Property tax risks dying of neglect

Your local authority does not want your money. At least it doesn’t if you live in Dublin. It is the time of year when local authorities vote on the level of local property tax they want to impose for the year ahead. For the past three years the four big Dublin local authorities have voted to introduce the maximum allowable cut of 15 per cent in household bills.

It is part of a pattern of political reticence towards the tax which could see it collapse entirely over the next years, unless action is taken. The local property tax was introduced in 2013 as part of the troika deal to widen the tax base and provide new funding for local authorities. It is now at risk of dying from neglect.

Even the authorities themselves are ambivalent about taking the cash. Councils can vote each year to increase or decrease the bill by 15 per cent from the base level. Over the past three years, all four Dublin councils opted for the maximum allowed cut of 15 per cent, though the experience across the country was more mixed.

Votes taken so far this year have been interesting – and often close. For example, for 2018 Fingal councillors responded to pleas for more funding from council management, but only by restricting the cut to 10 per cent, while Dún Laoghaire-Rathdown councillors ignored their management's warning completely and again opted for the full 15 per cent reduction. The other two Dublin councils – the City Council and South Dublin – have yet to vote, as has Cork City.

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Interestingly Cork County Council, the next biggest collector after the Dublin councils, opted for a 5 per cent reduction in both 2016 and 2017, but voted to implement the base tax level next year, meaning many households will face an increase. In some councils, at least, the balance of opinion is that there may be more votes in better services.

Experience varies

Elsewhere across the country the experience varies, with the vote in Laois for a 10 per cent rise a notable outlier – though as this means a rise of just €9 a year for some 40 per cent of those affected it is unlikely to spark a riot. In many councils many of the parties of the left, including Sinn Féin, are leading the charge calling for the maximum reduction, often, but not always, supported by Fianna Fáil. Labour, in contrast, brokered the move to introduce a smaller cut in Dún Laoghaire-Rathdown.

It seems odd to see Sinn Féin and People Before Profit voting for cuts in the tax on the primary source of wealth held by most people. Their argument is that the tax is unfair, a "Dublin tax" and an unaffordable imposition for many.With Fine Gael councillors often on the other side of the argument, it reflects the strangely confused world of Irish politics, with no one quite certain whether voters put a higher priority on better services or lower taxes and everyone loath to explain to them that they cannot have both.

Next revaluation

Public attention is now turning to the next revaluation, due in 2019, which could, unless the Government decides otherwise, lead to very significant increases for many. The last revaluation, in 2016, was cancelled, so the tax is still based on 2013 values. A house valued at €400,000 in 2013, the last valuation date, would now be likely to be valued at more than €620,000. This would hike the annual bill from €765 to €1,125. Someone with a house valued at €650,000 in 2013 could see their property valued at more than €1 million, with a tax bill rising from €1,215 to more than €2,800 a year. And that is before taking account of further house price rises likely over the next couple of years.

There is no way this is going to happen politically, nor should it. But it is up to the Government to decide what does happen. Dr Don Thornhill, who did a study for the Government in 2015, recommended one way forward, basically re-engineering the tax to provide an agreed sum of revenue to local authorities. The house price bands could also be changed, to ensure people don't face a big hike in 2020, when the 2019 valuations are due to feed through into tax bills.

Thornhill report

But doing nothing is not an option. As the Thornhill report pointed out, the longer revaluations are postponed, the harder it becomes to do them at all. And the tax is already at risk of losing public credibility. There are obvious examples of unfairness – for example, any new house bought from a builder since 2013 is exempt. So is any property at all bought in 2013, provided the purchaser is still living in it as their primary residence.

The Thornhill report warned that all this, unless tackled, could undermine the credibility of the tax, as happened to the old domestic rates system abolished in 1979. It could also leave it open to legal challenge on fairness grounds. As Thornhill pointed out, the old system of agricultural rates was successfully overturned in the mid-1980s.

The property tax is only 1 per cent of tax revenue. The economic argument would be to let it drift up over the years and use the cash to cut income tax, or fund key projects. Taxing property is seen as more work friendly than taxing income, and also spreads the tax base and gives it a new stability. The tax could also underpin local authority funding – provided the councillors would actually take the money. But in post-water-charge Ireland, the risk now is that the tax is left to wither completely, throwing yet more reliance back on the old favourite – income tax.