The real scandal has been the failure to introduce a fair property tax
Speaking soon after he was handed the poisoned chalice of the Finance Ministry in 2008, the late Brian Lenihan gave an interview in which he laid the blame for the property collapse at the feet of the people, infamously saying; “we all partied”.
His ill-judged remarks caused uproar and, in the ensuing cacophony of partisan political rhetoric, some of his more sensible statements were airbrushed from memory.
“We decided, as a people collectively, to have this housing boom. We decided not to have property taxes, to demand reductions in stamp duties, to demand tax relief on interest for bought-to-let properties, and there was no questioning in any part of the political system about that,” he said.
Having almost immediately identified, on becoming minister, the harmful consequences of the failure to introduce a property tax, what did Lenihan do about it? Absolutely nothing.
The Commission on Taxation did recommend to the Government, in September 2009, the replacement of stamp duty with an annual property tax based on the value of the taxpayer’s home but this advice was ignored. Similarly, in June 2010, the Regling-Watson report into the causes of the banking crisis stated Ireland’s budgetary policy was totally myopic, that there were huge subsidies for commercial development but no property tax.
Despite broad agreement that, as soon as the bubble burst, a property tax was inevitable, political cowardice meant civil servants in the department were not tasked with drafting up proposals for its implementation and no research was undertaken into what kind of property charge would be most equitable.
Instead, there was an Irish solution to an Irish problem — namely, no solution but a loud consensus on the cause of the problem. Meanwhile, revenue accruing to the Government from the property market, via stamp duties, VAT and capital taxes, plummeted by €8bn in just four years, from €10bn in 2006 to less than €2bn in 2010.
Clearly, there was a crisis but instead of taking a brave, bold move to do something about it, by introducing a long-overdue sustainable revenue raising charge to fill the void, the Government was content to budget on a wing and a prayer and slash spending in the hope that the economy eventually righted itself.
It wasn’t until the troika was holding the purse strings that Fianna Fáil and the Greens could be persuaded to include a property tax in its budgetary plans but its introduction had to be deferred to 2014 to allow the department research the best way to implement the charge, something that should have been done as soon as Brian Lenihan realised that most of his revenue raising avenues had turned into cul-de-sacs back in 2008.
Showing a similar disdain for proper planning, the current government also put property taxes on the long finger and an inter-departmental expert group, tasked with determining the best method of imposing the charge, was not appointed until the end of January 2012. This failure to grasp the political nettle, accept the inevitable and plan accordingly, is directly responsible for the Government’s current woes as it fields accusations that the blanket household charge, by not taking into account people’s ability to pay or the value of their homes, is regressive in nature.
Well, the charge is unfair, even Environment Minister Phil Hogan conceded that point, but so is the hike of VAT to 23%, a stealth tax that disproportionately affects the poor and is said to have cost the average family €500 per annum, but you don’t see too many people mounting protests outside the Dáil over that one.
In comparison, at least the household charge is relatively modest, comes with an expiry date and includes a waiver for those who are unable to pay. Some have said that poor communication on the Government’s part has led to its current quandary, with less than 20% of homes currently registered, but one would have to be living in a cave for the past six months for there to be any confusion about the charge and, one suspects, if the Government had instead announced a €100 credit, applications would long ago have reached capacity.
In truth, the reason so many people are opposed to the charge is not because of its inherent unfairness but rather because they are horrified at the notion of paying a property tax in any guise and do not want to add their homes to a government database that will be imminently used to register charges against properties.
Figures as divergent as €200 and €1,500 have been bandied about as likely annual charges when the property tax is implemented and people are afraid of signing up to pay a charge when there is no clarity, or even a ballpark figure, about what the final sum will be.
Independent TD Ming Flanagan, calling on people to break the law by not paying the charge in an interview on Monday, said he wouldn’t be paying because the money is being used to pay unsecured bondholders. Of course, if Flanagan was to take that thesis to its logical conclusion, it would be necessary to stop paying income tax and motor tax — even his dog would have to do without a licence — because how can he be sure that his taxes are being used to support state services and not pay off unsecured bondholders?
REGARDLESS of the idiocy of the argument, it holds traction with people who are fed up of being used as glorified ATMs by bankers and bondholders and the fact that the deadline for the household charge coincides with the €3.1bn promissory note repayment is a bad omen for the Government. The Taoiseach and his ministers can say that the payment is unconnected to the household charge, and the fiscal treaty, until they’re blue in the face but it doesn’t change the fact that a deal before March 31 would certainly make it easier to sell both measures to the public.
Even a definitive concession from the ECB that it was willing to do a deal would be hugely helpful but instead all the Government is getting from that quarter are condescending compliments and arrogant rebukes delivered in Latin and it is unlikely any assistance will be forthcoming from our friends in Europe.
Patently, no Irish government wants to be the one forever associated with the introduction of property charges but now that choice has been taken out of the equation the focus should be on devising and implementing an equitable property tax, which includes waivers for those who paid huge amounts of stamp duty at the height of the boom or those in mortgage arrears, as soon as possible.
The scale of the task facing the Government should not be underestimated but just because something is hard to do doesn’t mean it’s not worthwhile and, anyway, solving difficult problems is supposed to be the reason our TDs, and senior civil servants, are paid so handsomely.
