FERGUS FINLAY: Property tax is a house of cards, we need a fair system in the long run

WE ARE all dreading it.

That envelope with the harp symbol, outlining the values of our homes and the additional tax the Revenue want from them. Up to this minute, most of us have been despairing that our houses were only worth a fraction of what they used to be. Now, we’re all terrified they will be worth too much.

I looked at the local property tax website this morning. It helps you to zoom in on your house, and up pops a figure. I’m in the deep orange, apparently, in property-value terms. That means it won’t be long before I’m back in the deep red, in financial terms.

I can’t complain — I believe in the principle of property taxation. Every tax system that sets out to be fair taxes wealth as well as income. For most of us, wealth includes our primary asset.

It’s different, though, when so many houses are in negative equity, and when so many people are living in houses they simply can’t afford. A property taxation system that takes no account of ability to pay, and where the only concession to people who are, for example, unemployed, is that they can defer the payment of it, is unfair.

This demonstrates that there’s a difference between principle and practice. The property tax was designed the way it is for two reasons — and neither of them has anything to do with fairness or distribution.

The first reason is that the Government needs the money. As we all know, there’s a huge gap between what we take in and what we have to spend. Every public servant knows the efforts that have been made, and are being made, to cut public spending. But it’s not enough. We’re going to have to plug the gap, little by little, by raising more revenue.

The second reason the tax has been designed this way is because we proved, last year, that as a people we don’t do self-assessment. We were asked to pay a much smaller household charge, and a significant number of us decided not to bother. Many of our public representatives, of course, told us not to pay. Where are they now?

By the way, I wonder will Deputy Luke “Ming” Flanagan have the neck to tell us to boycott this tax, too?

So, the property tax has been written, and will be enforced, with no loopholes at all. If we don’t pay, we’re taking on the Revenue Commissioners. And none of us want to take on the Revenue, do we? As one of my friends put it the other day — we chickened out of paying the household charge last year, and now we’re trussed up like chickens in the face of the local property tax. There’s no way out.

Sooner or later, though, this tax will have to be redesigned. It’s not possible to sustain a source of revenue indefinitely that people cannot afford to pay without undue hardship. For people at work it’s possible to have the tax deducted at source, but for the thousands who don’t have a job this is a debt that will mount up.

In a way, though, the deeper issue is the psychological one. Most people I meet find something deeply depressing about the range and variety of new taxes, which seem to be coming from every direction and hitting us almost willy-nilly. Water charges are on the way, and so is a universal licence fee for every electronic device we own. Ditto for septic tanks. Indirect taxes are as high as anywhere in Europe.

How much longer will it be before there’s a charge for every text or tweet or Facebook post? Is it just me, or does it make you long for the old days?

There was a time when you and I paid income tax and rates. The income tax was based both on your earnings and your outgoings. If you earned a lot, you paid a lot. But you got a rebate if you got married, and you got another rebate if you had children. Back then, the tax year began on Apr 5 each year. The last couple of weeks in March was the busiest time of the year for weddings, because if you got married right at the end of the tax year, you got a rebate for the full year. The same was true of having children — there were a disproportionate number of births at the end of the tax year.

I presume that meant a higher than average number of conceptions in high summer. Rates were levied by the local authority. They were hated, but most people managed them. Rate collectors would call to your house, and it was possible to make arrangements with them for monthly payments.

Somewhere along the way, we lost interest in paying our taxes. Rates were abolished to win votes in an election in 1977, and in the 1980s personal tax rates went through the roof.

We developed a psychosis about taxation, and a huge black economy flourished. Little by little, successive governments became dependent on alternative sources of taxation. As we now know, this was a delusion. We fear taxation, especially on our incomes, the way Germans are understood to fear and hate inflation. We allowed our entire State to become dependent on a series of transaction taxes — especially on the sale of property — that could only be sustainable as long as property prices kept on rising. We ignored the social consequences of that while it was happening — the phenomenon whereby an entire generation of younger families could no longer afford a place of their own.

And now we’re paying the economic price of its collapse.

We never stopped to think. In our anxiety to avoid tax, we made ourselves dependent on an illusion. And now we are putting a tax system in place that may also be unsustainable, because of inability to pay. Is it not time to think it all through again — maybe even to start from the beginning? A fair tax system would have three main components — tax on what you earn, tax on what you spend, and tax on accumulated wealth. It would be based on the principle that the more you have, the more you can contribute. And the corollary of that would be that you’re only asked to pay what you can afford, while maintaining a reasonable quality of family life.

Of course, when the country’s debt is so high it’s not possible to square every circle. But if I was the Government, I’d be commissioning a green paper now, to begin the process of redesigning the tax system for post-austerity Ireland. It would aim to simplify the system over time, and base it on sustainability principles.

And it would, at least, discuss the myth that the existing standard and top tax rates on income are sacred. If we can’t have fairness now, could we at least discuss how fairness can be achieved in our lifetimes?


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