The Local Property Tax (LPT) system needs to be restructured and tax rates set at a local level to avoid homeowners being hit with steep hikes in their bills.
A report commissioned by Finance Minister Michael Noonan says that under the current system more than half of all homeowners, particularly in Dublin, would be hit with higher LPT bills due to rising property prices across the country.
The 'Review of the Local Property Tax' from Dr Don Thornhill says that the entire LPT system needs to be redrafted as it has "serious shortcomings" and does not offer a stable revenue base for local authorities or the Exchequer.
The report was published as Mr Noonan announced that the tax is to be reviewed and a planned revaluation of property prices expected next year would no longer go ahead.
Introduced in 2013, the LPT is based on property prices as of May 1 that year. The tax is calculated at 0.18pc of the value of the home to a maximum of €1m, with a higher rate of 0.25pc applying on the portion of the value above €1m.
All homes were expected to be revalued in November next year, but that has now been postponed for four years, well into the term of the next government.
The report says that if homes were revalued to reflect rising property prices, just under half (48pc) of 1.8 million households would see no change in their annual bills.
However, 52pc of all families would be forced to pay a minimum of €90 extra per year.
Around 650,000 would move up one band, resulting in an annual hike of €90. Another 186,000 would move two bands, adding €180 a year to bills, and the remaining 112,000 would move between three and six valuation bands, generating a liability of between €270 and €540 a year.
This is because between May 2013 and May this year, property prices have risen nationally by 26pc. They are up 41pc in Dublin, and 14pc outside the capital.
"The analysis also indicates a wide degree of regional variation in band changes with the largest band increases, and as a consequence tax liability increases … mainly occurring in the Dublin area," the report says.
If the price increases were implemented, it would result in an increase in the LPT yield from €485m at present to around €620m.
The report adds that the revaluation would result in some taxpayers being hit with "significantly increased" tax charges, while some local authorities would incur "windfall revenue gains".
Mr Noonan said he would be recommending to Government that the revaluation be postponed until 2019, meaning the tax rate will remain unchanged.
The report says local authorities should be told to collect a set amount of money every year, with tax rates set locally. This would allow property price movements in local markets - and not nationally - to be reflected in the rates applied.
The recommendation is being given consideration by the Government.
The Report also says that the LPT should be renamed the Local Council Tax, to reflect the fact that it is for local services.
It also calls for homes affected by pyrite to be exempt from the levy, which could benefit up to 20,000 homeowners.
Analysis & Overview
The review of the Local Property Tax (LPT) is welcome for two reasons. Not only does it highlight shortcomings in a tax collection system introduced just two years ago, it also shows the wide disparity in property prices across the country.
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