Property levy must be offset by tax reductions
BY the end of next year, interest rates, as set by the European Central Bank (ECB), could have more than doubled to 2.5pc.
If the Government is to implement one of the central recommendations of the report of the Commission on Taxation, then next year is likely to be the starting date for a new property tax. Currently, one of the few things helping to keep hard-hit households solvent is record low interest rates in the eurozone.
The seven cuts in ECB rates in the past few months have meant homeowners with standard variable or tracker mortgages are saving up to €500 a month in interest payments.
This situation has helped to offset somewhat the scrapping in last April's crisis Budget of mortgage interest relief for those with a mortgage for more than seven years. That decision cost couples up to €900 in tax relief per year. Additionally, household budgets are also reeling from the doubling of the crude and cruel income levy and the health levy part of PRSI.
Now the Commission on Taxation is recommending a property tax, to be based on a valuation of each house, with a self-assessment system to be put in place until all homes can be valued.
The commission, in its report, is calling for new tax measures such as a property tax to be countered by a reduction, or abolition, of other taxes such as stamp duty and the income levy.
But whether a Government cowed when it comes to public spending will respect the thrust of the commission report to ensure there is no extra taxation burden on households is highly debatable. The proposal for a property tax could mean double taxation for those who bought at the top of the market and paid hefty stamp duty.
But there is also the thorny issue of how self-assessment in relation to property tax will work. A self-assessment system of valuing properties will be merely guesswork.
Any move to introduce a property tax without a matching reduction in other taxes will represent a cowardly assault on middle earners in particular.
The pain for property owners will be magnified if the tax is introduced just as the ECB starts jacking up interest rates in response to signs of economic recovery in Germany and France. Many European economists see rates as high as 2.5pc by 2010.
If that happens, expect mortgage loan defaults to surge. Finance Minister Brian Lenihan should thread carefully.
- Charlie Weston
