Major local property tax hike would be toxic

When the local property tax was introduced in the midst of a deep fiscal crisis in 2013, the valuation of properties on which the tax was based was fixed until 2016.

In 2016, in an act of political cowardice or perhaps political pragmatism, a decision was taken to defer any changes to those valuations until November 2019.

From the perspective of the Government, a revaluation of property prices — in order to determine the property tax liability — has represented an incendiary device that would have elicited a very strong and negative popular response.

Hence, it comes as no surprise that a decision has now been taken to defer any changes to the tax out to November 2020, at which stage the general election and local elections will be out of the way.

Whenever it happens, the implications of a realistic revaluation would impose a considerable increase in the tax burden on property owners and would be incredibly unpopular.

While the introduction of a property tax made sense in terms of broadening the tax base and creating more certainty for tax receipts, the problem is that it comes on top of an already very heavy personal tax burden.

Despite what those on the left continuously argue, Ireland has an incredibly progressive income tax system and the burden of tax on workers with modest levels of income is very onerous.

The introduction of the Universal Social Charge (USC) back in 2009 represented a step change in the personal tax burden and this has subsequently endured.

The financial reality for those who pay employee taxes in Ireland is a very harsh one, but there are many who believe that it should be a lot harsher. Thankfully, the current Taoiseach does not subscribe to that view of the world.

The Taoiseach has committed to lifting the income level at which one pays the top rate of tax to around €50,000 over the coming years, but the reality is that the pressure to increase spending on public sector pay and public services will only intensify over the coming years and the personal tax burden will have to remain very onerous one way or the other.

A significant increase in the property tax in the current environment would be toxic.

The reality is that while on the surface, the Irish economy appears to be firing on all cylinders, the truth is that the personal sector is still seriously stretched and financially pressurised. This is demonstrated by most consumer data.

For example, the latest registration data from the Society of the Irish Motor Industry (SIMI) show that new car registrations experienced an annual decline of 10.7% in the first quarter.

On the other hand, used imports, mainly from the UK, were 2.7% ahead of the first quarter of last year. Used imports are quite simply displacing new car sales.

From the perspective of the Revenue Commissioners, the downside is that in 2018, the average VRT and Vat take on every new car sold was €9,355, whereas the average take from a used import is just €3,233.

The other downside is that from an environmental perspective, older used cars, many of which are diesel, are less desirable than new cars. The continued strong growth in used imports reflects a number of factors, but — first and foremost — it shows the extent to which the Irish car buyer is seeking value for money.

On the retail sales front, the latest data show that in the first two months of the year the volume of sales was 2.3% ahead of the same period in 2018 and the value of sales was 1.2% higher.

This subdued retail sales performance is not exactly indicative of a consumer on a spending binge, and the gap between the value and volume metrics shows the ongoing difficulty for retailers to turn volume growth into monetary value.

Despite this caution on the part of the personal sector, one of the important underlying fundamentals continues to improve.

The number of people unemployed fell by 3,400 during March and the unemployment rate declined to just 5.4% of the labour force.

The economy continues to move towards full employment and this will improve the wage outlook for workers but will exacerbate the recruitment and retention challenge for employers.

Some elements of the personal sector balance sheet look set to gradually improve, but not by enough to justify a significant increase in the property tax bill anytime soon.

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