Back in 2013, when the country was still beholden to the EU-IMF troika, the IMF was warning of an “acute unemployment crisis” and house sales were falling through because prices were dropping like a stone. Expectations of exponential increases in house prices seemed fanciful, if not delusional.
At the time, you could buy a two-bed apartment on Grand Canal Dock for €295,000 (now worth about €450,000) or a three-bed semi-detached house in Carrigaline, Co Cork for € 195,000 (now worth about €300,000).
When the property tax was introduced in May 2013, a tax of about €420 a year was due for the former, and €315 for the latter. It wasn’t popular but the particular circumstances of the time – as well as the might of Revenue as the agency collecting it – meant that the tax was generally accepted.
Another factor was that in many cases, it wasn’t even market prices upon which valuations were based. A dearth of house sales meant the house price register, which was launched in 2012, offered scant information.
Many homeowners set their valuations as low as could reasonably be expected, or as low as they could dare without attracting Revenue interest.
Consequently, the gap between homeowners’ original valuations, and the current market value, may even be larger than house-price data would indicate. And countrywide (excluding Dublin) official figures show house prices are up by 78 per cent. The increase is 85 per cent in Dublin.
Such rises would not be acceptable to most taxpayers
So you can see why people are so nervous of the mooted revamp of the property tax scheme, which should, technically, mean people adjust their valuations to bring them into line with current market values.
By taking this approach, the docklands bill would ratchet up by about 55 per cent to €650 a year and our Cork homeowner’s would soar by 57 per cent to €495, an annual increase of about 10 per cent. Such rises would not be acceptable to most taxpayers.
Unsurprisingly, the lobbyists are arguing to keep rates in line with where they are now. Minister for Culture Josepha Madigan wants lower rates for homeowners in Dún Laoghaire Rathdown – home to the country’s most expensive properties. And the Independent Alliance wants a cap to ensure no homeowner pays more than the existing bill.
Minister of State for Disability Issues Finian McGrath wants those with disabilities exempted, while there has also been a call for fixed-income pensioners to avoid the tax.
Will the Government shrug off these calls and do as it’s supposed to do and request homeowners to value their homes at current market rates? Doing so would would bring the yield up substantially to about €750 million.
But we can be pretty sure this is not going to happen. The political capital that would be lost in raising an extra €250 million from already overburdened taxpayers is likely convince Minister for Finance Paschal Donohoe not to go down this route. Especially as the party is dependent on a Fianna Fáil confidence and supply arrangement.
So what might Donohoe do instead?
He has already asserted that any change will be “moderate, understandable and affordable”. Moreover, some local authorities – including the four Dublin councils – don’t take what they’re entitled to, opting instead to reduce the standard rate on an annual basis as the legislation allows them to do.
So what might Donohoe do instead?
The easy option – as was taken by then minister for finance Michael Noonan in 2016 – is to do nothing; to simply allow current valuations roll on once more.
But taking this approach yet again will not only undermine the tax base, it would also look ridiculous. How, for example, could you value a home built in 2019 (which is exempt but should be subject to the tax from next year) based on 2013 prices?
Action must be taken. But trying to appease everyone will not be a straightforward task. A key issue in the debate is the disparity in the bills paid by Dublin dwellers and those living in rural areas.
Someone in a 279sq m (3,000sq ft) house in Longford, for example, could have an annual bill of just €258. While a family living in a 84sq m (900sq ft) apartment in Dublin could be paying more than €400.
An answer to this, some argue, is to base the tax on square footage, at least in part. But while we might have the price register for prices, where is the ledger for the size of homes?
Another suggestion is to base the tax on rebuild costs, as suggested by the Society of Chartered Surveyors. Again, this would give rise to geographical disparities.
Dropping the base rate – currently 0.18 per cent – is another option, as is matching what actually needs to be collected to fund the councils with the amount of money raised.
The tax system is not always fair
Whatever approach is agreed, there will be winners and losers. In the boom, thousands of homeowners paid a fortune in stamp duty only to see it abolished for first-time buyers in 2007 and reduced to just 1 per cent in 2009.
In 2013, despite their earlier hefty stamp duty contributions, those same buyers had to start paying the annual property tax.
In the same year, a new next door neighbour might have moved in, getting their home at a much lower price, with an exemption from property tax, and stamp duty of just 1 per cent.
The tax system is not always fair and Donohoe will do well to frame a new property tax that will meet with universal approval.
