Donohoe said delay to local property tax reform was ‘untenable’ before deferring it

Minister for Finance later concluded there was no time to make changes in 2020

 Minister for Finance Paschal Donohoe was told that reform of property tax would need to be prioritised if it was to be changed in this year’s budget. Photograph: Dara Mac Donaill

Minister for Finance Paschal Donohoe was told that reform of property tax would need to be prioritised if it was to be changed in this year’s budget. Photograph: Dara Mac Donaill

 

Minister for Finance Paschal Donohoe told officials in June that local property tax (LPT) needed to be reformed and that it was “untenable” to allow so many houses, including those built since 2013, to continue avoiding having to pay.

However, three months later he announced another deferral on changes to the scheme despite vowing that he would “deal with [it]” if re-elected.

The original promise was contained in a submission signed off by Mr Donohoe in June before a new government had been formed.

The Fine Gael politician was told that reform of property tax would need to be prioritised if it was to be changed in this year’s budget.

In a personal note added to the submission, Mr Donohoe wrote: “It’s untenable to continue to allow a growing number of homes outside LPT [local property tax] base.

“One way or other, the Minister for Finance must legislate for this matter in 2020. May be no harm to get legislation done now for a later revaluation date. A government with a majority must deal with this matter, I hope that I can.”

Lengthy process

By September, however, Mr Donohoe was briefing his Cabinet colleagues that any decision on the property tax would be deferred until 2021.

In a public statement released at the time, he blamed the lengthy process for government formation and said that the initial focus of the new coalition had been dealing with the Covid-19 pandemic.

Records released by the Department of Finance show that the Revenue Commissioners warned in July that a full revaluation process for property tax would not be possible before the budget. In an email, Revenue’s Philip Brennan wrote: “[We] would not be able to deliver full revaluation for 2021 in the time remaining.”

However, he said it would be possible to make changes that would bring homes completed since 2013 into the tax net adding at least €31.5 million to the tax take if they were retrospectively valued at their “hypothetical” 2013 value.

He warned that this would not be possible without early decisions on what would happen and the introduction of legislation to allow for it. Mr Brennan also said other exempt properties could be brought into the tax net but that Revenue would need clarity on this within a few weeks.

Internal emails show that Mr Donohoe decided against making any changes saying his “judgment is that we have also ran out of time on widening the property base”. Mr Donohoe said given the “sensitivity” of the topic, he would need to personally handle the legislation.

He wrote: “All across the same period we are trying to do a budget. And the gain for this would be €31.5 million.”

He said work done now would end up being superseded by a wider revaluation next year. “So, this feels a lot,” he said, adding “feedback welcome on this tricky topic”.

Revaluations

His special adviser Ed Brophy responded: “I think we will only have one shot at this and unlike last time a deferral of revaluations will be expected in the autumn. As such, best to postpone any wider moves to spring 2021.”

One of the submissions prepared for Mr Donohoe also suggested that the Covid-19 emergency might create problems for reaching fair values for properties.

It said an “expected sparsity of property transactions” might make it difficult to establish reliable property values for payment of the tax.

A spokesman for Mr Donohoe said any changes to local property tax would have been contingent on changing the law by the end of September, leaving the department an “extremely short” timeframe to work with.

He said: “Even with the earlier commencement of the Dáil term on September 2nd the timeframe within which to progress an LPT Bill was extremely short particularly in the context of the pandemic and the preparation of Budget 2021 and Finance Bill 2020.

“The Minister for Finance has announced that he will advance legislative proposals early in 2021 to implement the LPT commitments in the Programme for Government. These commitments include bringing new homes, which are currently exempt from the LPT or outside of the tax, into the taxation system.”