Daniel McConnell: Eight years later, property tax remains an unfair and unequal burden
Tax, Since Local 100,000 Have Homes Thousands About Since From 2013 Then Paid Others Built Remain While Exempt Property
A friend of mine bought a house in late 2013. It was similar in value to mine.
As my house is more than 100 years old and his was brand new at the time, I was liable for the new, but highly controversial, Local Property Tax (LPT) and he wasn’t.
The exemption was supposed to be for one year, or two tops, at which point it was expected that such homes would be brought in under the reach of the LPT.
But, as we know, both Michael Noonan and Paschal Donohoe, as Fine Gael finance ministers, have kicked back a review of the LPT, essentially keeping the status quo, deeply unequal and unfair as it is, in place.
Mr Noonan suspended the review prior to the 2016 general election for obvious reasons but following that election and the minority government situation which resulted from it, Mr Donohoe simply didn’t have the numbers to tackle the matter.
So, what it means is that my friend has paid zero LPT since owning his own house for eight years, not one cent. Over the same period, I have paid in excess of €3,200, which was based on the valuation of the house at the time. It is grossly unfair and remains a bone of contention.
This week, the State’s economic think-tank, the Economic and Social Research Institute (ESRI), released a report in which it says the Government is forgoing hundreds of millions of euro each year by not closing this loophole.
While this could lead to sharp increases in tax liabilities incurred by some property owners, the Government could simultaneously increase the income limits below which one can defer the liability, the ESRI said.
What’s more, the Government has had legal advice from the attorney general going back to 2019, which said the failure to tax the 100,000 or so homes built since 2013 exposes the State to the threat of legal action.
A Cabinet memorandum, published by the at the time, showed the then-attorney general Seamus Woulfe warning the Government that it was leaving itself open to a potential legal challenge because of the inequality of how the tax was now operating.
“The way that the 2012 Act is constructed is that there is a significant number of properties that attract an exemption from liability, for one reason or another. Arguably, this could create an appearance of arbitrariness that could give rise to a challenge from a disgruntled liable person,” he warned.
Woulfe argued that “it would be necessary to justify this system of exemptions with clear policy reasons and it is possible that the whole act could come under scrutiny, including the maintenance of the artificially low valuations of properties.”
Despite those warnings, nothing has changed.
Now the programme for government, agreed by Fianna Fáil, Fine Gael and the Green Party in June 2020, commits to a number of things.
Firstly, to bring forward legislation for the LPT on the basis of fairness and that most homeowners will face no increase.
Secondly, to bring new homes, which are currently exempt from the LPT, into the taxation system.
Thirdly, that all money collected locally will be retained within the county from which it is generated. This is to be done on the basis that those counties with a lower LPT base are adjusted via an annual national equalisation fund paid from the exchequer.
According to his spokesperson, Mr Donohoe is examining options for the reform of the tax in light of the 2019 Interdepartmental LPT Review Report, the views of the Budgetary Oversight Committee on that report, and the aforementioned programme for government commitments. He is currently giving consideration to proposals for amending legislation which would then be brought to Government.
So, a year into the life of this Government and eight years on from this first being an issue, we are still in the position of considering our options.
Logic would dictate that were such a move to occur this year it would be done in the context of October’s budget, but sources said that is not a given.
While perhaps not the most pressing issue, the ever-increasing unfairness is an issue of substantial annoyance and grievance to the many thousands of people who have paid it year after year.
The LPT example raises the larger question as to how poorly our public finances are being handled.
In its report, the ESRI warned higher rates of income tax, Vat and property tax may be needed to fund future government spending.
The ESRI said future spending pressures combined with potential declines in corporation and motor tax receipts were likely to result in higher taxes in the years ahead.
While increasing tax should be avoided until the economy has recovered from the pandemic, it said increases in income tax, Vat or the local property tax could “raise significant sums of revenue”.
In its report, the institute also highlighted the potential for raising revenue by abolishing certain tax reliefs linked to pensions and capital gains tax, some of which, it said, had “questionable economic rationale” or were poorly targeted.
The ESRI report found such substantial, permanent increases in spending cannot – even at ultra-low interest rates – be sustainably financed through higher deficits, but instead require either a reduction in spending or increases in government revenue.
While there is no political appetite to cut existing levels of spending, “it seems likely that there will be some need for sizeable tax increases in the years ahead,” it said.
“An ageing population, commitments to future spending increases, and potential declines in both corporation and motor tax receipts made the need for significant future tax rises likely even before the pandemic,” ESRI economist Barra Roantree said.
Mr Donohoe has made clear in recent days that income tax increases in the upcoming budget are not being considered.
But as his colleague, Public Expenditure Minister Michael McGrath looks to cut about €12bn in Covid-19 related spending between now and next year, there is a genuine question to be asked about how solid our public finances are and our ability to stay afloat.
All of this comes at a time when major US tech firms continue to escape proper taxation rates here in Ireland, thus resulting in a major loss to the public coffers.
As it emerged last month, Google shifted more than $75.4bn (€63bn) in profits out of the Republic using the controversial “double-Irish” tax arrangement in 2019, the last year in which it used the loophole.
The technology giant availed of the tax arrangement to move the money out of Google Ireland Holdings Unlimited Company via interim dividends and other payments. This company was incorporated in Ireland but tax domiciled in Bermuda at the time of the transfer.
The move allowed Google Ireland Holdings to escape corporation tax both in the Republic and in the United States where its parent, Alphabet, is headquartered. The holding company reported a $13bn pretax profit for 2019, which was effectively tax-free, the accounts show.
Now the ‘Double Irish’ tax break has since been closed off but the special treatment of large tech giants when it comes to tax compared to the public remains an uncomfortable fit.
I don’t mind paying my fair share; I just wish others would too.