Colum Kenny: Middle-class home-owner sitting duck on property tax
Tax should be on real wealth and real income relative to real expenses, not based on objects, writes Colum Kenny
A property tax is unfair because it is a tax on an object and not on total income or wealth.
As the Government struggles to balance this nation's books, we are still very far from recovery. There will be more pain, and home-owners are in the firing line. The middle class is a sitting duck.
But let's be constructive first. Here is one way that politicians could help to boost the housing market while saving public money on their own accommodation costs.
The Government should buy a row of cheap empty houses in a west Dublin housing estate. Give each of the deputies who has to stay overnight in Dublin a room in one of the houses, a key and a bus pass to the Dail, and abolish overnight expenses. TDs might share the kitchens.
Just last week, the deadline passed for those who own second properties to pay the new tax of €200. It passed unnoticed by most people because the tax is relatively small and because the words "second property" are unlikely to trigger general sympathy.
But the nature of the Government's tax on second properties is unjust and inequitable and highlights some of the problems that will arise if Minister for Finance Brian Lenihan proceeds to hit home- owners with a new tax on their first homes.
The tax on second properties is unfair for at least three reasons.
Wealthier people do not pay it if they own just one property, even if that alone is worth millions. People pay no special tax on other objects such as cars or yachts or works of art that may be worth more than some people's second property. People with second properties abroad do not pay the tax, even though they are then spending further money in those economies and not at home.
But the words "second property" are calculated to arouse envy rather than concern. With the revenue from that tax going to local authorities, some rural deputies also see it as a handy way to squeeze urban dwellers.
People who bought second properties in a place like France are doubly lucky. They are not hit for the Irish tax, and their properties have also not been devalued by that collapse in Irish prices that followed our Government's mismanagement of our economy.
And here is where the envisaged new tax on all properties has much in common with the existing tax on second homes. In both cases, people who carefully saved money and invested it in building up the local infrastructure in Ireland, supporting local services, now make a clear target for the Government.
There is Nama to bail out the rich and well-connected, and there are growing calls for our now virtually State-controlled banks to be "flexible" towards individuals who recklessly ran up massive mortgages. By "flexible" it is meant partly that shareholders and other customers should subsidise, via reduced share prices and increased charges, those who were given inflated mortgages to buy very nice properties and cars and furniture beyond their means. We will be told of genuine hard cases of people who lost jobs, but behind that lurks a whole other group that will also be fixed up.
Meanwhile, people who bought only houses they could afford, and invested and saved over the years, will be targeted. If people were lucky enough not to have bought bank shares, they might have improved their homes or moved to bigger houses. Time to get them now.
But a tax on property, unless it is related to income and general wealth and to the number of people living in the house, is simply unfair.
What if the Minister puts the same flat tax on all houses, so that the less well-off pay the same as the rich? Unfair.
What if people who live in publicly owned housing do not have to pay, yet those who live in private homes and have smaller incomes than some people in public housing are liable? Unfair.
What if the minister bases a tax on the square footage of a property? Big old houses are more expensive to maintain and tend to have larger rooms and bigger "wasted space" in halls and stairways than modern homes. But they are not necessarily worth more. Unfair.
What if the tax is the same, regardless of how many wage-earners live in the house? Unfair.
What if one childless couple and a couple with four children live in identical houses and are taxed the same for the space used? Unfair.
What if the tax is based on the value of the house, when some people must pay more than others to buy a house of
exactly the same size simply because of where they work or live? Unfair, especially to urban dwellers.
What if people who are resident here but have properties abroad still do not have to pay the tax on second houses, yet have no equal property tax to pay overseas? Unfair.
What of those (in Nama or otherwise) who use cleverly structured companies to acquire properties so that they never personally "own" them, but still enjoy all the benefits and can offset upkeep expenses against company income? Unfair.
And what if those with very large mortgages are allowed to deduct them from the value of the house before assessing their liability for property tax, while those who have been careful and worked hard to reduce mortgages get no equivalent discount? Unfair.
What if someone has planned their retirement on the basis of a fixed income that is just enough to live on, but must now go into growing debt to pay a property tax each year, when people with bigger incomes but no property pay no equivalent tax? Unfair.
Tax should be on real wealth and real income relative to real expenses. It should not be based on objects.
As politicians wrangle heatedly over hunting, and prepare to break from real Dail business for months, the economic crisis continues and a general election begins to loom. The books are far from balanced, despite claims last week that "the recession is over". Decisions will get progressively more difficult as Fianna Fail and its Green friends see the writing on voters' walls.
The nightmare scenario is that the Government will do no more, unable to offend voters by balancing the books and unwilling to restructure society radically. Precisely because people feel that the response to the crisis has been inequitable, voters are hostile and suspicious.
There is a real danger that what has been done, despite the cost and pain, will have been wasted. Billions down the sink. We could be left yet with Nama and its debts, with still no account of where exactly all that borrowed cash actually ended up, and with the country bankrupt. And with an unfair property tax.