Coalition has to defuse property tax bomb

Constructing and implementing an austerity property tax at the height of the slump may have been brave. 

But many analysts believe that the Coalition will fail the next test: reforming the property tax before the election without falling victim to populist temptations to freeze the tax.

There is no doubt that the property tax needs huge surgery. The people who built the structures of the tax never thought that Irish house prices would recover from their slump so quickly. Property tax bills were assessed on a three-year cycle for the first time on home price values in May 2013.

With the Irish economy emerging from its worst ever recession, home prices here were on the floor. The advisers who chose May 2013 as the assessment date for the bills were however most unfortunate with their timing. Eurostat figures show that ever since May 2013, Irish home prices have been rising at the fastest rate in Europe.

This means that enormous pressures are building on property bill hikes when they are next assessed in 2016.

It is already an election issue. Finance Minister Michael Noonan last week confirmed that policy expert Don Thornhill will report to him this summer on potentially modifying the tax.

He will have to take into account the uneven price increases across the state. In the capital, home prices have climbed by almost 41% since May 2013, and apartment prices have soared by over 48%, the Irish Examiner analysis shows.

Home price increases have risen sharply outside Dublin too, by 12.7%.

But many analysts say that any tinkering will merely destroy the tax. Freezing the tax would only delay implementing huge increases by a new administration in the future. Defusing the property tax bomb will be no easy task for the Coalition.

An analysis of CSO and Revenue data by the Irish Examiner shows that:

• Dublin apartment valued in May 2013 at €225,000 is now worth 48% more, at €333,675. The tax bill on this property is set to soar from the current standard rate of €405 to €585, if the tax is not overhauled.
• A Dublin house worth €425,000 and assessed for a tax bill of €765 two years ago is now worth €595,850. The tax bill on this property based on next year’s assessment would shoot up to €1,035.
• Outside Dublin, tax bills are also set to rise, though less steeply than in the capital. The price a house worth €225,000 in 2013 outside Dublin is now worth on average €253,575. The standard tax bill on this property would climb to €495 from €405.
• Outside Dublin, the price of a house worth €425,000 in 2013 is now worth on average €478,125. The standard tax bill on this property would climb to €855 from €765.
• Local authority discounts would do little to modify the bills. The 2015 discounts range between 1.5% in Louth; 3% in Limerick, Longford, Mayo and Westmeath; 7.5% in Kildare; 10% in Cork City and County; and the maximum permitted discount of 15% in Clare and in Dublin City, Dun Laoghaire/Rathdown and Fingal councils. Seventeen councils did not reduce their bills this year.

The new levels of property tax are due to be assessed late next year, but the analysis makes clear that bills will reach unaffordable levels for many home owners, no matter where they live.