Will local property tax be left to slowly wither and die?

The local property tax falls due for those making lump sum payments this Wednesday. But the long-term future of the tax remains in question.

The previous government deferred the time at which houses would be revalued for the purpose of the tax until 2019 – meaning bills would not change until the following year, at the earliest.

But in the wake of the water charges controversy, will whichever government in power in 2019 really set in place a process which will see many householders pay higher bills, assuming house prices remain on the rise?

Of course higher bills could be avoided by lowering the rate of the tax, but applying it to updated valuations. But given the toxic politics around such fixed charges, you could see the problems if even some houses have to pay more.

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Already many local authorities have, where they can afford it, moved to reduce the levy within the limits set under the law, and few householders connect the tax with the delivery of local services.

2013 valuations

Local property tax bills are now set on the basis of 2013 valuations. Any new homes bought since then from developers or builders are not subject to the tax at all – this provision was also extended until 2019. Also, due to an anomaly, houses bought in 2013 are not generally liable.

These anomalies will build and build. For example, more and more people will have bought new homes, exempt from the tax, and the fundamental basis for valuation will be further and further from the reality of current prices.

This could destroy the credibility of the tax – as happened with old domestic rates system in the 1970s – or conceivably even leave it open to legal challenge.

The possible routes ahead were outlined by former senior public servant Don Thornhill in a report he completed in 2015.

His key recommendation was that the tax be restructured to base it more closely on the funding needs of local authorities – a genuine local tax. This did not happen and instead the can was kicked down the road until 2019.

Unless someone makes a call before then, the likelihood is that the tax will eventually wither and die, to be replaced by the need to collect yet more income tax.