No property tax for low-income households: ESRI

Households below a certain income should not be liable for the controversial property tax set to be introduced next year, a leading economic think-tank has recommended.

The Economic and Social Research Institute has proposed that the Government should design the tax in such a manner that the greatest burden is placed on those with the highest incomes.

It points out that the €100 household charge, which is a temporary measure before full implementation of a property tax, has a disproportionate effect on those with very low incomes.

ESRI researchers claim one of the best methods of taking into account a person’s ability to pay a property tax is the introduction of an income exemption limit. They also warn that if a single tax rate is applied nationally, Dublin property owners will pay a disproportionate amount.

The study shows that the impact of a property tax on the poorest families can be cushioned by the use of an income exemption limit. It also suggests that Government could apply marginal relief for households with incomes just above any exemption limit.

The study claims a limit of €15,000 per person or €25,000 for a couple would have little impact on the poorest one-third of the population and would exclude all pensioners who rely wholly on the state pension for their income.

The ESRI estimates most households will end up paying property tax of around €2.50 per €1,000 of the property’s value. It calculates that such a rate will raise around €500m per annum — the target set by the Government.

Tim Callan, one of the report’s authors, said the analysis was designed to inform debate about how the tax would be framed. “There are several key choices to be made in the design of the tax. These will affect how the burden of a property tax is allocated across income groups and across regions.”

The Government has signalled that it may provide some relief from the tax from owners who paid large amounts of stamp duty when buying property during the last decade.

However, the ESRI said the design of the new tax should not be overly influenced by the temporary, albeit severe, difficulties associated with distressed mortgages. It said such concerns can be addressed through some elements of mortgage interest relief but it did acknowledge the issue was “a complex one”.