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Dan White: A €1k property tax is just the beginning

Q. Are we going to have to pay a property tax?

A. We're already taxed to the hilt, but yes indeed, we're going to be hit with a penal property tax.

Q: But he Government said a property tax is "off the agenda" so why has it come up again?

A: The Government has a €3bn hole in the public finances that it needs to fill in next December's Budget. With Brussels now approving our budgets in advance, the pressure is on to impose a property tax.

Q: Why do we need a property tax?

A: In every other developed country taxes are levied on incomes, consumption and property. But since the abolition of domestic rates here in 1978, virtually all of the tax burden has fallen on incomes and consumption. Our only property tax has been transaction-related taxes such as stamp duty. Now that the property bubble has burst stamp duty receipts have evaporated.

Q: What form would a property tax take?

A: That's where things get interesting. Ideally the Government would like to impose a tax based on a percentage of the value of a house. However, that would require the construction of a database containing the value of every house in the country, something which could take years. The Government needs the money now.

Q. So what do they do in the meantime?

A. Impose a flat tax on every house in the country. This would be along the lines of the €200 second homes tax, which has proved to be very successful.

Q. How much would a flat tax on homes be?

A. There are 1.5 million households in the country and two million houses. Given that a property tax would be massively unpopular the Government might as well set it at a rate that yields a decent amount. A €1,000 per household property tax would raise €1.5bn.

Q: What other form could a property tax take?

A: In many countries a property tax is based on the value of a home, usually about 0.25-0.5pc.

This would mean that a home valued at €500,000 would pay €1,250-€2,500 per year. The problem with this system is that when property values collapse, so would property tax revenues. A value-based system would also mean that people in the big cities, where houses are much more expensive, would end up paying far more than their country cousins.

Q: Is there any other way of taxing property?

A: A property tax also could be based on the floor area of a home. This would remove the anomaly where people in urban semi-ds paid more property tax than people living in rural haciendas.

Q: But haven't the Greens and Fianna Fail already said that they won't impose a property tax?

A: Ideally the present Government would like to leave the imposition of a property tax to its successor.

It may not have that luxury. The pressure is on to impose a property tax. This week the IMF, the Washington-based banker to sovereign governments, "suggested" that the Government might consider imposing a property tax. With the Government already under pressure on the international bond markets, a "suggestion" from the IMF needs to be taken very seriously indeed.

Q: So when are we going to see the imposition of a property tax?

A: The Government has promised the bond markets that it will reduce next year's budget deficit by €3bn. While some of this can be achieved through spending cuts, at least a portion of the gap will have to be bridged by new or increased taxes. Expect the Government to bring in a flat-rate property tax, even if it is initially set at a low level, next December.


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