HOMEOWNERS' hopes of a property tax cut, as promised by Tanaiste Eamon Gilmore, are set to be dashed by Environment Minister Phil Hogan's plan to make local councils cover the cost of more services.
The Sunday Independent has learnt that the Coalition is drafting a plan to devolve more powers to local authorities, which will also result in them footing the bills for services that are currently paid for by central government.
The development will hit homeowners in Dublin, Cork, Galway and Limerick, who already pay higher property taxes than their rural counterparts.
The Labour Party was planning to gazump its Coalition partners in Fine Gael by making cuts in property tax in cities the central plank of its local elections campaign.
Councils in large urban areas will get a bonanza next year when they get to keep €4 out of every €5 collected in property taxes.
The huge increase in revenue streams, particularly in urban areas, was expected to result in cuts in the levels of property tax paid in the cities – but the money will now be soaked up by additional costs.
A senior government source told this newspaper: "You can't expect the Government will allow €174m to be sloshing around in the accounts of four local authorities in Dublin and not have reason to spend it. They can't have it every way. If they want responsibility and powers, that will have to be paid for."
Mr Gilmore raised the prospect last week of the benefits being given back to the homeowner through a cut in the rate of property tax.
Mr Gilmore's populist move was seen as a stunt and a sign of the desperation within Labour to stop the haemorrhage of support ahead of the local elections.
Within the Coalition, there are tensions between Fine Gael and Labour over the use of the property tax funds and where savings can be found at local government level.
This year, the proceeds of the property tax are going to run Irish Water before it gets its own revenue stream from water charges. From next year, 80 per cent of the property tax will go directly to the local council where the money is collected. The remaining 20 per cent goes into a central pot to distribute to councils across the country on the basis of who needs it most.
At the same time, councillors will have the power to cut the rate by 15 per cent in their area, provided they can balance the books.
The expectation was that councils in large urban areas would have a surplus from the property tax collection and would be able to redistribute the funds.
But the sting in the tail is a coalition decision to give councils more responsibilities – currently paid for from central government taxes – which will soak up any extra cash in areas with bigger populations.
The Government is drawing up a list of responsibilities it will pass to local authorities, such as covering the cost of housing and homeless services.
The move will undermine Labour's efforts to campaign on a promise of reducing property tax rates in urban areas.
Every government department and agency has been asked to draw up a list of services they currently supply locally, which could be devolved to councils.
"We will be devolving functions and additional responsibilities," a government source said. "They will have to take that into account. They won't have as much as they think.
"It will have a bigger impact where there is a bigger population. It will cost more for the larger urban centres. There will be powers and they will have to be paid for."
The property tax debate is causing tensions in the Coalition. Fine Gael minister Leo Varadkar last week challenged Labour to say which services it will cut as it backs lower property taxes.
Communications Minister Pat Rabbitte has warned Fine Gael: "I don't think the modern day Labour Party does the tradesman's entrance into Government Buildings.
"You could say we have returned to politics as normal after the bailout," he told the Sunday Independent.
"Now we have pulled the country back from the brink, politics as normal, in the sense that there are differences between parties, will return."
Mr Rabbitte hit back at Mr Varadkar's response to Labour's property tax proposals. He said the Transport Minister's position was based on "a fundamental misunderstanding of the act", adding: "I'm not sure the general point Leo is making is correct. The act provides for local authorities to vary their rate, particularly in the case where some local authorities will levy a great deal more than others."