Brian Keegan: After a bad start, changes to the local property tax seek to make it fairer

That 100% of the LPT collected will stay in the local authority area is significant — in the nature of a local levy to pay for local service

Local Property Tax was intended to be comprehensive but got off to a bad start due to a 2013 drafting error in the law resulting in more properties being exempt than was originally the plan. File picture

Between the publication of the details of the National Economic Recovery Plan, the Local Property Tax (LPT) reforms, and the announcement of remarkably robust tax receipts for the year thus far, the first week of June has overshadowed many budget days in its significance.

In comparison with the recovery plan announcements, the LPT changes looked very minor in scale, yet commanded much of the attention as tax changes so often do. 

The significance of the LPT announcements is not however in the tinkering with valuation bands and allowances to preserve the payment status quo for many taxpayers, but in the other areas of reform that were announced.

LPT was intended to be comprehensive but got off to a bad start due to a 2013 drafting error in the law resulting in more properties being exempt than was originally the plan. 

New residential property builds were intentionally exempted but this policy never made any real sense. 

Given a central rate of 0.18%, an LPT exemption was never going to have either an incentive or a distorting effect on the property market. 

It just looked good for political purposes.

With the benefit of hindsight, the 2013 valuation date coincided with the nadir of property prices but the first revaluation is only going to take place in November. 

The repeated deferral of the LPT valuation date resulted in an increasingly large number of properties falling out of the net for no better reason than they were new builds. 

With some 100,000 properties currently exempt, this anomaly had to be fixed in the interests of equity. 

Incidentally, that just 100,000 new dwellings came on the market in the eight years since the launch of local property tax underlines a fundamental problem with the Irish property market. 

The 2013 valuation date needed to be changed because property values taken from that date are so out of step with the current market. 

Constitutional challenges to the Irish tax system rarely succeed, but one which did related to the old system of rateable valuations. 

The courts have previously found that a levy needed to be thrown out because it was based on out of date and inconsistent property values. 

Without last week's reforms, LPT might have been unlikely to survive a constitutional challenge.

Although it will make little practical difference to people paying LPT, the commitment that 100% of the LPT collected would stay in the local authority area is significant. 

It transforms LPT from being yet another form of national tax, like USC, into something more in the nature of a local levy to pay for local services. 

That's a fundamental change of emphasis which perhaps deserved more attention. 

It also negates semantic challenges over whether LPT is a wealth tax (it isn’t because it doesn’t take account of any debt on the property) or whether LPT is progressive (it is because the marginal or top rate is higher than the average rate paid).

Everybody wants a fair tax system, but most people's definition of a fair tax is a tax which somebody else pays. 

The LPT changes spread the burden of the tax across more taxpayers, help ensure the tax is constitutional, and provide a specific purpose for the amounts collected.

If that kind of thinking were to be attached to all kinds of taxes, the system would genuinely be fairer.

• Brian Keegan is director of public policy at Chartered Accountants Ireland