Property tax fraught with potential to blow up for the Government

The property tax is fraught with potential flash points.

There are two obvious options left on the table and each has as many problems as solutions for those who will be charged with collecting as well as policing the system.

Market value-based tax

The preferred option for the Commission of Taxation in 2009 was a value-based charge. However, this came with warnings.

The approach presents an immediate problem in trying to decide what a house is worth when buyers, sellers, banks, and statisticians cannot arrive at a figure in the current climate.

According to the CSO, house prices nationally have fallen 50% since 2007. All its value figures are pegged against a base point in 2005 and fluctuate geographically.

The key question is if today’s values are consistent with a normal market or a bobbing set of statistics still polluted by the flotsam and jetsam of a phenomenal property crash.

At a broad level, the value is not the biggest problem as the Government can adjust the percentage tax according to what is deemed apt.

According to an estimate of likely figures drawn up by the commission, the average house would be liable for an annual bill of €938. This can be arrived at through a large percentage on a low-value house or a low percentage on an expensive one.

However, relying on this system throws up regional disparities.

Dublin’s house prices have fallen 56% but its apartments have slumped by 62%.

Over-supply in the upper Shannon region has led to Roscommon, Leitrim, and Longford having vacancy rates excluding holiday homes of 20% or more.

A reliance on the value could, in theory, balance out the experience for those who suffered most in the crash. The commission said that in the long run the State should value all property itself and leave it open to residents to appeal disputed assessments.

However, this would be a enormous exercise.

It is likely any value-based system would be assessed by the homeowners according to a set of guidelines. This will remain in place while Revenue works on a fuller database.

Size of a property

The strength of this approach would lie in the ease at which it could be assessed and the influence it would have on future decision-making by consumers.

It could be easily measured by the homeowner, particularly if the categories were banded similar to the old motor tax system.

If it was in place, those building new homes could cut their cloth accordingly and it could limit the appetite for garish mansions.

However, there would be an inherent unfairness in applying it retrospectively.

A bigger house in a poor area would generate a larger tax bill than a small house in a rich area. It would hit rural people hardest despite their home being worth much less than similar-sized dwellings in built-up areas.

People in isolated communities will also argue they benefit less from the local authority services the tax would be designed to fund.

However, local authorities and utility providers will say it costs more to supply one rural house than a unit in a city-based apartment block.

Furthermore, people who own apartments have suffered the most in terms of negative equity and an argument could be made for seeing that the tax negates the suffering for this sector.

Quirks and exemptions

Stamp duty was based on the value of a house and represented an upfront charge for many thousands of home buyers.

Junior minister Brian Hayes has previously suggested that those who bought during the boom could get a waiver from the tax. This echoed the view of the Commission on Taxation. It recommended waivers for those who could not pay. This would apply to about 25% of homeowners.

Under this system reductions would be available to people with a disability.

Waivers for the current property charge already apply to those who live in unfinished estates, but problems have surfaced with the method used to assess these areas.