Why the words 'property' and 'tax' spell trouble
ON MAY 31st, 1381, a tax collector called John Brampton arrived in the village of Fobbing in Essex to collect a poll tax imposed by Edward III. The villagers refused to pay the tax and on June 2nd a judge called Robert Belknap arrived in the village to punish the defaulters.
He was attacked and within a few days the serfs of Essex and Kent rose up under the leadership of Wat Tyler and Jack Straw and marched on London to confront the king with their demands for fairer taxes.
Although the Peasants’ Revolt was suppressed, it almost resulted in the overthrow of feudalism in England and led to a gradual easing of the more oppressive taxes on the peasants.
The household charge, which is to be levied at a flat rate of €100, is a poll tax identical to the tax which led to the Peasants’ Revolt. As a poll tax is the most inequitable tax that can be devised, it is not surprising that it has elicited such an angry response.
It was due to this response that Minister for the Environment Phil Hogan has brought forward the introduction of an annual tax based on the value of the property being taxed. He has set up the inevitable “working group” to recommend how properties are to be valued and the rate at which the values will be levied.
Until the abolition of rates on domestic dwellings in 1977, property taxes raised significant revenue. In 1965, property taxes constituted 15 per cent of total tax revenue. This had fallen to 8 per cent by 1977, when rates were abolished, largely due to the abolition of estate duty in 1973. Property taxes fell to 5 per cent of total taxes by 1990. As stamp duty is regarded as a property tax in Ireland, although it is really a transaction tax, the huge sums raised in stamp duty brought property taxes back to 8 per cent of total tax revenue by 2007, at the height of the property bubble.
Domestic rates were unpopular because the valuations on which they were based were outdated which led to high valuations on property of low market value and vice versa. The rates system could have been replaced by a more equitable property tax but Fianna Fáil took the easy option of abolition as promised in their infamous 1977 election manifesto. Local authorities were left with only rates on commercial premises and these are now a major cause of higher retail prices in Ireland and a disincentive to establishing new businesses.
A residential property tax was introduced in 1982 which applied to houses above a high valuation threshold and was only payable when the householder’s income was above a given level. This absurd hybrid tax raised very little revenue and was eventually abolished in 1997. Local authority rates on agricultural land were found to be unconstitutional in 1986 and an attempt was made by the Fine Gael/Labour government of the day to replace agricultural rates with a land tax. A revaluation of agricultural land was begun but the land tax was fiercely resisted by farmers and their resistance was rewarded in 1987 by Charles Haughey when he abolished the land tax.
Throughout the 1980s and early 1990s, reports from the first Commission on Taxation, the National Economic and Social Council and the Industrial Policy Review Group recommended the introduction of a property tax but these recommendations were ignored.
When rates on houses were abolished, local authorities were promised that they would be replaced by a rate support grant from central government. As this grant was reduced throughout the 1980s and early 1990s, local authorities resorted to charges for water and refuse collection.
These charges were resisted and Dublin City Council eventually abolished water charges after a successful campaign led by Joe Higgins, who launched his political career through the campaign. It is now proposed to reintroduce water charges when meters have been installed
Water is a valuable resource that needs to be conserved but the Government should be wary of any IMF proposals on water charges. The IMF has insisted on the privatisation of water supply companies in some poor countries as a condition of financial aid, thus reducing access to water by the worlds poorest people.
There is an atavistic resistance to property tax in Ireland which some nationalists attribute to the “struggle for the land” and to which successive governments have capitulated. The absence of property taxes has led to Ireland being more an asset-based than a production-based economy and the lack of property taxes also contributed greatly to the property bubble.
A property tax is therefore essential, but a site value tax, which seems to be what the Government has in mind, will be inequitable if it disregards the size of the house or apartment being taxed.
The owner of a shoe-box apartment in central Dublin would pay more than the owner of a “Mac mansion” in Leitrim with five bedrooms and six bathrooms and the site value tax would mainly be levied on Dubliners.
Already, Wat Tyler’s successor, Joe Higgins, is planning to lead an uprising by modern serfs or “ordinary workers” as he calls them, to resist yet another unfair tax.
Seán Byrne is a lecturer in economics at Dublin Institute of Technology