Government’s property tax plan needs election scrutiny

Dispelling any doubt that this was anything other than a pre-election budget, Finance Minister Michael Noonan mentioned property, property taxes and property assets half a dozen times in his speech last Tuesday.

Because of “the recovery in asset prices, particularly property”, Mr Noonan said he would increase the capital acquisition threshold; provide a tax exemption for pyrite-ridden properties; and would kick the 2016 requirement on households to revalue their properties far into the future, long after the election.

The finance minister’s comments about the report he had commissioned into reforming the barely three-year-old local property tax were telling too.

The report by former civil servant Don Thornhill was commissioned last spring. It was delivered to the department in July and only published online, in full, on budget day last Tuesday.

Mr Noonan, in his speech, said he accepted recommendations in the Thornhill report about certain property tax exemptions. But the minister’s carefully measured comments appeared to avoid going as far as either endorsing or rejecting the report’s main recommendation.

The report sees a complex new tax structure that will require a good deal of tooing and froing between central and local government officials to decide on the size of the tax bills.

Because it said refurbishing the tax is daunting, the report gave Mr Noonan two options, to freeze the looming self-assessment date from 2016 to November 2018 or November 2019 so as to allow for the work to be completed.

No surprise, then, that Mr Noonan chose the latest date. But by defusing an electoral campaign time-bomb he may have also fatally wounded a tax that takes in around €500m in annual revenues. That the local property tax needed reforming was not in question.

With only the second ever self-assessment date for households looming next year, the tax was facing an electoral test. Domestic rates were scrapped here in the late 1970s.

For more than a dozen years, the OECD think-tank had urged the Government to reintroduce some form of property tax. The bailout troika then insisted on it and officials designed it at a time when, at the depth of the crash, property prices were on the floor.

A few years ago an inter-departmental report, which was also chaired by Mr Thornhill, established the principle that the “market value of residential properties” would be used to assess the tax.

Linking the tax directly to house prices would provide “simplicity and transparency” because “the easy determination by taxpayers of their liabilities is an important criterion,” said the inter-departmental group back then.

The Irish Examiner has written about the strains facing the tax. Because of the explosive recovery in property prices in Dublin, and more modest gains elsewhere, the tax was facing destruction.

Many had said the Coalition would fail its test to reform 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 for the first time on home values in May 2013.

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 then Irish home prices have been rising at the fastest rate in Europe. As the Irish Examiner identified last summer, a Dublin apartment valued in May 2013 at €225,000 was now worth 48% more, at €333,675.

The tax bill on such a property was set to soar from the current standard rate of €405 to €585. A Dublin house worth €425,000 and assessed for a tax bill of €765 two years ago was worth €595,850 last summer.

The tax bill on this property, based on any revaluation next year, would shoot up to €1,035. Outside Dublin, tax bills would also rise, though less steeply than in the capital. A house worth €225,000 in 2013 outside Dublin was now worth on average €253,575.

The bill on this property would climb to €495 from €405. The new Thornhill report now appears much less certain about the need to maintain the direct link between bills and property prices.

It, instead, sees the Department of Finance and Revenue Commissioners coming together to decide on the minimum amount that each local authority should raise from the property tax.

Local authorities would have the power to increase that base by up to 15%, with the aim of keeping property bills “at stable levels.” Last Tuesday, Mr Noonan postponed the revaluation date and defused an election campaign timebomb for another administration.

But, delaying revaluation may just spell the destruction of the tax altogether.


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