Review of Local Property Tax necessary, says economist

A review of the Local Property Tax is necessary because property values have not been adjusted gradually, a leading economist has said.

Edgar Morgenroth, professor of Economics at Dublin City University told Newstalk Breakfast "unfortunately it is necessary, we do need taxes to deal with all sorts of crises such as health and housing, so there is a need for a tax review."

He said that the Local Property Tax should have allowed for change all along, instead it had “stored up a large increase”.

Prof Morgenroth explained that the tax had been brought in to broaden the tax base, but by not indexing it the share of tax revenue has been declining. “Rather than broadening it, it has narrowed it. That’s not a good idea.”

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Increases in the LPT had originally been due this year, but the government instead sent the tax for review amid fears that householders – especially in Dublin – would be hit with sharp increases driven by rising property values in the capital and other urban centres.

The tax is charged on market values, but the amount levied when calculating the value of a house has been frozen since 2013. Last week the government said that the review of the tax was to be published shortly.

He recommended that the percentages should remain the same, but that the values increase. He acknowledged that this “will hit places like Dublin more”, but that the Government “could give some of it back” by other allowances and means.

If the issue is trying to raise local taxes then perhaps there should be a system to pay for local services, he suggested. Maybe there is a need to change the way local government is run, he added.

However, Dublin Fine Gael councillor Paddy Smyth said that the Local Property Tax should not be based on “the capricious values” of the property market. “The effects on Dublin would be disproportionate.”

He said that Dublin pays “a huge amount” of tax compared with the rest of the country which is not fair on his constituents. Several Fine Gael and Independent ministers have expressed concern about the prospect of re-indexing the tax to current property values, including Josepha Madigan, Mary Mitchell-O’Connor and Shane Ross.

Fianna Fáil has put forward a bill that would would grant householders a reduction in their property tax worth a third of their management fee, if they are paying one, one third off the LPT, or €300 - whatever is the lowest amount. The government asked to defer the bill for six months to allow Minister for Finance Paschal donohoe to consider the review of the LPT and any new charging system that is proposed.

Mr Donohoe has said that any changes will be “affordable and predictable”.

The LPT is based on valuation bands. From 2015, local authorities have been allowed vary the rate levied on residential properties. Some properties are exempt from the tax – for example, properties bought in 2013 which are used as principal private residences are exempt until the end of this year, as are properties built between January and May of 2013.

There are also exemptions for properties with a significant level of pyrite damage, or those owned by a charity or public body, among others.