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James Downey: House tax just one battle in fight to end our woes

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THE history of taxation in our distressful country is discouraging for anyone who thinks that the system should be rational and fair and in accordance with some sensible government plan for running our affairs.

You probably don't remember domestic and agricultural "rates". This was a most unpopular tax, but it had its merits. If you want to avoid taxes, you can hide wealth. You can't hide a house or a field. And if you couldn't afford to pay, you got an exemption.

Trouble was, by the 1960s the system was hopelessly out of date. It was based on the "Griffith valuation" of the 19th Century, itself based on the supposed letting value of a property. It badly needed reform, which meant recruiting an army of lawyers to work out the new valuations.

In the time-honoured manner, the Fianna Fail government of the day ignored the problem, perhaps hoping that it would simply go away.

Then the Supreme Court struck down the "Griffith valuation" method of assessment for agricultural land as unfair and, therefore, unconstitutional. Instead of bringing in a new system, the government abolished agricultural rates. And in the notorious Fianna Fail general election manifesto of 1977, the party promised to abolish domestic rates as well -- and then delivered on the promise.

Albert Reynolds was, to some extent, one of the beneficiaries. He was first elected to the Dail in 1977. But he never liked his party's attempts to please everyone. When he eventually became Taoiseach, he supported a tax on domestic property based on market value.

This, of course, was just as unpopular as the former domestic rates. It was also a big headache for the Revenue Commissioners, because many people challenged the assessments.

Soon a campaign to abolish the property tax gathered strength. The campaigners argued that the potential revenue was trifling because too few houses were valuable enough to be liable. Numbers as low as 200 were mentioned.

Mr Reynolds hotly contested this figure. He said that "a boy on a bike" could find more than 200 such houses in an afternoon. In fact, he understated his case. If a boy had got on a bike in Merrion Street and cycled as far as Ballsbridge, he would have identified 200 eligible houses in a matter of minutes.

But he was fighting a losing battle. The property tax was abandoned, and so it remained until last year, when our new EU-IMF-ECB masters forced us to take another look at every question of revenue and expenditure.

The result was the imposition of a "household charge" of €100 a year, to be followed shortly by the introduction of the kind of property tax normal in almost all developed countries.

I dislike several things about this method of proceeding. First, the household charge is manifestly unfair because it takes into account neither the value of the property nor the income of those liable for it. Secondly, you don't get a notice in the post demanding payment. You have to remember the due date, and you can easily forget.

Thirdly, it leaves room for a popular campaign based (a) on the defects of the household charge and (b) on the possibility that the ultimate property tax could in time cost a householder €4,000 or €5,000 a year, as in other countries.

Such a campaign is well under way already. The other evening, a very well-dressed and well-spoken young man called at my house to invite me to join. I gave him a short answer. I have a lot of sympathy with him, and with the reader who sent me a furious e-mail protesting at my mention of figures like €4,000 or €5,000, but what is the reality?

The reality is that the Government's revenues have been devastated by the collapse of the property boom -- itself stoked up by tax concessions to developers which continued and even grew after the crisis struck. To repair them, the Government has to impose spending cuts and tax increases. And it has to do both of these things at the worst possible time.

In other words, it has to take more money, not less, out of the economy at a time when we desperately need growth. In addition, this is a time when personal and household wealth have taken a hit of almost unbelievable proportions.

House prices will probably stabilise this year or next year -- after falling in some cases by as much as 70pc since the peak of the boom. This means, for example, even more people in negative equity and unable to spend money, even if they wished to spend. Meanwhile, the idea that the revenue crisis can be overcome by "taxing the rich", meaning people with incomes over €100,000 a year, is simply ridiculous.

Income tax will indeed rise, no matter what the Government now says. The question is not avoiding pain, but applying intelligence to the question of how much pain we can bear.

And here is where Public Expenditure and Reform Minister Brendan Howlin comes into the picture.

We have to cut public spending. And we cannot do that without ill effects on public services. This is a plain fact that we must face. Services, especially in health, have deteriorated already. They will deteriorate further. Although Mr Howlin is a capable and well-meaning minister, he cannot prevent that.

But his job is not merely one of limiting the damage. He needs to lay the foundations for a public service "fit for purpose". To that end, he must achieve a feat that no predecessor managed: give us joined-up government.

That means, among other things, forcing every department and agency to act according to a coherent plan instead of protecting its own turf. It means devising a rational taxation system. And it means standing up to every vested interest inside and outside the public service.

Up until now, this country has been run, not so much as a united democracy as a coalition of vested interests. That must end.

Property tax is only one battle in the struggle to end our present woes and put us in shape for recovery and beyond. But it is a battle that must be fought and won.

Irish Independent