Property tax may leave politicians out in the cold

The complexity of introducing a property tax has increased in post-Celtic Tiger Ireland

IN THE abstract, the arguments in favour of a property tax are compelling. Ireland is one of the few western economies without such a tax. Our tax base is extremely narrow. The proportion of tax receipts flowing from the various sectors is distorted because of an over-reliance on income tax receipts. This distortion was one of the key factors that contributed to the massive gap in our public finances once the property boom collapsed.

Politics does not operate in the abstract, however. Putting in place a property tax in this country any time soon may be just too big an ask.

Once upon a time, Ireland had a widespread property tax. It was called domestic rates. They were famously abolished in 1977. The question of abolishing domestic rates was one of the central issues in the 1973 general election.

In their “14-point” joint manifesto for that election, Fine Gael and Labour, who were then in opposition, promised the “progressive abolition of domestic rates”. The then Fianna Fáil government initially argued that this promise was “nonsensical” until, in the last week of the campaign, taoiseach Jack Lynch, fearing accurately that his party was losing, suddenly announced that it would abolish rates after all.

Fine Gael and Labour did not keep their promise during their subsequent three-year term in government but repeated it for the 1977 election, as did Fianna Fáil. In government Fianna Fáil, unfortunately, proved true to its word and abolished rates in the 1978 budget.

Writing his memoirs several decades later, Pádraig Faulkner, a member of that government, defended the decision on the grounds that all the main parties supported it; the then existing valuation system was riddled with inequalities; and it would have taken years to revalue the whole country.

The real error made by Faulkner and his colleagues, however, was not the abolition of the rates system but the failure to replace it with a property-related alternative or at least some form of free-standing funding mechanism for local government.

In the four decades since, no government has proved capable of implementing a sustainable property tax system.

Some of the largest protest rallies ever held in this country were those by PAYE workers in 1979. More than 250,000 people took to the streets of Dublin and large towns demanding a fairer tax system and a shifting of the tax burden from work to property, but nothing changed.

Between 1983 and 1997 we had a residential property tax payable annually on houses in which the occupiers’ income was above a certain level. These thresholds were set very high, meaning the tax was imposed on only about 2 per cent of domestic properties and yielded insignificant revenue.

In the mid-1990s the Fine Gael and Labour government pulled back from proposals to broaden the scope of this tax because of trenchant, media-fuelled opposition, particularly from Dublin householders.