Saturday 19 January 2019

Property tax review must fix anomalies

Minister for Finance Paschal Donohoe.
Minister for Finance Paschal Donohoe.


Minister for Finance Paschal Donohoe recently announced a review of the Local Property Tax which will, in particular, look at the potential impact of the tax in light of significant property price increases. Since the tax came into effect in 2013, property prices have increased by around 70pc, which means property owners would receive a substantially increased tax bill were the current evaluation metric to be applied. It is expected that the review will be completed at the end of August and that the report will provide a number of policy choices to the Government for consideration.

Mr Donohoe has said that the review will be informed by the "desirability of achieving relative stability", both over the short and longer terms, in liable tax due to the Revenue Commissioners. The intention, he has said, is that any future changes in the tax will be "moderate, fair and predictable".

Insofar as the minister's statement goes, it is to be welcomed. But the opportunity should now be taken to examine wider anomalies associated with the tax. For example, property owners in Dublin feel more severely penalised as a consequence of higher property values, in many cases paying over multiples for a relatively modest semi-detached house against a lesser tax on vast mansions in less expensive parts of the country. The tax was introduced to provide an alternative, stable and sustainable funding base for the local government sector, the intention to establish greater levels of connection between local revenue raising and associated expenditure decisions. As such, the tax has become an important source of funding to local authorities, accounting for approximately one-tenth of their revenue income. However, a significant portion of the tax raised in Dublin is used to fund local authorities elsewhere, many with fewer infrastructural or amenity deficiencies than are evident in Dublin. That said, it would not do to pit one part of the country against another in this debate.

There is broad agreement that the tax is important in ensuring the country's tax base remains wide. That reality may in some way go towards explaining why the tax has been accepted, however grudgingly, by the public, with a payment rate of approximately 97pc.

There are alternatives available, however, which would help remedy perceived anomalies. For example, consideration should be given to amending the tax to introduce a calculation based on the square metre or size of a property. The option of a site tax should also be given detailed analysis. The value of property has two components: the land and what is put on the land. Subtract the latter from the total value and you have the site value. An argument can be made that a site tax is, perhaps, the fairest measure of all, although it can also throw up anomalies.

Politicians in all parties are concerned that significant increases in property tax could be imposed on householders as a result of a review of the tax, particularly due to the fact that any increase in the tax may coincide with the local elections, meaning it will be a significant issue on the campaign trail for councillors around the country. The Government has an opportunity to deal with this issue in a moderate, fair and predictable manner. It is an opportunity that should not be squandered.

Sunday Independent

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