Hitting the roof
Published 08/12/2012 | 05:00
• What I find interesting about the property tax is the element of time travel it invokes. Essentially, it is aimed at rich people living in big houses and we feel that by making them suffer – even if it raises little money – it'll make society fairer. Apparently, if you attack one sector it makes the other sector better disposed toward them (worked in Bosnia?).
The tax is a low-income, vote-winning strategy and that's fair enough. The time travel arrives because typically a person living in a big house is someone who about five years ago thought he was rich and borrowed enormous sums of money to buy this big house. Since then, his income has collapsed and the house has become worth, say, one-third of the mortgage.
This means he can't sell it, give it away or burn it to the ground. The bank (which is the Government) won't allow him to do anything except pay as much as possible out of his reduced income toward the massive loan, even though he'll never have equity in the house again and he will in the end die insolvent, regardless of what insolvency punishments we dream up.
Effectively, then, the tax is not punishing people for being rich, but rather for having thought they were rich about five to six years ago.
The problems will arise due to the circular nature of our economy. For instance, they are saying the unpaid tax will be attached as a claim on the house. That again is fair enough, but since the house is really owned by the bank, which will eventually take possession of it, it is the bank that will need to clear the claim to effect a sale in about 10 years.
The bank, of course, passes this loss straight to the Government, which puts it against the revenue raised from the property tax and might even cause them to raise the property tax. This is a well-understood positive-feedback loop and spouting in the Dail won't change the laws that control such loops.
The core problem, I believe, is that no matter what marginal tax rates we apply to high earners, there is always a feeling that they are still taking home too much money and need to be 'sorted out'. We can only stop people earning more than €100,000 from having more take home pay than average by either having 100pc income tax above €100,000, outlawing salaries above €100,000 or simply arresting high earners.
If anyone wants to torch my house, just give me time to get the kids out into the garden and I'll supply the petrol and the matches. The bank won't be happy, but then it never is and the Government will cover its loss, so it's not really a problem.
E D Barry
Blackrock, Co Dublin