IRISH PEOPLE need to fight back, but what if we end up with the wrong fight? There is a real danger that public anger will latch on to a single issue: property tax. As causes for war go, it has the virtue of being simple, emotive and perhaps even winnable, writes FINTAN O'TOOLE
But it’s not the right battleground. The question is not whether there should be a property tax but whether it will be fair and whether it will lead, as it should, to a revolution in local democracy.
Ireland probably has the lightest burden of taxes on property in the developed world. A report from the OECD in 2006 showed us to be the only country that both allowed tax relief on mortgage interest and did not tax property values, capital gains on house sales or imputed rents. What we had instead, of course, was stamp duty – a dangerous bonanza that depended on the existence of a property bubble.
At the height of the boom, the annual yield from stamp duty on the sale of residential housing was €1.3 billion – almost all of which has now disappeared. There’s a good case for replacing this lost revenue with €1 billion or so raised from a fair tax on residential property.
There are four good things about property taxes. They are relatively stable – the amounts raised don’t fluctuate wildly from year to year. They are hard to avoid (even the cleverest accountant can’t make a mansion disappear).
If properly structured and operated with exemptions for those who can’t afford to pay, they are equitable. And they don’t distort the economy in any negative way. (If anything, taxing property encourages investors to put their money into productive entrepreneurship rather than bricks and mortar.)
But beyond these general principles, there’s a specific Irish political reason for bringing in a fair and sustainable property tax. The history of this whole issue is one of gombeen government at its worst. The pandering to the well-off; brazen pork-barrel electioneering; half-baked policy-making; feeble resistance to special pleading; open tax evasion – it’s all there.
First there was the gradual abolition of property-based taxes to suit particular well-connected groups: imputed rental income tax abolished in 1969; farm tax, introduced in 1986 and abolished in 1987 because farmers didn’t like it; and, of course, Fianna Fáil’s notorious purchasing of the 1977 general election with the promise to abolish domestic rates.
Then there was the residential property tax introduced in 1983 and abolished in 1997. It was so easy to evade that only a handful of eejits (myself included) actually paid it. Of the 1.12 million households in Ireland in 1996, 1.1 million did not pay the tax – a perfect storm of political gutlessness, administrative incompetence and public dishonesty.
The issue has exemplified, too, the triumph of cheap populism over principle in Irish politics. The Labour Party, for example, has been pointing (rightly) to the irony of left-wing TDs going to the barricades to fight property taxes.
But Labour itself ruled out a tax on principal private residences as recently as last year’s general election. (From Newstalk, February 10th, 2011: Ivan Yates: “Your principal domestic residence – will you be paying a property tax under Labour?” Joan Burton: “Certainly no, because we will be looking at a site valuation tax structure for after 2014.”)
Equally, though, Michael Noonan played populist games with the issue, using the idea that Labour might tax property as a red scare.
Because it has been for so long a prime example of what is wrong in Irish politics, the achievement of an equitable property tax might now be a significant marker of the transformation of the political culture – but only if two things change.
The existing proposal, carried over from the last government and the troika deal, is for a site-value tax, calculated on the value of all non-agricultural land, irrespective of whether there is a property on the site or, if there is, what kind of property it might be.
This is unlikely to gain widespread public consent, for the obvious reason that it discriminates heavily against urban Ireland, and especially Dublin: the owner of a poky, jerry-built apartment in the city centre will end up paying more than the owner of a huge house in Roscommon.
But there is an even bigger question: why do people in other developed countries not object to paying property taxes? Because they have real local governments to which the money goes. They see what the money’s being used for and they have some confidence in their own ability to have a say in the way it’s spent. That’s the payoff – a sense that the money you’re handing over is being used in your own community for things you and your neighbours really value.
But we don’t have local democracy. We barely even have local government. In most developed countries, about half of all tax revenue is spent at local level. In Ireland, just 6 per cent is. So the demand should be clear: give us real democratic local control over the revenue and we’ll pay a fair property tax.