THE GOVERNMENT should “protect those on low incomes and put the greatest burden on those with the highest incomes” when it replaces the household charge with a property tax, according to a study from the Economic and Social Research Institute (ESRI).
In the main scenario presented by the researchers, most homeowners would pay “in the region of €2.50-€3.00 [annually] for every €1,000 of house value”. After accounting for the authors’ proposed exemptions for those on lower incomes, the study finds those on the highest incomes would be most affected – paying on average just over 0.8 per cent of their disposable income. The lowest earners would pay less than 0.2 per cent on average.
Under the household charge scheme, the authors estimate the lowest 10 per cent of earners are paying almost 0.3 per cent of their disposable incomes, while the highest 10 per cent of earners pay less than 0.2 per cent.
Owing to considerably higher property values in Dublin, the authors say residents there would pay a disproportionate amount if a single tax rate were to be applied nationally.
The impact of a property tax on low income groups “could be cushioned by the use of an income exemption limit, below which the tax would not be payable”, the paper states.
The authors say if single people earning €12,000 or less were exempt from the tax it would greatly reduce the impact on low income groups. With an income exemption limit of €15,000 for a single person, or €25,000 for a couple, it says there would be little impact on the poorest one-third of the population. It also suggests exempting pensioners who rely wholly on the State pension.
The authors estimate their proposal would raise €500 million, the amount the Government has indicated it is seeking to raise.
Cautioning against a tax preferential to those in negative equity, the study states “the design of a property tax should not be overly influenced by the temporary, if severe, difficulties associated with mortgage distress”.
The research paper, Property Tax in Ireland: Key Choices, will be presented at the ESRI’s Economic Renewal conference this morning.