The policy has been tabled by the party as it attempts to form a new Government
The Department of Finance has indicated that plans tabled by Fine Gael to cut VAT on new homes would have no impact on housing supply.
The Irish Independent reports that department officials have said that the plans would be ineffective and that they would cost €250m and require tax increases in other areas.
The Fine Gael document said that the policy would be, "funded through time-related savings on the capital programme and the expiration of the Home Renovation initiative at the end of 2016."
As part of its negotiations to form a minority government, the party revealed plans to reduce VAT on new houses from 13.5% to 9%. This was one of a number of policy proposals contained in a five-page housing document.
"A key consideration is that economic analysis by both the Department and the ESRI found that the effect of reduced VAT would not have a major impact on housing supply," a spokesperson from the department said last night.
"It is an economic, social, and ethical priority that the new Government [will] do more to address the housing needs of our people," the party document states.
Fine Gael says that it will launch an Action Plan for Housing within two weeks of forming a new Government. It also plans to create a new Minister for Housing if it leads the next Government.