans of defaulters but creditworthy customers must pay up in full or risk becoming defaulters themselves if they come up short.

To add insult to injury, during a meeting of the House finance committee this week, MPs asked for the Estia plan as soon as possible before tabling two legislative proposals of their own which propose to give tax incentives to borrowers who are consistent with their payments.

The response from a finance ministry official in attendance was priceless. He said the government opposes the two legislative proposals because initial estimates suggest they would take €35m out of state coffers. That might sound like a lot of money at first glance, and it is. However, with reliable reports that Estia as it stands will cost the state more than €800m over 25 years, then the excuse given to the committee by the finance ministry can only be seen as a bad joke, especially as state coffers always seem to have enough to benefit the already-privileged in our society.

That’s not to say it would be necessarily wise to endorse another complex scheme of tax incentives for reliable borrowers to satisfy populist MPs. This could also be abused and the state would end up throwing good money after bad, even though up to some years ago, there was tax relief across the board for all mortgage payers.

It will be interesting to see what the finance ministry will ultimately unveil. Either the government will scale back on this massive waste of public money called Estia in its final plan and make sure the right people benefit, or it will remain a scheme that is not worth the paper it’s written on to those who are really in need.

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