If you think the household charge is bad, just wait for what happens next

BACK in the late 1980s one of the most contentious fundraising decisions made by the then Fianna Fáil government was the introduction of charges for holding a fishing rod licence.

It may have seemed a small and innocuous measure to the majority — and indeed even a fair one, given that the State policed and maintained the lakes and rivers and had to cover its costs — but the issue caused unexpected ructions at the time, much to the disquiet of that government.

Sometimes it’s the little things that trip you up, as former Taoiseach Albert Reynolds once observed ruefully. The household charge introduced by the government this week for 2012, at a first year charge of €100, won’t bring it down such is the size of its majority, even if more backbench TDs get wobbly and run, in a self-serving fashion, for their independence. But if this administration suffers death by 1,000 cuts then the disquiet caused by this sneaky little new tax will be one of the most damaging decisions it made.

On the face of it €100 per annum may not seem like an awful lot to most people — and I suspect most people will be inclined to pay it, albeit with a groan as they write the cheque or press the send key on their computer to authorise a transfer from their bank accounts.

But to many people it is about adding insult to injury, particularly if they live in rural areas and already are paying €50 to “register” their septic tank.

Taoiseach Enda Kenny unwisely told people this week that it is about meeting the cost of providing water services, as well as other local authority services: unfortunately he must know well that many people pay for their own water in rural areas, as well as their own sewage disposal.

He should have stuck to just mentioning “fire services and libraries and street cleaning” as things that need to be paid for. Many would say that those things already come out of our taxes but by this stage everyone should know that the state is borrowing to cover a gap of more than €15 billion between what it spends and what it takes in taxes. More money is needed from new sources.

For years economists have been saying that a property tax is essential to providing stable revenue for the Government, as happens in nearly all other countries. The idea is that a house is always there and is taking up land space, a valuable asset on which people should pay rent (even if they own their own house on that land and have purchased that piece of land itself). In some respects the idea that the left in Irish politics is leading the charge against this tax is somewhat ironic. Do they want private property to be exempt from taxes? Surely that is the position that the wealthy would want pushed forward?

The answer of course is more complicated: the left want some properties to be exempt and others to be taxed heavily. But devising such a system is going to be very tricky politically.

It does seem very unfair that the same levy is imposed on every household, irrespective of its size and upkeep, location or the income of those who occupy a house or apartment. There are waivers for those on mortgage interest supplement, on housing supports or rent supplement, and those in certain unfinished housing estates but this applies to a very small percentage of the country’s estimated 1.6 million dwelling owners. Clearly the current system can only be an interim measure (if it has to happen at all).

Just how will valuations be decided? On the nominal market value of the property? On its size? On its number of bedrooms? On its location? Would it be fair if the owner of a large six-bed house in rural Carlow (just to take an example) would pay less tax that somebody in a three-bed semi-d in Cork, just because the latter has a larger nominal value?

And if a person’s income is to be taken into consideration in setting a property tax why not just levy income tax in the first place? But what if a person with a large property suffers from a dramatic fall in income? Would they be exempted? Should credit be given to people who paid stamp duty on their home purchases, sometimes money that they borrowed in the amount of tens or even hundreds of thousands of euro ? Was that not a form of property tax?

Even in its current state (for the next two years) the levy of €100 is likely to infuriate many and may be a tipping point for those in work who have provided their own housing and who feel that they are being forced to bail out others.

Imagine, for example, that a homeowner is in a job that is paying much less than it did three years ago (and where the second partner might have lost his or her employment). The house is worth less than it was bought for and, more importantly, if sold now would not clear the mortgage that still has to be repaid to the bank.

This extra money — or just €2 a week as the government likes to put it — can be a major problem when added to all of the other demands for money being made of people. Yet better to pay than to allow debts to mount up that could result in a possible penalty of up to €2,500 for non-payment.

Joe Higgins and other opposition TDs seem almost overjoyed that they have an opportunity for major protest. Higgins laid on the hyperbole when he described the potential penalties for non-payment to Kenny as “your disgraceful campaign of intimidation that is starting already, threatening householders with €2,500 in fines for non-registration”. But such fines work in all aspects of life, from those who don’t pay their TV licences or car parking fines of whatever. If you don’t have a penalty system you have anarchy.

WE’LL see if the “massive campaign of opposition from Donegal to Wexford, from Kerry right back to Dublin,” predicted by Higgins will happen. I’m not convinced that it will now but Higgins might just be preparing the ground for the bigger, and politically more valuable to the opposition, fight that’ll come late in 2013.

Higgins claimed in the Dáil that it was “common knowledge” that the household charge will “grow quickly to €1,000” under pressure from the EU and IMF. That is partly accurate. The IMF/EU/ECB deal demands the introduction of a property tax. The Government is trying to construct a charging mechanism. It probably hopes that it will not have to do so — that the State will have returned to the bond markets by then and will have found other ways of raising money — but the betting must be that it’ll have to introduce a property tax, even if Fine Gael and Labour TDs will be aghast at the idea. It may happen two years in advance of a general election but the potential backlash would be such that it could bring down many TDs who vote in favour of its introduction.

It may have been agreed with the troika by the previous government, but this one must know that the introduction of a property tax in 2014 could ruin it, such will be the backlash from a coping class that by then will have had enough. Whatever row happens now about a household charge is only a temporary distraction from what’s coming in much greater force.

The Last Word with Matt Cooper is broadcast on 100-102 Today FM, Monday to Friday, 4.30pm to 7pm.

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