Wednesday 23 October 2019

Why property taxes are unavoidable

What is it about the Irish and property taxes? While every other developed country levies an annual property tax on householders, we in Ireland seem to view this as being somehow utterly unacceptable.

Already, only two days after Environment Minister Phil Hogan published a bill providing for the imposition of a new €100 annual household charge in the New Year, opposition is mounting to the new tax.

The charge, which is to be the precursor to a new annual property tax, was one of the conditions of the November 2010 EU/IMF bailout agreement.

Quite clearly our creditors don't share the Irish aversion to property taxes.

While the timing of the imposition of the new charge/property tax is unfortunate, coming at a time when householders have already been hit hard by a combination of job losses, wage cuts and tax increases, the case for some sort of annual property tax on households is hard to counter.

Not alone are such taxes the norm in most other countries, there is clear evidence that the absence of such a tax in this country was one of the major contributors to our current misfortune.

Although this country has not had an annual property tax since the abolition of domestic rates 33 years ago that doesn't mean that we don't tax residential property.

Far from it.

During the boom years a combination of taxes on property transactions, particularly stamp duty, and the VAT, corporation tax, income tax and capital gains tax collected from the booming construction sector flooded into the Exchequer.

Unfortunately, instead of recognising these receipts for what they were, a once-off windfall, the then government entered into long-term public spending commitments thinking that the good times would roll forever.

They didn't. When the property bubble burst in 2007 these revenues rapidly disappeared leaving a near-€10bn hole in the public finances. This collapse in revenues from property transactions is, when taken together with the huge increase in social welfare spending resulting from the loss of more than 170,000 constructions jobs, what lies at the heart of the Irish fiscal crisis.

If, instead of relying on such transaction-based taxes, we had had an annual property tax on households, tax revenues would not have grown so dramatically during the boom years and then have fallen far less severely when the bust came. Unpleasant though it may be, the introduction of an annual property tax on households forms an essential part of the reforms needed to ensure we don't repeat the mistakes of the past 15 years.

Irish Independent

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