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Monday 22 September 2014

Councils can afford to make property tax cuts

Coalition considers five-year freeze on home levy rates

Published 30/06/2014 | 02:30

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Picture posed. Thinkstock
Picture posed. Thinkstock

HOMEOWNERS in more than a dozen city and county council areas are in line for a property tax rate cut next year.

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A briefing note, prepared for the Economic Management Council (EMC), says between 12 and 14 councils will have sufficient funds to cut their rate, the Irish Independent has learnt.

However, any reduction in property tax rates would be subject to the Government not landing local authorities with extra costs or cutting their central funding.

Separately, a freeze on the valuation of houses for the property tax for the next five years is also being discussed within the Coalition.

The discussions at the highest level in Government will come as a welcome boost to families who have been hit with a series of stealth taxes over the past seven years.

From next year, councils have the ability to cut or increase their rate of property tax by 15pc – if they can manage their budgets.

The memo to the EMC, which consists of the Taoiseach, Tanaiste, Finance Minister and Public Expenditure Minister, says that based on the "current estimate", between 12 and 14 councils will have that "flexibility".

With councils set to be given 80pc of the revenue collected locally next year, urban areas with larger populations and higher house prices will get a windfall.

The locations listed include the four Dublin councils, Louth, Meath, Kildare and Wicklow, Cork city and Galway city.

However, a sting in the tail will come if the Government penalises these councils by cutting their other central funding or giving them more responsibilities to pay for.

Environment Minister Phil Hogan is due to bring a memo to Cabinet in the coming weeks around the allocation of funding, based on an inter-departmental group report on local authorities' budgets.

Outside of the 80pc going direct of the councils, the allocation of the remaining 20pc of funds has to be decided, with smaller councils expected to get a disproportionately bigger share.

Also at stake is the allocation of other fundings from the Department of the Environment and whether councils will have to pay for more services out of their own budgets next year.

But there are tensions in the Coalition over the allocations and resistance from officials in the Department of the Environment.

"You have to give these councils the funds. They are getting the high taxes based on the high value. You have to give these councils the ability to cut the rate.

"This is a tax broadening measure, not a revenue raising measure. You allow the tax to be reduced because these people are ultimately paying more tax due to higher property values. Councils with the extra revenues should be able to reduce their rate," a senior government source said.

Valuation

The next valuation of prices for property tax is also on the table.

At the moment, homeowners are due to pay the property tax up to 2016 based on the value of their house last year. The next re-evaluation is due in 2016.

But the Labour Party is pressing for a freeze on valuation up to 2019 as the substantial rise in property values in certain parts of the country, particularly Dublin, would see homeowners pay substantially more in just two years' time – the year of the general election.

The Labour theory is the current market bubble needs to be allowed to pass before there is another valuation process.

"This is one of those ticking time bombs that needs to be defused. You have to allow the market to settle down, which isn't going to happen within just two years.

"It would help in terms of confidence to tell people they won't be paying more in just two years," a senior government source said.

But another government source said it was "too early" to start announcing a freeze on valuations two years down the line.

"It's only 2014. You don't know what will happen in the next two years," the source said.

Last week, it emerged the value of homes and apartments is again rising at a double-digit level – for the first time since the property bubble burst.

In the strongest rise for seven years, prices shot up by more than 10pc across the country in the year to May and by twice that in Dublin, the Central Statistics Office said.

Irish Independent

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