Cabinet could block plan for cuts in property tax
Published 04/09/2014 | 02:30
Election promises by councillors to cut property tax by up to 15pc are in serious doubt on foot of a Government decision on how to fund local authorities.
Local council areas which raise the most property tax will get millions of euro taken off them in order to subsidise other counties, where property tax revenues will not be enough to fund services.
A Government decision taken yesterday means that the better-off local authorities will be forced to fund rural counties where property tax revenues will not match existing funds from central government.
The Irish Independent understands that up to 10 councils based in the capital and the greater Dublin area will still be in a position to reduce property tax by the full 15pc.
However, councils outside this area won't have the luxury and many will put their own local services in jeopardy if they attempt to reduce it.
This will effectively lead to a two-tier system - whereby only councils in Dublin and the east see a full reduction in their property tax.
Labour's Environment Minister Alan Kelly will today produce a report detailing the impact a property tax cut will have on council finances.
"This measure will ensure nobody is a loser, while those in better off areas see some form of reprieve," a source said.
The equalisation plan will ensure that no local authority will be worse off as a result of the change in the funding model for local government.
It will see the introduction of "equalisation measures" which will result in a cut in central government grants for councils who collect large property tax revenues.
But this will tie the hands of some councillors who promised to slash the property tax rates by as much as 15pc in the run up to the May elections.
A Government spokesman said that the legal power given to councils to raise or reduce the level of property tax by up to 15pc will not change.
But the ability of several councils to reduce the rate of tax is now in serious doubt.
It was confirmed last night that the principle of councils retaining 80pc of the money raised in their area, with 20pc of funds being redirected into central coffers, will still apply.
But it is expected that counties that raise less money than they currently get from central government funds will instead be topped up from wealthier counties.
There is huge implication for council areas like Dun Laoghaire-Rathdown and Dublin South, where property prices are the highest in the country.
It means that much more money raised those areas will be redirected to the poorer counties. This is because on foot of the introduction of the Local Property Tax, the government is expected to reduce the level of grant funding it gives to local authorities.
Official sources said that the devolution of certain capital grants to the four Dublin local authorities, totalling €174 million, are expected to go ahead.
Mr Kelly and his department are currently working through the financial, legal and administrative implications for councils across the country.
He said: "We are finalising the legal details on this. I may be able to make an announcement on this tomorrow."
County managers have warned councillors that delivering on election promises to reduce the property tax levels could have drastic implications for their annual budgets.
Speaking to the Irish Independent, a senior Labour source said: "There always had to be a so-called equalisation mechanism at play because the proceeds raised by some local authorities simply aren't sufficient."
The source added: "While there will be a view that some local authorities would lose out, there has always been a social solidarity element to the property tax."
Dublin City Council expects to collect €80m from the tax in 2014 while Fingal collected €32m last year.
Almost all homeowners in Dun Laoghaire-Rathdown paid the property tax, with 97pc compliance, making it the county with the highest rate in the State.
Property tax bills in the area averaged at €686 with a total of €58.1m collected.
A number of local authorities, including Dun Laoghaire-Rathdown, Fingal and Cork County Council, have already voted to slash the property tax by 15 pc.
Representatives from Dublin City Council and several other local authorities have given strong indications that they would follow suit - despite warnings from council management.