Thursday, August 9, 2012

Property tax must be seen to be fair to avoid animosity - The Irish Times - Sat, Aug 04, 2012


INSIDE POLITICS: The Government is avoiding speculation about the budget but the rest of us need a national debate about it

THE NATIONAL obsession with property runs deep, going back to the time when Charles Stewart Parnell urged tenant farmers at Westport, now part of Enda Kenny’s constituency: “Keep a firm grip on your homesteads.”

It’s four months to the budget in December and already the speculation is starting. But when the present writer sought to winkle some information out of the Tánaiste late last month, Eamon Gilmore wasn’t having any of it. The Labour leader has an effective way of dealing with difficult or awkward questions. He repeats the subject again and again with great emphasis and the uninitiated think they are getting somewhere, but they later realise he has given nothing away.

This is what he said: “I’m not talking to you about the budget: i’m not talking about the budget until the budget time. this is july, the budget isn’t until December and it’s far too early for discussion and speculation about the budget.”

In two sentences, Gilmore mentions the budget five times but at the end we are none the wiser. It’s no surprise that he is reluctant to be drawn on the subject. Even in a single-party government there is jockeying and infighting as ministers and their departments compete for a bigger share of the cake, and this is a Coalition embracing several shades of the political spectrum.

However, as he might say himself: the budget is the budget is the budget. The Tánaiste may see it as the best part of his play to remain tight-lipped but the rest of us need to have a good national debate in advance about its contents – and I don’t mean some motormouth in the studio audience giving stick to Michael Noonan on television.

The Irish people are like the Cúchulainn statue in the GPO. We are strapped to a rock, the life draining out of our bank accounts. The troika is the equivalent of the raven landing on the Celtic hero’s shoulder, signalling he has finally given up the ghost.

Under the bailout agreement there must be at least €1.25 billion in new taxes next year and spending has to be reduced by €2.25 billion. The personal income-tax base must be broadened and that includes bringing in a property tax at what the International Monetary Fund calls “a suitably high level”.

The household charge was meant to be an appetiser for the property tax, set at a modest €100 per annum. It turned out to be a major turn-off instead for many people, not least because of the method of collection.

In the words of former taoiseach Seán Lemass: “People pay other taxes in sorrow but they pay their rates in anger.” Wisely, the Government has decided to give the Revenue Commissioners the task of collecting property tax. Property tax is the new rates and, if it is not to incite serious public ill-feeling, must be seen to be fair. Although it’s still early days, the notion of a higher rate for owners of larger homes is being floated. That’s the way it is already with income tax: the more you earn, the higher the percentage deduction.

How you assess the value of a house in the current uncertain market is another issue. Using the site as a basis for valuation doesn’t always make sense: you can have a mansion or a shack at a similar location.

Another issue is ability to pay: allowance would have to be made for the many households already in mortgage distress. In addition, there are substantial homes around this State inhabited by elderly retired couples or individuals who have little by way of income. Forcing them to sell their sole asset in the current market – is that fair? The poll tax riots in Britain were a major event. Could we have property tax riots here? Not inconceivable if it was perceived to be unfair to the less well off.

The owners of big houses could start acting up along such lines as, “Are you penalising people who created wealth for themselves but also for others along the way?” The owners of the big houses would be a natural Fine Gael constituency and that has to be a factor.

The programme for government merely stated that the Coalition would “consider” various options for a site valuation tax, which may now be off the agenda.

The Fine Gael general election manifesto was very blunt: “Fianna Fáil’s proposal, now endorsed by the Labour Party, to introduce by 2014 an annual, recurring residential property tax on the family home is unfair.” Alternatives suggested included site valuation.

Whatever Labour was saying before the election, its manifesto contained no property tax proposal and was, if anything, more conservative than Fine Gael’s. There should be a site valuation charge but not until 2014, to allow time for a detailed study to be carried out. In the meantime, the second-home levy would be increased substantially.

An expert group headed by former civil servant Don Thornhill has submitted a report to Minister for the Environment Phil Hogan.

Four years ago, Thornhill co-authored a paper with Donal de Buitléir that suggested a property tax “could be collected in instalments through the PAYE and ROS [Revenue Online Service] systems”.

In a recent study by the Economic and Social Research Institute, the main scenario had most homeowners paying annually “in the region of €2.50-€3.00 for every €1,000 of house value”. This is between €1,000 and €1,300 on homes valued at €400,000 to €500,000 for example. That’s serious money.

Michael McGrath of Fianna Fáil has described property tax as “political dynamite” which is no doubt one of the reasons even the left-wing parties in Leinster House are so unenthusiastic. But the troika must be obeyed and the budget is the budget is the budget.

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