Huge unfairness lies at heart of the local property tax

We need to talk about local property tax. Not in a headline grabbing way that reduces it to a simple question of how much more you or I may have to pay when the controversial tax is reviewed in 2019.

Not in a populist way that pits counties with higher house prices and higher property tax takings against those with lower prices and weaker funding bases.

No, there’s a much more fundamental conversation that needs to take place about this tax.

It’s a conversation that must be based on solid evidence which shows that hundreds of thousands of people who pay local property tax (LPT) are not getting the services they deserve because of how their councils’ tax bases and needs are calculated.

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The fact is that we have been sold a lie about this tax, which was introduced in haste in 2013 at the behest of the troika, the third budget under the national recovery programme. We were told that LPT would mean extra funding for local areas – better fire services, more swimming pools, improved libraries, cleaner streets.

But what has actually happened is that as the tax was introduced, other local authority income streams were withdrawn, particularly the old general purpose grants that were made up of motor tax revenues.

Councils are now funded through a combination of LPT, commercial rates, grants and subsidies from central government, and goods and services. This tax is a small but significant proportion of councils’ incomes (nationally it’s 8 per cent but this varies from council to council). But a huge unfairness lies at the heart of the tax.

How it works

Here’s how it works: each council is allowed keep and spend locally 80 per cent of the LPT revenue it collects, with the other 20 per cent passed on to an equalisation fund. This fund helps less “well-off” councils to cover their LPT baseline costs to pay for services, staff and amenities.

Large variations in house values around the country feed into public antipathy to this tax

The baseline, as set by central government, is the limit beneath which a council’s funding is not permitted to fall. So, where a local authority’s LPT income does not meet the baseline figure, it is topped up from the central pot that is the equalisation fund.

In 2017, 10 out of our 31 councils are net contributors to the equalisation fund. These are: Clare, Cork county, Dublin city, Dún Laoghaire-Rathdown, Fingal, Galway city, Meath, Kildare, south Dublin and Wicklow. Out of the 21 councils which are net recipients from the fund in 2017, the top three in monetary terms are Tipperary, Donegal and Mayo.

This wealth transfer may come as a surprise to those who assume that a local tax would be spent locally. However, the fact that tax-richer counties effectively subsidise those with more modest revenues is not in itself a problem – after all, all taxes are about redistribution. Until, that is, you crunch the numbers.

The essential unfairness at the heart of the LPT system lies with the flawed way in which the tax funding baseline for each local authority is determined. This is based on a complex and outdated set of calculations, known as the “needs and resources model, which tally a council’s existing staff levels, assets, amenities and services etc. While the current baselines were last set in 2014, the main data used in the needs and resources model dates back to 2001.

Rapidly growing populations

This means counties with rapidly growing populations since 2001, needing extensive investment in roads, staff and municipal services, are assessed as requiring spending based on historically lower resources.

As the 2019 deadline for the revaluation of properties for LPT purposes approaches, debate will inevitably turn to the question of much each of us should pay

An example illustrates this point.

Census figures show that between 2001 and 2016, Wicklow experienced a 24 per cent population increase. The population of Mayo increased by 11 per cent in the same period. Yet in 2016, Wicklow, with a population of 142,332, was estimated to need an LPT baseline of €6.8 million to fund council services while Mayo, with a population of 130,425 enjoyed a baseline of €17.5million.

In 2016, Wicklow County Council brought in €16.6 million in LPT, and paid €3.3 million into the equalisation fund, leaving it with a net allocation of €13.3 million. Mayo County Council meanwhile brought in €10.2 million, and paid €2 million to the equalisation fund. However, it received a top-up of €9.3 million back from the fund to bring it up to its LPT baseline which, at €17.5 million, is more than double that of Wicklow. (Wicklow County Council’s overall budget for 2016 was €91 million; Mayo’s was €125 million.)

Pattern replicated

What can account for Mayo’s higher baseline, as compared with Wicklow’s?

And why do we see this pattern replicated elsewhere, with councils with often lower populations not only better resourced from their LPT baselines, but also with more staff than their more densely populated, and growing, counterparts?

A reasonable conclusion is that there simply isn’t the political will to address the issue.

As house prices continue their inexorable rise – due to a housing shortage caused by failed government policies – councils in urban areas and with higher house densities will inevitably end up transferring more and more money to the equalisation fund.

Residents in these council areas will continue to be doubly punished, because net contributors to the fund are usually required to self-fund capital projects on housing and roads in place of government grants and subsidies, a requirement that does not apply to councils that are net recipients of LPT. In 2016, the self-funding of capital projects accounted for €108 million nationally, with €85 million of it spent by the four Dublin councils.

Complicated

As if it wasn’t already complicated enough, even after the 20 per cent is paid into the Equalisation Fund, net contributor counties are only permitted to spend 20 per cent of their LPT incomes on discretionary items such as parks, playgrounds and roads.

We have been repeatedly told the current model of local property tax is fair and equitable. Yet the data tells an entirely different story. As the 2019 deadline for the revaluation of properties for LPT purposes approaches, debate will inevitably turn to the question of much each of us should pay. Large variations in house values around the country feed into public antipathy to this tax, particularly when higher contributions do not necessarily mean better services.

What we must do ahead of 2019 is to start talking honestly about the structural unfairness hardwired into our LPT system and indeed our wider council funding model.

Catherine Murphy is the joint-leader of the Social Democrats, and TD for Kildare North.