An Irishman's Diary

Tue, Mar 20, 2012, 00:00

THE only thing controversial about the Local Government (Financial Provisions) Bill, 1978, was that its provisions became public before being presented to the Oireachtas.

When the then minister for the environment, Sylvester Barrett TD, introduced the second stage in the Dáil on June 8th and announced that its objective was to remove the burden of rates from 850,000 householders, “once and for all”, he was fulfilling a promise that Fianna Fáil had made during the general election campaign, a year earlier.

The defeated National Condition had already done most of the heavy lifting by transferring expenditure of £97,000,000, mainly for health charges and housing subsidies, to the Exchequer and expanding the waivers for new houses.

In his last budget speech in January 1977, the then minister for finance, Richie Ryan TD, announced that one quarter of that year’s domestic rates bill would be paid from central funds. The government was determined “to complete their work on rates relief for private dwellings at the earliest possible date without relying on alternative taxes or resorting to fanciful theory to achieve that good”.

During the election campaign, the Coalition promised to transfer half of the rates to the Exchequer in 1978 and the remaining quarter in 1979, but Fianna Fáil trumped it with a promise to complete the job in one go.

In those days, economists were a less numerous breed and the only reservations about the abolition of domestic rates that I found in the print media of the time were in two articles in this newspaper by the late Paul Tansey.

He argued that the cost, about £60,000,000 per annum, would have to be found by raising taxes elsewhere. He suggested that the price of secondhand houses would increase by the capitalised value of the relief and that rates were a relatively efficient mechanism for collecting taxes. He quoted an ESRI report from 1975 that found that rates tended to absorb a constant proportion of householders’ income and he argued that the proverbial problem of the cash- strapped widow living in a large house could be solved by providing waivers.

He also made the political point that implicit in the transfer of local authority expenditure was a diminution of local democracy.

These arguments have been rehearsed by many other economists since but, at the time, they had no traction. Rates were widely regarded as antiquated, unfair and a particular burden because they had to be paid in lump sums called “moieties”.

As long ago as 1963, two Labour Party councillors on Dublin Corporation, Frank Cluskey and Denis Larkin had proposed a resolution that “having regard to the injustice of levying local taxation on the basis of an arbitrary valuation of residential buildings and with no regard for the ability of citizens to pay, the local taxation code should be revised and a fair and equitable system should be substituted”.

In May 1968, the Fine Gael TD, Tom O’Higgins called rates a “most unjust system of taxation” particularly for people with low incomes and, in 1970, the Fianna Fáil government gave the local authorities wide powers to provide waivers.

By 1977, the politicians had found a solution to the financing problem: “tax buoyancy”. In times of high inflation, extra money would pour into government coffers from rapidly growing wages and spending. Fianna Fáil would further enhance the take by implementing “growth plans”.

Ironically, the rating system being abandoned had been seen as an improvement on previous systems when it was introduced by the various local authorities around the turn of the century.

In Dublin, for example, the consolidated rate levied from 1893 by the Corporation replaced an “improvement” rate to finance the paving, lighting and cleansing of the streets, a sewer rate, a domestic water rate and the Grand Jury cess that paid for a variety of purposes including prisons, court houses, bridewells, fever hospitals and dispensaries.

These taxes had venerable antecedents.

A lighting tax had been levied from 1719 to pay for the erection and maintenance of public oil lamps. In 1776, a piped water tax became payable whether houses took a supply (from the Dodder), or not.From 1791 until 1832, a tax was levied on coal to finance the Commissioners of Wide Streets. The sewer tax was originally introduced in 1796 on houses that had drains connected to the Poddle. A police tax was levied from 1808.

One of the oldest domestic taxes, Ministers’ Money to support the Established Church, was levied in eight cities and towns from 1665. Because valuations weren’t updated, it became irrelevant and was abolished in stages in the 1850s.

A hearth tax was also introduced in the 1660s to finance the “crown and dignity” of Charles II. It was abolished in England in 1689 but survived in Ireland.

The first hearth was excluded in 1793 and it was abolished in 1823.

A window tax that applied in England from 1696 to replace the hearth tax was imposed in August 1799 as a desperate measure to finance Ireland’s contribution to fighting the European war and the maintenance of 138,000 regular and part-time troops following the recent rebellion.

The first five windows in each house were excluded to relieve 640,000 cabins, and the others were taxed progressively. Windows beside looms were also excluded, provided those looms were “really used in weaving”. It was made retrospective to January to catch householders who blocked up windows and collectors were authorised to enter and inspect any house between 10am and sunset. It was long considered damaging to health and was abolished in 1851.

These taxes made little impact on the national debt which grew during the 18 years of the independent Irish parliament from less than £2,000,000 to almost £27,000,000 and continued to grow in step with the overall United Kingdom debt until 1817 when the two exchequers were amalgamated.

As we enter a decade of anniversaries, that’s one year which the economists could commemorate.