The Government is correct to announce a reform of the local property tax and to put the tax on a more sustainable footing. It was introduced in 2013 to broaden the tax base and introduce a sustainable source of funding for local authorities. These remain important goals – particularly given uncertainty over the trend in corporation tax and a likely long-term decline in motor taxes due to a move to electric vehicles. If the local property tax had not been reformed now, it risked falling into irrelevance, or facing a legal challenge which could have undermined it completely.
Property is an appropriate base for a tax which funds local authority services – and it is a tax that is common in other countries. The local property tax is progressive as people in bigger houses tend to have higher incomes and in any case tax levels rise with house values . There are deferral options for low-income households.
No tax is perfect, but the local property tax is relatively straightforward and an efficient collector of modest enough revenues. The bands have been widened and the rate cut to limit the impact of the reform on people’s pockets. The opposition of many on the left to the principle of the tax is odd and looks opportunistic given that houses are the main source of wealth for Irish people – and that the tax take on more expensive properties is much higher than for more modest homes.
Many Opposition parties favour a wealth tax but oppose the local property tax. Taxing property and inheritances remain the most effective way to tax wealth in Ireland – politicians across the board tend to have problems with either, or both.
There are other measures in the Government’s latest package to try to put the tax on a more sustainable basis. In future, revaluations will take place every four years. New houses sold between valuation periods will be chargeable for the tax from the year after purchase. Also, houses built since 2013 will be brought into the tax net for the first time. They had previously been excluded due to an anomaly in the rules, creating clear unfairness. Their inclusion is the main reason why the annual yield from the tax is due to rise from €480 million this year to €560 million next year.
The fractious debate over the property tax is a marker for what is to come. Higher carbon taxes are in prospect. Senior Ministers are also hinting at an improvement in general welfare entitlements and an increase in PRSI to help pay for it.
A range of expert bodies have pointed to the likely need for wider tax increases to pay for higher government spending in the years ahead. The local property tax row is only the start of a debate to come on how to fund a bigger role for the State in the economy. Making the link beween taxes and services is a vital part of this debate and, on the evidence of the property tax debate, not an easy one.