We can learn from the last time we had a property tax, says EDEL MORGAN

ACCOUNTING firm Ernst Whinney summed it up in The Irish Timeson September 20th, 1989, in a small ad promoting its guide to to residential property tax:

Good news

The value of your house has increased . . .

Bad news

You have to pay residential property tax on 1st October.

The last time we had a residential property tax, introduced by the Fine Gael/Labour government in May 1983, it lasted 14 years during which time it was lambasted as a “Draconian sop of a measure” by the IAVI and “ill conceived, idiotic and inequitable” by opposition deputy Des O’Malley, then in Fianna Fáil . There were protests, a High Court challenge to its constitutionality (the court ruled it was not unconstitutional) and defaulting on a grand scale, until it was scrapped in 1997.

Let’s hope, when the value-based property tax is introduced before 2014, as a requirement in the EU/IMF programme of financial support for Ireland, it is properly thought through because some of the same issues remain.

On one level a property tax makes sense as it provides a more stable source of revenue now that stamp-duty returns have all but dried up. But it’s a sensitive issue and yet another burden on an already over-extended public – which could explain the softly, softly approach of starting with a relatively harmless sounding €100 “household charge” .

In May 1983 a 1.5 per cent tax was levied on people’s principal residence where the market value exceeded €65,000 and the income of a family exceeded £20,000 .

To give an idea of who would have been liable for the tax (subject to their income) in 1983: a four-bed in the Burnaby in Greystones had a price of £67,500 while a four-bed house in the Georgian Village in Castleknock, Dublin 15, would have cost over £70,000. Escaping the net would have been a five-bed semi-D in Glenageary Park in south county Dublin valued at about £45,000 and a two-bed end-of-terrace in Crumlin, Dublin 12, at £23,000.

Home owners were required to make a tax return stating the value of their property and failure to do so could result in Revenue making its own valuation. If they sold and were found to have undervalued your home, you would have to refund the difference.

This time around, the tax is expected to be much broader, with fewer people exempt, but will still be based on a percentage of the market value of a property. It will be levied on family homes and investment property and, as yet we don’t know if property owners will be required to furnish a valuation by a professional – another expense.

By then we’ll presumably have, the national house price register to help determine property values. But certain issues remain.When the house price register is introduced it will only backdate to 2010 initially so, given the slow nature of transactions since then, it will take several years before there are enough property sales recorded to give an accurate picture of values.

What if a house comparable to yours hasn’t been sold on your street? In 1983 Olivia O’Leary questioned, in The Irish Times, whether people would be penalised for home improvements that could add value to their home. “For instance will the elaborate pine fittings be assessed? Will it be a tactical necessity to ensure that built-in cupboards and permanent fittings are kept to a minimum?” she asked. And the question remains. Will people be charged more for having a swanky bathroom and kitchen (both known to add value to a house) or for renovating a tired property or building on an extension? And will people be fined for undervaluation?

Will those in deep negative equity struggling to keep up with repayments be given any reprieve? Or will they be expected to pay the same value-based tax on their property as someone with a similar property but no mortgage?

Equally, will there be any relief for a person living in a substantial property with no mortgage but limited income, for example an elderly person?

Back then the tax did not apply to people with substantial property holdings whose private residences were worth less than €65,000. John Kelly FG remarked in the Dáil in 1983, “One could be a mohair-suited, suede-booted, high-living bachelor living in a rented flat worth €64,000. Such a bachelor might own a street of houses where other people lived – he could be the beneficial owner of the entire Pembroke Estate – yet not one penny would he be taxed because he rented his main residence.”

This time mohair-suited, suede-booted, high-living bachelors won’t escape the net, because it seems that investment properties will be liable for the tax.

Property taxes, in the form of an annual tax, are widespread across Europe and in other parts of the world, including the US, and they aren’t necessarily popular. According to taxpolicycenter.org, in the US, “Different assessments for similar properties give a sense of unfairness, and the tax may unduly burden fixed-income property owners.”

So the big challenge for this Government will be to apply this tax fairly and avoid the mistakes of the past.

See Irishtimes/blogs/home truths for more on property tax.

Isabel Morton is on leave