Sinn Féin’s opposition to property tax is muddled and incoherent

Language is everything in politics. Notice how Sinn Féin leader Mary Lou McDonald refers to the local property tax (LPT) as a “tax on the family home”. A “tax on the family property” would have entirely different connotations. Sinn Féin wants to scrap the LPT and replace it with a wealth tax.

In its October 2019 pre-budget submission, the party said it would phase out the LPT and replace it with a wealth tax that would levy a 1 per cent tax on net assets over €1 million, albeit with exclusions for working farms and other employment-generating assets.

Study

But, as a recent Central Bank study shows, 90 per cent of Ireland's wealth is tied up in property and that applies even to the wealthiest 20 per cent of households.

So a property tax is a de facto wealth tax – doubly so in Ireland’s case – and Sinn Féin is dancing on the head of a pin by decrying one and supporting the other.

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The party’s chief criticism is that low and moderate-income households fall into the net, many struggling with high mortgage repayments.

That’s true but the tax is designed to allow those on lower incomes defer it, even permanently in the case of low-income elderly homeowners, who can have the tax taken from their estate down the line.

Perhaps further tinkering is needed. Taxes are notoriously difficult to design. They have to strike a balance between revenue generation, not dampening economic activity and not over-burdening the less well-off. They also have to have the semblance of fairness.

Another criticism of the LPT is that it is levied on the current market value of property and not the accumulated wealth in a house, which could be negative.

The Department of Finance’s revised system for calculating the tax, however, seeks to negate the recent surge in property values by widening the bands and cutting the rate.

Homeowners

The department estimates that only a third of homeowners will face a higher bill as a result of the changes while more than half won’t see any change. The changes will also loop in homes built since 2013, which have so far avoided it, an anomaly that had to be corrected.

The Central Bank’s study highlights an unassailable fact about wealth, namely that as you move up the wealth distribution, property becomes more diversified beyond the family home and into things like investment properties, farmland and properties related to businesses.

Would a wealth tax be better at taxing this type of wealth? That’s an open question. The problem with wealth taxes is that they don’t tend to bring in what proponents think primarily because wealthy people use loopholes, valuation schemes, trusts and other structures to lower their liability or avoid the tax altogether.

The advantage of zeroing in on property, apart from the fact that it is the main source of wealth, is that it can’t be moved offshore or hidden away in trusts as easily.

Taxes on labour and spending form the bulk of the Government’s annual tax take, accounting for about 60 per cent of receipts, and the rates here are high relative to other countries, while the LPT generates less than 1 per cent (€480 million in 2020).

Shifting the burden of taxation away from labour to property has long been advocated on the grounds that labour is more productive and beneficial to society in general and property less so.

Critique

This feeds into a long-standing critique of the current system – namely that inherited wealth, which tends to be property, offers riches simply unattainable by working and saving. There’s a strong argument for affording labour a better roll of the tax dice at the expense of things like property.

One of the most pressing issues for the Government is how to raise enough tax revenue to fund the State into the future, particularly in the context of an ageing population and a potential decline in corporation tax receipts. Property taxes are part of the mix in most countries.

The Economic and Social Research Institute (ESRI) also notes in a recent report that higher rates of property tax could curb house price growth “particularly that linked to credit growth and purchases driven by the anticipation of capital gains”.

Either way property has become the great delineator of wealth in Ireland and a major faultline politically and demographically. Those who own their homes are typically older and better off.

According to the 2016 population census, 85 per cent of 65-year-olds own their own homes, while just 14 per cent rented. Contrast that with the fact that an estimated 12 per cent of 25-39-year-olds – those of a prime working age – own their own homes.

Fortunes

Sinn Féin has turbo-charged its political fortunes in the Republic on the back of excoriating the Government on housing and tapping into an inequality agenda that’s increasingly centred around home ownership.

The party outpolled both Fine Gael and Fianna Fáil at the last election by appealing to voters who found themselves on the wrong side of the State's property divide.

A property tax – in principle at least – acknowledges this inequality and seeks to redress it. Sinn Féin’s long-standing opposition to it is muddled and out-of-kilter with its wider political agenda