The introduction of a “site value tax” to run alongside or replace the existing local property tax (LPT) and commercial rates regimes could potentially raise significant additional revenue for the State while promoting cheaper housing, the Commission on Taxation and Welfare has advised the Government. The LPT regime only applies to residential property but a levy on the value of land, separate from the built assets on it, would draw in non-residential and business premises.
The commission, established last year to examine ways how the State can fund itself into the future, was specifically tasked with looking at the options for a site value tax.
In a report, submitted to Government last month, the commission argues that such a tax would reduce the value of land, incentivising landowners to either develop it or sell it. This would clamp down on land hoarding and land speculation, often cited as drivers of higher housing costs here, while boosting the supply of land and lowering the cost of housing in the process.
Tracts of land
Such a move, it says, has the potential to boost housing supply particularly in urban areas such as Dublin and Cork, where there are still vast tracts of unused or derelict land.
Despite being one of the chief drivers of wealth in the State, land remains one of the few assets that is not taxed directly. Denmark operates what is considered one of the best examples of a land tax. The Danish tax is levied on all land – residential, commercial, agricultural and development – with very limited exceptions but at different rates.
In the Republic, there are approximately two million residential properties, 150,000 commercial premises and up to five million hectares of agricultural land that could potentially be captured by a land tax. The Department of Housing also estimates there is up to 27,000 hectares of development land available with the potential for more than 600,000 dwellings.
Designing and developing a system to tax these assets has the potential to raise additional revenue over and above the existing LPT and commercial rates systems, the commission says. This is seen as preferable to relying almost exclusively income tax, VAT and corporation tax to fund vital public services, especially in the context of an ageing population. One of the potential headaches is valuing land given the limited land database that exists, particularly in areas where there have been few transactions to act as a barometer.
In its report, the commission is understood to warn the Government that it will need to raise billions of euro in additional revenue, primarily through increased taxation, to fund age-related spending and the shift to a low-carbon economy over the next decade. The shift to electric motoring and the loss of traditional motor tax receipts is expected to leave a €5 billion hole in the public finances.
To replace this revenue, the commission is understood to recommend a number of new taxes and charges but primarily a reform of the existing system, including the end of several high-profile tax expenditures. The Department of Finance is expected to publish the commission’s report next month.