Property tax a banana skin Fine Gael may slip on

Much has been written in recent months about the fact that Fine Gael or a Fine Gael government has never been re-elected in back-to- back elections, writes Paul Mills.

Enda Kenny, who has already won the prize for being the Accidental Taoiseach, is seeking to break that record. Unfortunately, the tools he is using to win the election are our taxes.

Earlier this week, the IMF in its latest report urged Michael Noonan to use whatever ‘spare’ cash he has to cut the Irish budget deficit much more quickly.

In effect, the IMF is asking Michael to rein in his budget plans and pay down the national debt. The crux for Enda and Michael is that this is the last budget before an election has to be called. As we know only too well from past experience, if it comes down to a choice between the national interest and what’s best for Fine Gael, what’s best for Fine Gael, or Fianna Fáil, Labour or Sinn Féin always wins hands down. The view appears to be that “tomorrow will take care of itself”.

Others have strongly suggested to the coalition that paying down the enormous debt would be preferable to enshrining additional costs into the annual budget. The Fiscal Advisory Council has already put its cards on the table and they do not include trying to buy the next election. However, it’s worse than simply buying the election; Fine Gael would be trying to do so with our own money. It would be one thing if it was to share out any largesse equitably but it appears that this is not how it will be.

With the exception of a small minority, everybody has been materially affected to a larger or lesser extent. Unfortunately, among those who have flourished are those at the cabinet table who will now make decisions that will affect all of us. Rather than ensure that we are all treated fairly, Fine Gael wants to ensure that it can continue at the top table. It appears to be Enda’s abiding ambition.

However, there are many obstacles on the path to re-election. A big one is the Local Property Tax, or LPT as it is unaffectionately known. LPT was introduced in 2013, based on the market value of the property.

Determining the real market value is much like trying to catch a gust of wind. A property’s real market value is what someone is willing to pay for it on any given day. That may not have been achievable the previous day, nor might it be achievable the day after.

Over the last year and a bit, prices of houses and apartments have been jumping – in some cases by up to 50%. Unfortunately, it has not happened on a country-wide basis. Material increases have been achieved only in major urban locations, mainly in Dublin and its environs. The folk living in the house will see no material benefit unless they sell and even then, they will pay a similar increase to buy a new property in the local area.

In other words, there is only a paper gain – no shekels change hands. Profits are not made, extra cash is not available to pay any increase in LPT.

As it is structured it’s an unfair tax – not as bad as the USC, but close.

There can be 50 houses in an estate that all look the same. Some could be far more valuable than others because the owners have spent their hard-earned already taxed income making their own home more comfortable.

So the end result is, if you take pride in your home you are penalised.

Government promised to ensure the LPT was equitable and based on factors that are less amenable to sudden fluctuations. There were several other fairer options. Don Thornhill, the designer of the original version is now re-evaluating it. Maybe we should be privy to the terms of reference for his work. They just might tell us what the government is really up to.

In the meantime, the government is going to give away €350m or so in trying to buy public sector employees despite the fact that the IMF has asked it to ensure that any increases are more gradual than government is already proposing. Equitable it is not.