Property tax ‘still a headache’ despite price fall

Official figures yesterday showed that the annual rate of home price increases has eased in some regions, but the headache for the Government in considering a potential overhaul of the local property tax has far from lessened, according to an analysis by the Irish Examiner.

The Department of Finance confirmed yesterday that Minister Michael Noonan had received an expert report as the Government considers possible reforms to the property tax.

The CSO said that its latest residential price index showed only a meagre monthly 0.1% increase in all types of homes across the State, and recorded an increase of 10.7% in the 12 months from June 2014.

The index also showed that prices for apartments had fallen 0.4% in the month and were 18.4% more expensive on average in the year.

The price of all types of homes in Dublin fell by 0.4% in the month but were over 11% higher in the past year, while the prices of Dublin houses fell 0.3% in June and were 10.5% more expensive than a year earlier.

Analysts say that action taken by the Central Bank to effectively ration home loan credit has cooled the housing market — the fastest growing in Europe this year.

However, an analysis by the Irish Examiner shows that the recent modest falls in Dublin house prices will not lessen the difficulties for the Government as it plans to reform the local property tax before the election.

This is because the property tax bills for a three-year cycle were assessed against the CSO property price index of May 2013 when property prices had been flattened by the property crash.

Since then prices have boomed, which means that property tax bills would also soar when the tax is next assessed in 2016, if the tax were not reformed beforehand.

The Irish Examiner analysis shows that average bills would need to rise by 26% to match the price hikes for all types of properties across the State recorded to this June since the first assessment date of May 2013. Bills would need to increase 14.3% for all types of homes outside the Dublin region.

In Dublin, property bills for houses would need to increase by 39.4% to take account of increases in values since May 2013.

Earlier this year, Finance Minister Michael Noonan appointed Don Thornhill — who chaired an inter-departmental group that devised the property tax in 201 — to review the tax.

The Department of Finance yesterday said that Mr Thornhill has reported to Mr Noonan— who will now use the report in his preparations for October’s budget.

Mr Noonan is examining ways to keep the yield from the tax around current levels, and will ensure “that there will be no ‘sudden shocks’ in demands” from the tax, a spokeswoman said.

The Thornhill report will be published before budget day.

Brian Keegan, director of taxation at Chartered Accountants Ireland, said the recent downward pressure on property prices will still not ease the problem as the Government attempts to ensure there will be no big hikes in bills. “The problem has not gone away,” Mr Keegan said.

The tax has left the Government “between a rock and a hard place” because the original purpose of the property tax was to ensure a reliable and equitable source of tax, said Austin Hughes, chief economist at KBC Bank Ireland.