The Commission on Taxation and Welfare has recommended higher and more extensive property taxes, the introduction of a separate site value tax and the imposition of congestion charges on city centre motorists as ways of funding increased spending on public services in the future.
In a comprehensive report, submitted to the Department of Finance last Friday, the commission is understood to have warned the Government that it will need to raise billions of euros in additional revenue, primarily through increased taxation, to fund age-related spending and the shift to a low-carbon economy over the next decade.
The shift to electric motoring and the loss of traditional motor tax receipts is expected to leave a €5 billion hole in the public finances.
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There is a better way to levy local property tax
To replace this revenue, the commission is understood to recommend the introduction of a system of congestion charges on vehicles entering city-centre locations, similar to the regime that exists in London, in conjunction with other measures such as taxes on car parks, road use and the weight of vehicles, under a user-pays principle, among other measures aimed at encouraging greater use of public transport.
The latter would penalise SUV drivers on the grounds of the energy used to produce the vehicle and the increased damage it does to the road.
The body, which was set up last year to advise the Government on how best to fund the State over the next 10-15 years, is also understood to recommend a number of key tax reforms in areas linked to pensions, inheritance and social insurance, including a fundamental overhaul of the current Pay Related Social Insurance (PRSI) system.
The report, however, concludes that the most unobtrusive way of taxing the economy and raising funds without damaging activity is through taxing property and to this end it recommends a more extensive Local Property Tax (LPT) regime with higher basic rates.
Last year, the Government increased the remit of the tax to include homes built after 2013 while tinkering with some of the bands, a move that was expected to increase receipts by more than €500 million.
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The commission is also said to advocate the introduction of a separate site value tax, aimed at capturing the value in land assets, which are predominantly held by the wealthiest 10 per cent of households in Ireland.
As the current LPT regime only applies to residential property, a site value tax would draw in non-residential and business premises, potentially boosting exchequer revenue. It could also unlock vacant land for additional housing.
The Government is expected to publish the commission’s report later this year, possibly just after the budget. The recommendation for increased levels of taxation in several areas is, however, expected to be a tough sell in the current climate with household budgets fraying in the face of higher energy and food costs.
The Organisation for Economic Co-operation and Development, however, warned last year that governments were facing a fiscal time bomb related to funding pensions and healthcare as populations age — one that will “dwarf” the costs associated with the pandemic.
