Decision to delay property tax review prompted Attorney General’s concerns at potential for legal challenge

Decision to delay property tax review prompted Attorney General’s concerns at potential for legal challenge

The Attorney General expressed serious concerns about the Government’s decision to delay a review of the local property tax (LPT), a highly confidential Cabinet memorandum reveals.

In the April 2 memo, seen by the Irish Examiner, Séamus Woulfe warned ministers explicitly that the Government is leaving itself open to a potential legal challenge because up to 80,000 homes built since 2012 are exempt from the LPT.

“The way that the 2012 act is constructed is that there is a significant number of properties that attract an exemption from liability for one reason or another,” said Mr Woulfe. “Arguably, this could create an appearance of arbitrariness that could give rise to a challenge from a disgruntled liable person.”

Mr Woulfe also raised the possibility that a deferral is not consistent with the Constitution.

Attorney General Séamus Woulfe
Attorney General Séamus Woulfe

The memorandum was prepared by Finance Minister Paschal Donohoe for the Cabinet meeting on April 2, at which it was decided by ministers not to proceed with a new LPT rate from later this year. Mr Donohoe brought the memo in defence of his decision to defer implementing a new LPT charging regime, despite his own expert review group recommending he do so from this November.

Included in Mr Donohoe’s memo are Mr Woulfe’s “advices” in which he spells out a number of dangers with the proposal to defer the LPT rate change.

The memo reveals Mr Woulfe argued that “it would be necessary to justify this system of exemptions with clear policy reasons and it is possible that the whole act could come under scrutiny, including the maintenance of the artificially low valuations of properties”. Ultimately, he said it is a matter for the minister to decide whether to alter the valuation date, “notwithstanding a degree of risk” about the constitutionality of the deferral.

Mr Woulfe said that, in his opinion, “it is somewhat unclear whether a deferral of the valuation date can be done via ministerial order under section 13(3)”.

“The starting point, of course, is that prima facie the act permits such an order, and the presumption of constitutionality applies to the section and the exercise of the power under that provision,” he said.

“The real question is whether the absence of ‘principles and policies’ renders the section invalid, having regard to Article 15 of the Constitution. The answer to this appears to me not entirely clear.”

On the more substantive point, Woulfe, according to the memo, said: “I appreciate also that it is difficult to envisage who would object to 2013 valuation levels being maintained.”

Ministers decided to defer the review of the LPT, even though they were told it would cost up to €250m a year in lost taxes, the confidential Cabinet memorandum also reveals.

The memorandum outlines clearly the cost in terms of revenue forgone by the decision to extend the current system by 12 months.

“The yield from LPT if revaluation was allowed to go ahead on the 1st November 2019 with no change in the rate of the tax would be approximately €729m,” the memo states.

“This compares with the yield in 2018 of €482m. This indicates that the revenue lost to the local authorities as a result of not proceeding with revaluations on 1st November 2019 on a no policy change basis would be in the region of €247m annually.”

It also warns that the postponement of the revaluation date to November 1, 2020, through secondary legislation “means that it will not be possible to bring into the LPT base for 2020 certain residential properties that are currently exempt”.

“These properties include new properties purchased between 2013 and 2019,” says the memorandum. “The estimated annual yield that these properties would generate if they were subject to LPT is estimated to be in the order of €42m.”

Mr Donohoe makes it clear in his memo that simplicity was a key part of the LPT’s success on its introduction in 2013 and states he is “conscious of the importance of maintaining simplicity in the operation of the LPT”.

Looking ahead, in an interview with the Irish Examiner, Mr Donohoe said the final solution will involve a lowering of the rate applied, and a widening of the valuation bands at which point the rate will apply.

“I think what is very likely to happen is that the way in which we will get agreement on this will be on the basis of rate-lowering and band-widening,” he said.

“What is very likely is that we can get agreement on LPT reform that values at current market value level and is combined with band-widening and a change in the rate.

“If we do that and continue to allow councils have discretion in relation to the local authority variation factor, we can come up with a LPT that will maintain support for it. We need the LPT and we need a reformed LPT but I am conscious of the work I need in the Dáil to achieve that.”

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