Government faces a big row over a small tax

Government Ministers will have known that there would be controversy about two items in its big economic announcements this week.

The first was the winding down of the pandemic unemployment payment, a row which had been foreseen for many months. But the second came out of the blue, in a surprise decision to push ahead with the reform of the local property tax (LPT), a challenge repeatedly dodged in recent years but now finally confronted.

There can rarely have been such a big fuss about such a small tax – well at least not since the water charges row. The local property tax raises a modest amount of money – €560 million after the reforms – though it is useful for local-authority funding. Abolishing it, as Sinn Féin has called for, would narrow the tax base further and leave yet more reliance on income tax and VAT.

The link in the public mind between the LPT and local services has never really been made. This is partly the fault of councillors, particularly those in the Dublin councils who have lost no opportunity to cut the rate at which the tax is paid each year.

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Allowing each local authority to keep all the revenue raised in its own area – which is now happening – may help to change this mindset, though you wouldn’t hold your breath.

It is interesting that there is so little fuss about some major taxes – notably VAT – which takes a large chunk of incomes each year – and so much about some of the smaller taxes including the LPT and even the carbon tax. And there will be more battles to come.

The Government has clearly signalled higher PRSI charges – initially for employers but also most likely for employees – to help fund more entitlements. Again here the fight will be to frame the debate as paying for a valuable right – whether it is better sick pay or unemployment supports or whatever.

The Government will hope that the welfare and tax commission can underline this link, but the debate over the property tax shows just how difficult this can be,