Mark my words, the so-called Local Property Tax is a ticking political time bomb that will play a central part in the next General Election, particularly in the greater Dublin area. You don’t need a crystal ball to see why. Anyone who comes up with a proposal to abolish it and to replace it with a different and genuine local government charge will blow away those who support its retention at the ballot box.
The very idea that a family earning €40,000 which lives in a very modest, red-bricked, two-bedroomed terraced house in the city of Dublin should pay far more in property tax than a family earning €250,000 living in a substantial detached four bedroomed house standing on an acre, located 70 miles from Dublin seems grossly unfair. That injustice is compounded when the Dublin family has a mortgage of 90% of their home’s value while their country cousins own their substantial residence free of debt.
At present, LPT is charged at 0.18% of market value up to € 1 m. and at 0.25% on any greater value. That means that a home valued at €500,000 will pay €900 annually, while a home valued at €1.2m will pay €2,160. Local authority elected members are permitted to reduce the tax payable in respect of their areas by up to 15%.
If you look at any of the property websites, you will quickly see that €500,000 will buy you radically different properties depending on the county they are located.
This week, it will buy you a six bedroomed, 3000 sq. ft. luxurious restored Victorian mansion on 5 acres in Co. Laois. It will get you a small two bed apartment, or a modest two bed terraced house or cottage, or a duplex two bed home, in Dublin 6. The location element in value is simply colossal.
Since the tax is levied on nominal legal ownership, it does not acknowledge mortgage indebtedness. A family in Dublin city may buy and “own” a home that is much more valuable in nominal terms than an identical home in Laois. But they are not wealthier on that account. In many respects, their home “ownership” outgoings make them much poorer.
Faced with a bounce-back mini-boom in Dublin house prices and a lesser recovery in home values across the country, the outgoing FG-Labour coalition effectively froze the valuation aspect of self-assessed LPT until 2019 – yet another exercise in kicking the political can down the road.
But more and more people are facing a financial cliff in 2019 unless there is radical reform in the meantime. That apprehension has knock-on effects in terms of consumer sentiment and family financial planning. It will also affect political prospects for those who “tog out” on the issue or fail to do so. In a snap election scenario, it could produce toxic short-term effects.
There is a real issue here. If we are to have any property tax at all, there must be some fair system in place. Unless we put all tax on earnings and none on property, there must be a property aspect to our tax base.
I believe the solution belongs in scrapping LPT and in introducing a banded local government charge instead. How would it work?
Every home in the country would be assigned a band, say from “A” to “J”, based on objective criteria such as size, condition, configuration and relative local value. So homes in Laois would be assigned a band depending on their relative values to other homes in Laois, and homes in Dublin likewise assigned a band by reference to their relative local value in Dublin.
As now, the question of ownership or mortgage equity would not be taken into account as the charge would be in respect of the “basket of local government services” attributable to the home rather than depending on whether a house-holder had mortgaged or re-mortgaged the home
If you buy, say, a house in the “D” band, you will pay a local government charge which has a fixed national statutory proportionality to the “C” and “E” bands and to all the other bands, so that the modest homes in the “A” band might bear, say, one tenth of the charge that the most luxurious homes which would be in the “J” band, regardless of where they are located in Ireland.
If you bought a Band “D”, home you would know exactly how much you will have to pay by way of charge relative to other home-owners in your local authority area.
The charge would be payable to the local authority, not to the national exchequer. Each local authority would then know that whatever sum it raised by the local authority charge will be borne by all homes in the county by reference to the banding fixed by national legislation.
Local authorities could be given discretion on the level of the overall charge but not on where the burden would lie as between homes. In this respect local democracy and accountability would be enhanced but fairness as between home owners ensured.
Self-assessment would end. Once banded, each owner would receive a bill. Revaluation in annual returns would end. There would be certainty and equity as between different homes in the same county. The present injustice of levying more LPT on what, say, would be a Band “A” home in Dublin than on what would be a Band “F” home in Laois would end.
Waiver schemes and deferment provisions for those in need, and statutory rebates would continue. So also would payment by the month facilities. Local authorities could retain the power to use the Revenue Commissioners as their collecting agents. Water services could form part of the charge.
This is the outline of something much fairer than the present LPT which is not in any sense “local”. Having a % of market value national wealth tax on domestic property is not fair and is bad politics. Without engaging in populist vote-buying this kind of reform has much to offer.
Watch this space!