What is the future for your local property tax bill?

Doing nothing could mean huge increases in bills for households in 2020

 

Your property tax bill is not going to shoot up over the next couple of years, despite the rapid rise in house prices. That is unless you are one of the people who bought a new house since 2013, and may be pulled into the net for the first time.

However, there are implications for all household finances in whatever decision the Government makes in the months ahead on the future of the property tax, particularly if the way is left open for gradual annual rises after 2020.

Nothing will change in terms of what households pay before 2020 – which may well be the far side of the next general election. But the Minister for Finance has to make a decision. Doing nothing would mean the prospect of huge increases in bills for households in 2020 and there is political consensus that this cannot happen. Just this weekend Paschal Donohoe said that any changes in the future would be “moderate and affordable”.

The local property tax was introduced in 2013, and the idea was that the valuations – and thus the tax due – would be reviewed every three years. However, in the wake of a surprise jump in house prices, the former minister for finance Michael Noonan deferred the revaluations due in 2016 until 2019.

Revaluations

As things now stand, householders would have to revalue their properties in November 2019 and would pay higher bills in 2020 on foot of this.

Given the 70 per cent-plus rise in house prices nationally in the meantime, this would mean big increases – for example someone now paying €405 a year could face a rise to €675 or even €765 if they live in Dublin. And of course prices will keep rising over the next year, pushing potential bills yet higher.

With politicians on all sides saying this cannot happen – indeed Sinn Féin and some others continue to lobby for the abolition of the tax – the challenge for the Government is to find a sustainable way forward. An inter-departmental group is currently crunching the numbers with an announcement due in the budget in October.

One option would be to freeze the tax where it is. Doing this would protect the existing €477 million in revenue. However, it would mean the tax would slowly drift off into irrelevance in the years ahead as a kind of fixed annual charge, gradually declining as a percentage of total revenue.

It would also leave existing anomalies untouched – including the fact that anyone who bought a new house since 2013 is exempt, or indeed anyone who bought any kind of home – new or second-hand – in 2013 itself. Some 48,000 households are exempt from paying, mainly on this basis.

Anomaly

The Budgetary Oversight Committee of the Oireachtas recently concluded that this anomaly should be ended as it was unfair to those who have to pay.

Doing so would nonetheless spark political controversy. New homes are often bought by first-time buyers who are typically younger and will have big mortgage commitments. This is one potential flash-point in the reform plan to come.

Another source of political difficulty is that any reform of the way the tax is assessed will leave some people better off and others worse off, even if the overall amount of tax raised stays the same.

In the wake of the water charge protests, Ministers will be only too well aware of the politically fraught territory they are in here

For example, one suggested approach would be to base the tax on new, updated, property valuations but lower the rate – currently 0.18 per cent on houses up to €1 million – to keep the overall amount collected the same. However, this would push some homeowners, whose house prices have increased by more than the average, into a higher band and thus higher repayments, while some others will end up paying a bit less.

Broadening the tax base

Then the question is how, in future, the tax is to be assessed and whether it will rise with house prices, or be decided centrally by government based on some other criteria, such as consumer price inflation, or an assessment of the financial needs of local authorities.

Any suggestion of a gradually increasing burden could prove politically controversial, despite the economic argument that property tax is a good way of broadening the tax base.

A 2015 report by Dr Don Thornhill, came down on the side of the government deciding each year what funding was needed and allocating minimum amounts to each local authority, who could then increase it by up to 15 per cent if they chose. This would turn a property tax into a local council charge or tax, altering the original base on which the tax was collected but maintaining its revenue. It would leave open the option of gradual increases.

It may be the kind of approach the Government opts for. However, in the wake of the water charge protests, Ministers will be only too well aware of the politically fraught territory they are in here.

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