Government faces property tax headache

The CSO figures published yesterday will bring no relief to the Government as it seeks to reform the local property tax before the election.

The Government has appointed expert Don Thornhill to review the property tax and report by this summer.

The latest property price inflation figures show a moderation in the rate of property price increases in Dublin, but an acceleration in the rate of price increases outside the capital.

That means that property tax bills will rise sharply when they are next assessed in 2016, if changes are not made to the tax beforehand. The explosive rise in property prices since May 2013 has put pressure on the future of the tax under its present form.

Alan McQuaid, chief economist at Merrion Capital, said that he and many others had favoured at the time that the property tax should have been based on a site tax, and not on a levy linked to the volatile house price market.

The site tax would be something similar to the old rates regime that was abolished about 30 years ago.

Mr Thornhill was chair of the inter-departmental group that approved the property tax a few years ago. The report favoured a market price tax, and rejected a site-valuation tax.

“International experience would come down heavily on using the taxable values of residential properties. Site value taxes are not used extensively internationally.

“Both the 2009 and the 1982-1985 Commissions on Taxation recommended market value. The vast majority of the submissions made to the group also favoured market value,” the report said.

An analysis by the Irish Examiner published earlier this week showed the huge hike in house prices since the assessment date of May 2013 threatens to pull the property tax apart.