Tuesday 25 October 2016

Colum Kenny: The state must get its house in order for tax to work

The unpopular property levy needs to be fair but many possible exemptions will raise the hackles, writes Colum Kenny

Published 22/04/2012 | 05:00

Those who think that the new household charge of €100 is too much to pay are in for a shock. A report last week indicated that property tax may soon leap from €100 per year to more than €200 per year for every €100,000 that your property is worth.

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This means that average homeowners could be paying at least five times what they are being asked to pay now, and in some cases far more. It is beginning to feel a lot like Irish homeowners will pay long and hard for the reckless lending of banks. And landlords will pass it on to tenants.

Although the new report was published by the independent semi-state Economic and Social Research Institute (ESRI), its thinking broadly reflects that of some civil servants and ministers who promised Ireland's international financial backers, that Ireland would introduce a property tax.

But you only had to hear the ESRI's Research Professor Tim Callan on Morning Ireland last week to understand the problems facing any government that tries to implement such a tax. Because many people feel that it hits them unfairly.

The ESRI spokesman had the luxury of conceding that there might be exemptions. Ministers who are caught between an angry electorate and an empty State purse may not be so lucky.

The first exemption that the ESRI suggests is for those on low incomes, below €15,000 for a single person and €25,000 for a couple. This may seem fair unless you happen to own your own home and are earning just above that income.

Already, people on modest incomes who managed over the years to buy their own home feel that they are expected to scrimp and save and struggle to look after themselves while others next door get medical cards and publicly funded housing and free TV licences and other benefits that provide a higher standard of living to people on ostensibly lower incomes. A property tax could be the last straw for these homeowners.

And what if you are a single person earning €18,000 but live next door to a couple on €22,000 whose two sons live with them and earn €14,000 each? Does the family next door not have to pay the property tax even though they have more money? At least the proposed water charges are based on usage and not just service.

And what if you live in a house worth €250,000 but you actually paid €500,000 for it during the boom? Should you be exempt because the bank lent you too much money and you are now in negative equity? There is no doubt that many people in negative equity are in a horrible place, and for the foreseeable future their homes will not again be worth what they paid for them.

But is waiving property tax the appropriate way to relieve them? The tax that is not paid on one house must be made up in higher charges on another. So perhaps the bank that indirectly owns a house in negative equity should pay its share of the tax from their profits.

And if the banks do not have profits now from which to pay tax on properties that they effectively own then they could defer the debt (with interest) until they do. Parents who cannot afford to pay it now must leave it to accumulate with interest until they die and their home is sold off and their children lose out.

The Government must also distinguish between those who are genuinely hard cases, such as young couples suckered by banks into big debts for small houses, and those who were just grabby or greedy.

Why should people who minded their money carefully and who did not upscale their homes be stuck now in homes paying property tax while those who were reckless enjoy better properties on which they get relief from property tax?

And the Government will also face anger from people living in identical houses in different parts of Ireland who are asked to pay very different amounts of property tax because of where they happen to live.

The fact that your home may be worth more because you live in one particular place rather than another is of no benefit to you on a daily basis.

If you sell it tomorrow, you still need to buy another home. If you do decide to downsize and make a profit then the State could tax that profit rather than impose a yearly penalty on you for living in your own home.

The ESRI also recommends that: "No property tax would be paid by pensioners who rely wholly on the State pension." But what of pensioners on very low incomes who do not fall into such categories? Is it a case of tough luck?

Already the middle classes are feeling squeezed, trying to keep cars on the road as petrol prices soar, hit by pension levies and higher taxes, facing health and other insurance costs that spiral even as benefits from insurance dwindle, deprived of tax relief on medical care and forced to pay a range of new charges.

And now comes an annual hit on the house in which you live. How many old-age pensioners who do not "rely wholly on the State pension" will be able to pay a tax on their own home without suffering. Should they go hungry? Skimp on medicine? Not buy their grandchildren presents? Not have the leaking roof fixed?

And who is going to value our homes to determine what we are told to pay when the property tax rises from just €100 to at least four or five times that amount every year? Will it be local authorities, exercising a scheme of exemptions that could see some counties average far more taxed homes than others and see the wink-and-nod inclusion of certain homes in exemption brackets based on political pull?

Already local authorities benefit from the second house tax, which is a jealousy levy based on the idea of a second home owned by outsiders to the county rather than on the value of somebody's assets or on the actual use of local authority services. The second house tax may disappear if charges based on property values are introduced instead.

Any property tax will only work if it has broad public support. The way that water charges and the fixed €100 property charge have been introduced would fill few people with confidence that Minister for the Environment Phil Hogan or his colleagues have thought property tax through yet. And few people are confident that this is the last of the new taxes.

Sunday Independent

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