Property tax - understanding cause and effect

This post was written by Ronan Lyons

This is my first post on Irisheconomy.ie, having served my time as apprentice in the Keyboard Warrior army with my own blog, so hopefully it’s useful to set out how I envisage using this site. My research interests are urban economics (including property markets) and economic history. When it comes to the Irish economy, my interests are probably best categorised as follows (in no particular order):

  • Irish government finances
  • the property market
  • Ireland’s international competitiveness

I had thought that maybe my best option to open my account on this site would be to do a post on each and start a conversation. Fortunately, the Irish policy debate is far too exciting and so this morning we have a story (see for example Charlie Weston’s article in the Independent) that covers all three areas: the property tax.

Property tax is one area of the economy where everyone has an opinion and everyone - including non-property-owners such as myself - is a stakeholder, hence its enduring popularity. Today’s story relates to the work published by ESRI on property tax, due to be discussed at their Recovery Conference today. I’d like to raise some issues around what their research concludes.

Deferrals and incomes

The paper by Claire Keane, John R. Walsh, Tim Callan & Michael Savage [hereinafter KWCS] of the ESRI recommends an annual tax based on the value of the property, with exemptions for those below certain income thresholds. To me, this is definitely not the way the Government should be going. I have no issue with KWCS’s claim that their system would be fairer than the current household charge - to me, that is a very low benchmark. But aside from that, there is little I could recommend about KWCS’s system. In fact, there are three main flaws in relation to their proposal.

Firstly, there should be no exemptions from a property tax, only deferrals. If you are land-wealthy (and remember real estate made up three quarters of wealth in Ireland last time we checked) but income-poor, the State can wait until you ultimately sell it and then, through a lien or charge on the property, take the fair amount.

Secondly, a property tax should most certainly not be related back to income. If you want to punish people for having an income, then do that through an income tax. A property tax is somewhere between a wealth tax and a tool for making sure land is used efficiently. It is not supposed to be an indiscriminate revenue-raiser, as income and consumption taxes are - if you look internationally, property taxes are used to fund local services.

The data needed

Thirdly, as an expert of sorts in this area, I have to take issue with the following claim (as reported in the Independent):

Basing the tax on site size would be complicated because there is no database on site values. In contrast, a national register of property prices is being compiled.

It is most unfortunate that this appears to be what KWCS believe. In fact, particularly in a market as illiquid as the one we now have, the opposite is the case. I have already estimated the contours of land value in Ireland - see the map below, which is based on 1.5 million property listings from 2006 to 2011, and which controls for market conditions over time and for the fact that property types differ by location [more here]. (As before, I’m happy to share for free this and the underlying data with any Government body and to apply the model to any dataset they may have.)

This is because it is far easier to calculate land value consistently around the country than it is to calculate the value of each and every property. Put at its simplest, the land value of the property you live in depends on two things: the site size (known from the Land Registry) and the amenities nearby, which we can measure relatively easily through what applied economists call “fixed effects”.

On the other hand, the full value of the property you live in depends not just on site size and nearby amenities, but also on dozens of other mostly difficult-to-measure factors, such as building size, the number and size of bedrooms, of bathrooms and other rooms, outhouses, ratio of front garden to back garden, energy efficiency, all the way down to whether the attic has a Stira and whether the landing has a skylight. The value of all of these things may also vary by property type, by region and over time. And when someone does something useful like insulate their homes, convert their attic or extend into the back garden, they are then landed with a larger property tax bill. Do we really want to tax people for making their homes more energy efficient?

The register of house prices will give us none of this information - the country will be depending on people like me to estimate hundreds of things like the effect of double-glazing on apartment values in Connacht-Ulster since 2009. Certainly we could ask for 101 details to be recorded in the stamp duty record (the French do that, incidentally) - but wouldn’t it be much easier to ask for just one additional detail (site value)?

As for KWCS’s point that a full-value tax is easier for the public to understand than a site-value tax, the household charge was pretty easy to understand but that didn’t make it popular! Ultimately, I do not think it is beyond the grasp of people who have done something as financially complex as take out a mortgage to see that their property’s entire value consists of two components: the site + the building.

Cause and effect

Ultimately, if there is one point I could embed in the discussion of property tax in Ireland, particularly as we are designing one from scratch, it would be what you might call “understanding cause and effect”. In other words, why do we want a property tax and what effect will it have?

Clearly the ‘why’ is about raising revenue - but if that’s all it is, sure let’s just increase income tax. A property tax can, nay should, be used to finance local amenities which ultimately drive differences in land values around the country.

A full-value property tax with income exemptions is just income tax in another form, an indiscriminate form of revenue raising that will damage Ireland’s competitiveness and punish socially useful activities like building on a derelict site. A site-value tax, with deferrals for those who have the wealth but don’t have the income, will generate the same revenue but also encourage Irish households to use land, a scarce commodity, in socially beneficial ways.

Tags: , ,

86 Responses to “Property tax - understanding cause and effect”

  1. David O'Donnell Says:

    Ronan,

    You’ve passed the first test of The Aesthetic Turn in Irish Economics … from the graphic, it looks like quite of few of those septic tanks are leaking, or perhaps it could also refer to the density of dodgy planning/zoning decisions ….

    Seriously, I’m in favour of a progressive (i.e. non-regressive) property tax, including a land tax which also includes agricultural land. As always, the final question to be addressed with Irish policy, if addressed at all, is HOW? Best, imho, is to base it on wealth/asset value - not on age, health, sexual orientation, membership of the farming community, membership of the FDI fraternity, in receipt of Old IRA pernsion, political insider affiliation, or whatever - base it on Capital_period.

  2. Aisling Says:

    @Ronan While I’m sure we Irish have learned our lesson and will never have another property bubble…

    However, on the off-chance we had another one, how would that impact on your deferral? You’d be looking to levy taxes in relation to a previous appreciation in value which the homeowner never benefited from (assuming subsequent sale was in the bust), bearing in mind that such deferrals could run for 40 or 50 years.

    I like the theory of the deferral, but not so much the practical implications.

  3. Paul Hunt Says:

    Welcome, Ronan. You’re like a gale of fresh air though this increasingly stale old blog. I couldn’t agree more with the case you’ve made here. But I fear you will have great difficult securing any traction with them what make the decisions.

    Just one point. In addition to your “A property tax can, nay should, be used to finance local amenities” I would add local services. The property tax should be levied and administered at the local level, even if the basic data comes from a consistent national source, with clear accountability for the relationship between what is levied and recovered and the amounts spend on the provision of local service and the maintenance of amenities.

    A tax paid in anger is the greatest spur to democratic accountability.

    However, with our overly centralised and expansive governance, the notion of devolving such responsibility down to local levels would fill those who sit in comfort, power and glory in Dublin with total dread.

  4. Ronan Lyons Says:

    @David, Paul
    Thanks - and Paul, I meant to imply amenities including public services, so we’re in agreement there. On the likelihood of implementation, you may be right but with posts like this we can at least say “It wasn’t because the information wasn’t there”.

    @Aisling
    I would have exemptions only in the first few years of the tax, i.e. for those who made decisions before tax was made. After that, when someone who bought fully aware that a property tax exists reaches retirement age in the 2030s, they pay as everyone else does.

  5. Garry Says:

    A full-value property tax with income exemptions is just income tax in another form….

    Couldnt agree more with this….. and on the comment re derelict sites etc…. or these there should be an encouragement to use it or lose it… Clearly, that isnt the thought process behind the property tax planning…. because in the case of someones’ home, the owner is obviously using the asset…. However in the case of broke developers, landlords, banks or in the case of a farmer getting paid set aside….. they clearly are not using the asset… so why shouldn’t that be taxed????

    Its worrying how most economists can be herded into lanes that suit the decision makers, nice to see some independence of thought.

  6. Paul Hunt Says:

    @Ronan,

    Thank you. I suspected as much about these ‘amenities’, but wished to make it clear. I had long hoped that this blog would dig in to the nitty gritty of the ‘Irish Economy’, but it has been far too rare. That’s why you are doubly welcome.

    And yes, it will need enormous shifts in attitudes - both among those who exercise power and those who own property but place a methaphysical - almost spiritual - value on it far in excess of the value of any services it generates. This attitude is also fortified by a deep seated desire to consolidate wealth - and power - and pass it from generation to generation.

    But you’re right. All this should be brought out in to the open.

    As for the deferrals, I think I understand Aisling’s concerns, but I would argue for a rate of interest being applied to deferrals - perhaps equal to the local authority’s or government’s cost of funds - which would encourage disposal and the desired mobility.

  7. BeeCeeTee Says:

    “Put at its simplest, the land value of the property you live in depends on two things: the site size (known from the Land Registry) and the amenities nearby, which we can measure relatively easily through what applied economists call “fixed effects”.”

    I don’t believe it is as simple as this. The value of land for housing depends not just on its area, but also on the number of homes that can be built upon it. Doubling the size of a site for one house does not double the site’s value.

    Defining the site value of a home as the value of the property less the value of the improvements on the site, my rough estimate for the area where I live is that doubling the size of the plot for a home of constant size (corner site or longer garden on same street frontage) increases the value of the site by no more than 10% to 20%.

  8. Ronan Lyons Says:

    @BeeCeeTee
    You raise an important point, albeit one of perhaps second-order importance. It’s a detail but I don’t think any undoing of SVT. In particular, house-specific refinements to estimated per-acre values will be part of a full SVT. I would suggest this be done by giving all households a tax credit in year 1 so that they can have their site formally assessed, with respect to local planning regulations (e.g. it may be a large site but if the local LA will only ever allow one property on it, this will be reflected in site value). Note also that an SVT done this way contains in-built allowances for things like protected structures. These are socially beneficial but incur private costs - this will be reflect in site values as anyone who buys that site buys the building and thus the stream of maintenance costs.

    For those interested in more details, see:
    http://smarttaxes.org/report/

  9. BeeCeeTee Says:

    @Ronan,
    When I try to follow your smarttaxes link, my Norton anti-virus/security warns me of a web attack on my PC, and refuses to open the page.

  10. Aisling Says:

    @Paul Hunt you’re right. If we take as our starting point that very few home owners will genuinely be unable to pay, but that there would be a political cost associated with not having a carve-out/ deferral for certain classes, then an interest charge could be the solution to ensure deferrals are kept to a minimum by incentivizing payments by those eligible for the deferral.

    Because the issue only arises if someone has a long term deferral during which there was both massive appreciation and depreciation in the property value. The continuation of the current “double taxation” argument around bubble time stamp duty and household taxes now.

  11. zhou_enlai Says:

    The very nice graphic shows that property prices are relative to population density not amenity.

    Subject to people being able to get the type of work they are qualified to do locally, people want to live near their brothers sisters neices and nephews.

    Jobs develop in cities because of the effect and efficiencies of clustering rather than just the amount of amenities.

    A value based property tax is a punitive tax on people born in cities who have their community in cities and who want to stay near theur community and extended family.

    A value based property tax also punishes people for living in houses that it costs less for the state to serve in terms of insfrastructure (roads, gas, electricity, telecommunications, water, foul sewers, postal service, public transport).

    A value based property tax mitigates against home-ownership, especially amongst the lower paid, as the only people who can service such a tax will ultimately be people who enjoy an income stream from the property (i.e. investors) or high earners.

    Any proposal for a value based property tax should bring down the Government and permanently damage its constituent parties.

    What we really need is for local authorities to be propely governed, properly accountable to their ratepayers, and for local authority rates to be calculated by reference to the amount spent on local services (subject to subsidies for national roads and national energy and communications grids).

  12. Ronan Lyons Says:

    @BeeCeeTee and all
    I’m not sure what’s going on with the smarttaxes site so I’ve put a copy up on my own blog. Link goes straight to PDF:
    http://www.ronanlyons.com/wp-content/uploads/2012/04/Site-Value-Tax-in-Ireland-Identify-Consulting-final-report.pdf

  13. The Dork of Cork Says:

    Interesting interview with Russell Napier in which he discusses Financial repression and other things.
    mcalvanyweeklycommentary.com/04-04/

    The ESRI don’t really care about the spatial context - they never did , the primary objective of these taxes is to force people into Goverment debt, the post office etc by making property unpopular & unprofitable.
    Doubling the VRT tax & car tax on private cars would be far more effective from a spatial & balance of payments context but there must be a hidden euro deal that we further subsudise the cores exports rather then use hidden tarrifs which would be far more effective for the Irish economy.
    It would also be very simple to implement.

    History…… “There was a tax depending how many hearths you had to light your fire -……this proved to be not really a tax that could be implemented because it involved going inside a property to access the level of taxation……
    That was deemed to be a infringement on rights…….however it was replaced by a window tax and those windows can be counted on the outside.
    People can deal with car sharing & using Buses etc , the kids walking to school again………..but it is very dangerous to mess with the Home , the last retreat from the state and its grubby dealings with hidden actors.

  14. Diarmuid Ó Muirgheasa Says:

    @zhou_enlai
    The fact that population density and amenities are correlated doesn’t at all prove that property prices aren’t relative to amenities.

    In terms of people living in cities - they (we, I should say) get access to far more by way of public amenities when compared with people who live out in the countryside. More money is spent on us, so why shouldn’t we pay more?

    Moreover, average site sizes in Dublin are a fraction of what they’d be down the country, so while I say it’d probably be reasonable for us to pay more, that may not even be how it works out. An average family home in Dublin is on what - an eighth of an acre? Less? A rural family home could easily be on half an acre or an acre of land.

    Obviously the levels these would be set at would have to be carefully calibrated, but the principle is sound.

    As for your other points - you can’t really be making the argument that there are a significant number of people who could afford to buy a house and pay the mortgage, but not a property tax?? And as for the Government paying more for amenities for those in rural areas - a lot of the time, the amenities just don’t exist (public transport, sewers, mains water supply etc.)

    And in reference to your last paragraph: I agree absolutely! I’m pretty sure the site value tax is designed to contribute to exactly that!

  15. grumpy Says:

    “Firstly, there should be no exemptions from a property tax, only deferrals. If you are land-wealthy (and remember real estate made up three quarters of wealth in Ireland last time we checked) but income-poor, the State can wait until you ultimately sell it and then, through a lien or charge on the property, take the fair amount.”

    Don’t forget that this already happens to a significant extent through the CAT head. Yes there are class thresholds, but there you have at least a reflection of the “wealth” you refer to. Many people think that principle private residences are exempt from CAT but that is because they don’t understand that the “exemption” does not apply to the vast majority of situations. This is in contrast to the highly effective “relief” for real estate wealth stored as “agricultural property” and “business property”.

  16. Ossian Smyth Says:

    Ronan has written clear, entertaining and insightful articles for some time and is very welcome.

    An alternative approach to site valuation would be to take the current market valuation of the entire property and subtract the rebuild cost (available from the Society of Chartered Surveyors). Rebuild cost depends on specification which complicates things.

    zhou_enlai, you could link the tax to population density to account for differences in cost of service provision but this would upset rural dwellers. Urbanites, despite forming a majority, do not cohesively lobby and are less likely to protest paying higher than rural rates.

    As for the feasibility of value based property tax, the UK managed eventually to introduce a local tax of avg 1,400 eur/household. This is payable by tenants where the property is rented.

    Irish local authorities are partly managed by appointed officials. The division of powers between elected councillors and staff is unknown to the public. This blurs the connection between local taxation and local representation.

  17. zhou_enlai Says:

    @Ossian Smyth

    You are correct about the blurred lines between local taxation and local representation. I note the point about an average tax in the UK. I understand that this is because different local authorities tax different amounts according to their expenditure, although I am open to correction.

    Labour and FG’s domination of Dublin will be have a limited shelf life if they moot a property value based tax. They will also alienate those in negative equity. One might expect that they will be forced to reform local government in spite of themselves. I don’t see Big Phil as a wellspring of reforming zeal but perhaps I will be proved wrong.

  18. Emer O'Siochru Says:

    @ zhou_enlai What you don’t understand is that settlement density increases site value for everyone including the owner of the site. People choose to live in cities because of the benefits of proximity, to shops, schools, cultural buildings, hospitals and not least to jobs. The owners do not forego the benefit of their site until the sale value of their urban site; - they enjoy location benefits everyday. Everybody contributes to that value not just the public sector with their investment in water, sewerage, roads, energy and communication etc. although that is a big factor in value creation. Good neighbours add to site value. Value is also added by natural views and clean and healthy environment. In fact you could argue that site value is added by every other possible 3rd party agent - except the owner. So land / site value should be really be considered as a mixed natural and social ‘commons’. A site value tax simple recoups a portion of the unearned value or the ‘economic rent’ (as it was called by classical economists) from the site owner to give to the beneficiaries of the commons - which is all of us.

    Smart Taxes campaigns for a tax shift FROM work and enterprise TO commons use; that way work and productive investment is incentivised and free-riding and resource depletion and degradation is minimised through the market system. SVT does not penalise the owner who improves his buildings unlike a property tax. This is very important considering that the Irish construction industry is on its needs and we need a total upgrade of existing stock to reduce energy losses and GHG emissions.

    SVT does however, penalise land speculators and hoarders and the owners of underused and derelict buildings. That is only fair as such site owners to not contribute to production and jobs, quite the contrary - they are a cost on others. SVT woudl eliminate the incentives for premature and excessive zoning overnight. The core of corruption in Irish local and central government would be cauterized. Local government could be re-democratised, held responsible by the people to make wise infrastructure investment in a virtuous feedback loop. This boon alone is enough reason to choose a SVT over a conventional property tax which would leave land banks held by developers and speculators off the hook yet again.

    Rural properties have larger sites which offsets to some extent, their lower SVT band. It is not a simple urban versus rural issue. There is huge variation in site values in city areas as you may have noticed and there is a less but significant variation of site values in rural areas according to their proximity to services and natural and social amenities. A large site within 5 minutes drive of Galway centre or Limerick has a high value compared to a remote site of similar size that requires a 40minute drive to the nearest significant town. Many one-off dwellings built in remote areas will pay a low SVT because their social ‘location benefit’ is so low although their perceived environmental benefit is high. Their owners have considerable extra transport costs and other disadvantages difficult to quantify such as fear that they will not get to a hospital in time should they have a medical emergency. Transport costs will rise as fossil fuel costs rise, as they will inevitably, because of oil peak or measures to address climate change. Many of these houses will not be worth their construction materials: - their owners deserve our pity not envy.

  19. Brian Woods Snr Says:

    Hi there Ronan. Good to see you.

    Paying the revenue, or local authority, requires cash. Now that would be income. So there would have to be some statutory basis on which the payment is raised. Site value (not property) seems appropriate - with some very problematic terms and conditions.

    There will be legions of petitioners, Olii Twist begging bowls outstretched, demanding ‘more’. So, I guess the predicament is best solved by ‘no exemptions’ and some simple deferral system for those who will not/cannot pay on time.

    However. I believe that Irish residental property values (hence prices) are set for at least a -50% to -80% fall (from present values/prices). And they are likely to stay depressed for a very long time (vid. Japan) - absent a nice bout of money inflation. And heaven help the unfortunate mortgagees if interest rates start back up. That would kick property values real hard. Also, energy input costs are set fair to trend upward forever. These just might impact negatively on property values, and may lead to some very nasty confrontations over disputed, depreciating property values. Five-year, ‘downwards only’, value reviews?

    So what would these do to the ESRI’s astrologically derived projected revenue stream?

  20. V Barrett Says:

    Lets cut to the chase, we all know from practical perspective that the proposed tax has nothing to do with fairness, theoretical justifications about funding local services and what not…it is precisely as outlined by Lyons “an indiscriminate revenue raiser”. The best case scenario on debt servicing by 2015 is 10bn - thats what the dough is needed for, not parks and footpaths (and of course maintaining croke park). If I was in Michael Noonan shoes, and assuming i was committed to the economic suicide pact he has signed up to, then i would be looking at it precisely the same way.

    Under the current proposal it is for all intents and purposes a psuedo income tax but one that will simply not be palatable to those that has to pay - think Ramsey Pricing…there are things people will and won’t tolerate even if the net outcome as to their total tax liability is the same. Look at what has happened with the relatively low household charge - plenty of generally complicit, law abiding citizens who have graciously taken income tax hikes, wage cuts etc of far greater value simply could not abide this charge….the numbers that will take a stance on the current proposals I suspect will be substantially higher. Is government’s taxing policy guided in any shape or form by societies willingness to pay different type of taxes (again a la ramsey pricing theory)

    I am also perplexed as to what anecdotal or statistical evidence Aisling has to support a proposition that “very few will genuinely not be able to pay”. All recent reports that i have seen in the public domain indicate that a very large minority of people are already at breaking point.

    I can’t see anything other than mass revolt/non compliance based on the current proposal notwithstanding Irish peoples general willingness to take what is thrown at them. Its boring, its repetitive but unless there is a significant renegotiation on debt this country will continue on a downward spiral because we have staked everything on exports dragging us from the mire….and as we continue to suck the life out of the domestic economy and talk around the nicieties and justifications for progressive property taxes, water metres and how the croke park agreement is delivering results we are really gambling an awful lot on the blind.

  21. paulr Says:

    My house is not an asset. I pay to maintain it. I pay for heating and lighting. I pay a mortgage on it. I get no income from it. It is what it is a place to live out of the wind, rain and cold.
    What will happen when people realise that home ownership is becoming to costly?
    6000 people a month are giving up Health Insurance, thousands are not taxing their cars, wages falling…….. and on and on it goes.
    Why are working people paying tax but for the provision of services.
    When the Commission on Taxation reported and said that we should have a property tax they also said that direct taxes on employment should change to reflect this change. All this is about is raising revenue. The funds that people will use to pay this tax or charge or what ever you want to call it have all ready being taxed.
    All the reasons giving for the introduction of this tax or water rates are weak and do not stand up.
    From 1.6 million homes a thousand euro in extra tax will be removed and will not be spend in the economy were this money can help secure and create jobs.
    Maybe ten years ago was the time to introduce these taxes but not now. Just more bad government by more of the same poor politicans.

  22. karl deeter Says:

    At the ESRI I asked: if a property is improved you pay more, if it goes to ruin you pay less, and other perverse incentives are not addressed like land banking and the non use of zoned land.

    The simple reply was: if Site or Land Value Tax were such a good idea more places would use them.

    My thoughts: actually, because it takes some work to do it is easier to just tax people and not go through the hard job of valuing land, and as for ‘places not using them’; such tucked away enclaves as the continent of Australia, New Zealand, parts of the USA and Denmark are clearly not on any taxation map.

  23. Ronan Lyons Says:

    @zhou
    Access to a rich labour or consumer market is an amenity with a value like any other. My research estimates that moving people 10km further from their job reduces prices and rents by about 7%.

    @paulr
    You have actually reminded us all of a really strong argument against full property value tax and in favour of SVT. That argument is that while people maintain their properties, no-one maintains the land - it is created by society, for free for the land-owner. Thus it certainly not fair to tax you on the hard work you do maintaining your property, but it is certainly fair to recoup some of the value that society creates.

    @karl
    I think a huge reason SVT is not the standard is path dependency. If you start with a different property tax, it’s very difficult to jump horses mid-race. Ireland is in the paradoxically lucky position of being able to choose freely the best possible system. Hopefully we don’t mess this up.

  24. V Barrett Says:

    @ PaulR

    you are spot on…this is about incremental tax revenue, not a redistrbution of the existing burden.

  25. The Dork of Cork Says:

    @V Barrett
    Sovereign goverments issue and tax………….landlords agents / bagmen just tax.
    We obviously need a devaluation and if we can’t or will not issue we need a synthetic devaluation via tariff like taxes……..specifically on stuff thats draining the internal money supply.

    Suburbia & Irish Sub rural developments would have been impossible without the exponential growth of vehicle numbers.
    Both Houses & Cars are creatures of credit.
    I Find it amazing the problem is not focused on these consumption engines.

    1990 : 800,000 ~ private cars
    2011 : 1,800,000 ~ private cars

    If we don’t deal with this problem not only will all discretionary spending go into this waste but also basic life support will be compromised amongest a large sector of society.

    Oil imports in Euro terms continue to rise…… although there is probally more reexports from Whitegate now.
    oil imports
    Jan -Feb 2011
    882 Million

    Jan - Feb 2012
    908 million.

    So we are not getting 2009 like oil demand destruction yet………. what is happening is that people who live more efficient lives are being pushed over the cliff to sustain the unsustainable.

    The Euro was designed to enrich Sheiks , Bankers and BMW merchants at our expense.
    The calls from rural Ireland for mercy was lost when they gave up their small farms & Coops for 30 pieces of silver.
    However a tax on land expecially under market state like debt levels is to be questioned………what is their true motive ?
    We should be sceptical of rich vs poor / rural vs urban divide and conquer tactics.

  26. Barry Says:

    @Ronan Have you made submissions to the government on this? You certainly have exposed major flaws in the ESRI approach?

  27. Yields or Bust Says:

    @Ronan

    I mentioned to you before, on your own site, that the single biggest problem with this tax/charge is that in a huge proportion of cases the current owners of property don’t currently have a site with a ‘value’ - their values are in fact significantly negative because of mortgage debt way in excess of site/property values. I think Stephen Donnelly TD made this point again this morning. He suggested what in fact was proposed was to tax a loss - which seems pretty remarkable - however following on from the raids to pension funds last year I’m not entirely surprised.

    Be that as it may I think your SVT is a fair method of going about this but not when property prices will see falls of 75% to 80% from the peak and hundreds of thousands of folk are currently, and will be, in negative equity for years. I understand the argument that the sites do have an intrinsic value in their own right, but as far as I can see not taking into consideration mortgage debt is an error because ultimately the tax payment comes from after tax income which obviously is mortgage debt dependent. Perhaps I missed it but none of your examples in the longer report make any reference to mortgage debt.

    When the site values as noted in your report are netted against these debts many homeowners will be in zero payment terroritory for years, given that scenario I fail to see how this site tax will work as either a revenue raising activity or even as a method of spreading the tax base.

    I suggested before that one of the better estimates of where Irish residential property is headed was completed back in January. Cormac Lucey suggested that using a yield method would see values falling by 75% to 80% and perhaps a bit more given the other negatives on the economic horizon. I agree with the analysis and the results - given falls of this size surely it puts the likely revenue to be raised by this tax into doubt particularly when the debts are brought into the equation.

    http://cormaclucey.blogspot.com/2012/01/prospects-for-irish-residential.html

    Another bug bear of mine is the new found pursuit of SVT/Property Tax proponents in making comparisons with other countries and their taxing regimes. Sadly logic breaks down here, making comparisons to other tax heads seems fine and dandy when the Govt is in the hole that it is but I could equally argue that most of the world taxes its corporations at closer to 30% and why not align ourselves to that taxing rate seen as its common practice elsewhere ? I suspect many in the DoF would be adjusting their seating positions in discomfort if such a comparison were drawn - so I’d request that this game cease - tax, as a former tax practioner, is a daft subject so trying to sell new taxes to the public because that’s what goes on everywhere else is daft squared. While we are it surely it makes sense to tax those with red hair? Anyone?No?

  28. JeromeK Says:

    Hi Ronan

    Overall I agree with your main points - though as an owner of a standard enough house on a larger than average site, I may be harder hit.
    Relating property tax to gross income is daft.ie (free plug)
    Many pensioners have more disposable income and zero debt when compared to higher earning younger people who are raising families, paying transport costs, childcare etc…

    If Mr. Hogan wants to get mainstream support here from the tax-paying classes then he needs to link this to MEASURABLE improvements in the way local authorities (LAs) work.

    I would allow the LA to adjust a percentage of the rate +/- 30%. This would enable individual LA’s to raise more/less than others if they wished in particular years.

    In return for raising more revenue a LA could provide better services in their area. So long term people could choose to live in an area of higher property tax and better services or vice versa.

    To enable people to objectively judge how well their LA is performing however, there would need to be a set of common metrics published annually that measures not just revenue and costs but the level of services provided. This should be accessible on a central website.

    Over a 5 year period that should objectively highlight those LAs who are inefficient and who therefore should be discontinued and merged with a more efficient neighbouring one (while minimizing political interference).

    This could be a win-win - LAs get more financial independence and a lever to reform their work practices with unions while property owners can visibly see and measure the return on their taxes.

    “No New Tax on my yard without a Local Service Scorecard!”

  29. V Barrett Says:

    @ Yields or Bust
    There is an obvious way around the problem you have identified that was first proposed by the Khmer Rouge in Campuchia in the 70s….It is the Year Zero….never mind your taxing a loss nonsense!

  30. zhou_enlai Says:

    @Ronan Lyons

    “Access to a rich labour or consumer market is an amenity with a value like any other.”

    I disagree completely. We are talking about residences not retail outlets.

    What amenity is access to the IFSC to a secondary school teacher, a cleaner earning minimum wage or a civil servant living in Rathfarnham?

    What amenity to that teacher is his access to a rich consumer market?

    The answer is it ihas a negative effect on his cost of living. It is the opposite of an amenity. The fact that he has to move 10km to get lower rent only emphasises the point that the value ofhis property is nothing to do with amenity but rather to do with the competition for housing.

    I suspect that there is a rational markets error here. You are assuming that people weigh up all the ameneties of different location and then go for the location where there is the best value. There may even be an false assumption of an ability to get a job wherever you buy a house thrown in.

    Most people don’t do that. They decide where they want to live based on family, community, connections and jobs. They then assess amenities within that limited geographic area and get the best house they can afford within that limited area.

    Most people stay as near as they can to where thweir family and community ties are. This is healthy for the country and good for the welfare of its citizens. The atomisation assumed by economists may be achieved eventually a la Manhattan but there is a steep social cost to that.

  31. PR Guy Says:

    Personally, I would like to see a property tax based on how much negative equity you are in (0+ pays a huge wedge, <0 gets paid!) …… but I may have a vested interest, having returned to Ireland at the height of the boom with a Mrs PR Guy who nagged 24/7 for us to buy a house, not rent because “This time we are coming home for good aren’t we?” :-(

    No taxation if there’s depreciation!

  32. Ronan Lyons Says:

    @zhou
    I fear we will disagree to the death on this. Ask people what they look for when they choose somewhere to live. Being close to family and friends is definitely a factor (and one we could quantify with the right data), but so is proximity to jobs. Look closely and you will see that people reward amenities/punish disamenities all over the world. No-one is arguing that every last bit is arbitraged away by super-rational homo economicus, just that these things really matter to people, enough for them to pay something to get them.

    @Yields or Bust
    This is a somewhat specious argument. Effectively you are arguing for tax breaks for leverage, which is a slippery slope. Should those who borrowed to buy a car be exempt from annual motor tax because they are in negative equity?

  33. V Barrett Says:

    @Ronan
    I think your drawing comparisons with the car is the specious argument here. You are not suggesting cars should be progressively taxed on their values I note. The value of a car (notwithstanding the tiny market for vintage cars) will always be in decline - it is a durable good with a relatively short life by comparison to housing and this is understood by the purchaser at the outset - a decline in value of the asset is not a risk but a reality. House prices by contrast go up and down throughout the economic life of the asset. When you make a capital loss on a stock investment you can carry it forward for subsequent years to mark against gains…so i think yeilds and bust case remains entirely valid. A property tax on houses in negative equity is a tax on a loss.

  34. zhou_enlai Says:

    @Ronan Lyons

    I can agree to disagree on the overall point.

    However, I would like to know whether you think proximity to friends family and community is an amenity which differentiates properties within the country and therefore should lead to different property tax charges?

    Or do you accept that friends/family/community amenity use value is the same for all properties, but is priced higher where population is denser, and such difference should not be taxed as no additional amenity applies?

    Putting it another way, should somebody who is unfotunately subject to higher costs with no additional amenity and no additional income (teachers/civil servants/low wage workers) also be subjected to higher tax?

  35. zhou_enlai Says:

    EDIT:

    Putting it another way, should somebody who is unfotunately subject to higher costs with no additional amenity and no additional income (teachers/civil servants/low wage workers) also be subjected to higher tax [u]on that higher cost[/u]?

  36. hoganmahew Says:

    @zhou
    “What amenity is access to the IFSC to a secondary school teacher, a cleaner earning minimum wage or a civil servant living in Rathfarnham?”
    Secondary school teacher - more jobs = more people = more children = more schools = more choice and opportunity for secondary school teachers (in both public and private schools).

    Cleaner - more offices = more jobs

    Civil servant living in Rathfarnham = the unwillingness to be decentralised speaks, I think, for itself…

  37. David O'Donnell Says:

    Michael Taft has a few comments - on the anti-Regressive wing

    http://www.irishleftreview.org/2012/04/17/regressive-season/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+irishleftreview%2Ffeed+%28Irish+Left+Review%29

  38. zhou_enlai Says:

    Re “poximity to jobs” amemity

    Surely the quantifiable benefit of proximity to jobs is already taxed through income tax? There isn’t much benefit to being close to somebody else’s job!

    Alternatively, an inverse-commute tax, where those who commute less pay more tax could not be applied and would perversely incentivise commuting.

    :)

  39. zhou_enlai Says:

    @hoganmahew

    The teacher and the cleaner still get paid the same. Also, if some schools are worse than others then teachers have to work in those schools too. Therefore the benefit averages out tio the mean. Or are you suggesting that country folk have unmanageable thug children…

  40. zhou_enlai Says:

    @hoganmahew

    The unwillingness to decentralise speaks to an unwillingness to have your whole life uprooted and rearranged. Do you think middle aged people would leave their county communities and flocked to Dublin if a centralisation project were proposed?

    Unwillingness to decentralise also speaks to an unwillingness to partake in the destruction of a functional civil service.

  41. zhou_enlai Says:

    (I had better stop this now…)

    Essentially I say that people have arrived at the false conclusion that value is a product of aggregate amenity.

    My counter-argument is that in an expanding population there will be more competition for housing where housing is most dense because most people want to live near where they grew up. Therefore price is hugely affected by population density rather than amenity.

    How does one test the argument? I am not sure.

    One could do the following:

    1. Define a list of all amenities which are instrinsic to properties as opposed to the purchaser.

    2. Assign methods of measurement and relative values to such amenities (possibly taking into account the different value of amenities to different classes of person).

    3. Make a selection of dwellings representative of each of rural and urban dwellings.

    4. Measure ALL amenities attaching to those dwellings giving an aggregate amenity value.

    5. Compare the aggregate amenity value.

    However, it is obvious that steps nos. 1 and 2 are wholly subjective and can be tweaked to fit whatever outcome you want.

    E.g., what value do you assign to museums, concert halls and cinemas? What value tdo you assign to public transport routes? what value do you assign to little traffic and short time to commute long distances? (One might anticipate how this value might vary according to whether one uses the gaelicised[?] version of one’s name :) )

    Therefore it is possible to skew the results to meet whatever your confirmation bias might be.

    @Diarmuid Ó Muirgheasa

    A. Most home-owners don’t have mortgages. Many people inherit houses. Those on low income without mortgages could be forced to sell by property tax.

    B. If property tax were proportionate to the amount spent on services per capita in a local authority area then urban dwellers would pay less than rural dwellers. This will not change if charging by site size once the aggregate charged by the local authority does not exceed the cost of the provision of services.

    @Emer O’Siochru

    Charging people in well to do areas more than people in less well off areas within the same local authority area will have a socially polarising effect. The long standing goal of greater integration amongst social classes will be prejudiced.

  42. Aisling Says:

    @V Barrett I have to go with Ronan on this one and disagree with yourself and YoB. In very, very many places in the Taxes Consolidation Act, and progressively more so in the last few years, there is a complete disconnect between the asset and the leverage associated with acquiring the asset.

    Lets assume I bought a house in 1990 for 40k with a mortgage of 30k. I sold in 2007 for 400k when the mortgage was 15k. My capital gain (assuming not my PPR is 400-40=) 360k. The amount of initial debt, or outstanding debt has nothing to do with it.

    CGT is a tax on the asset i.e. the house not the liability associated with acquiring that asset. Property tax or SVT should be a tax on an asset, and not on the borrowing associated with acquiring that asset.

    That many people are struggling with mortgage repayments at the moment, or in negative equity at the moment, doesn’t change the fact that taxes on assets, be they wealth or capital taxes, have traditionally not taken into account leverage associated with the acquisition of those assets.

  43. V Barrett Says:

    @ aisling

    ignore negative equity - assume no mortage - assume a capital loss that you bought for 800k in 2007 and its now worth 400k?

  44. Aisling Says:

    @V Barrett so I pay property tax on the 400k being the value of the property and?

  45. John Corcoran Says:

    Hi Ronan
    The committee decided by a slim majority to allow you a guest post, you are honoured and a very lucky man.–you got my vote.

    Who is the wealthier man, a man who owns a two million euro home and is unemplyed, or a professional who earns 100,000 euro a year and is a tenant in the adjoining similar house?

  46. V Barrett Says:

    @ aisling

    fair enough - forgot that CG on primary residence not subject to CGT which is not the case in every country.

    nevertheless squaring the theoretical circle in no way negates the qualitatitve arguments i have outlined earlier.

  47. Aisling Says:

    @V Barrett it is nothing to do with capital gains tax. You have an issue with a property tax. Fair enough. But you’re trying to dress it up in terms of tax policy which are not borne out.

    I buy a chargeable capital asset and I, often times, pay stamp duty, other times VAT, occasionally both. Perhaps I paid income tax on the income I invested in the asset. Perhaps my parents did and made me a gift on which CAT was paid.

    If sell that asset later at a loss I can’t go looking for my stamp duty or my VAT back, or the income tax, or the CAT. I may be able to carry the capital loss forward to use against future chargeable gains but that is only a benefit if I realise such gains in the future.

    Taxes can be messy things and multiple tax liabilities can arise in respect of any investment/ funds flow. To try and insist that two have to be linked in this particular instance may be politically appealing, but there are numerous examples where such taxes aren’t linked. There’s no rule of natural justice to be invoked here.

  48. Ger Says:

    The key point for me in the Property value V Site value approach is that site valuation does not punish those who develop their site.

    As far as i can see, a property value tax is an incentive to let vacant properties go derelict and is less of a disincentive to land-hoarding developers than a site value tax.

    However, I disagree with your points about having no exemptions. The value of land (both agricultural and development land) is massively distorted because it is used partly as an investment asset. Investors, desiring an ultra-secure asset which attracts tax-breaks, tend to pour money into land and it is everywhere overvalued. The cost of agricultural land is in no way connected to the realisable profit from farming, likewise the price of residential and development land is far beyond the economic productivity of this space.

    In such a situation, we should be sympathetic to those whose site value is high, but whose income is low. This is a reflection not of poor investment choices (owning your own home is not an extravagance), but of the consistently inflated cost of land -inflated by investors and even speculators.

  49. BeeCeeTee Says:

    If the tax is for local amenities, then to my mind this gives rise to two immediately relevant issues.

    1) Property taxes from an area should be spent on that area. Logically, this will mean that the tax should be applied at different rates in different areas, because the cost of services per €100k of residential property value is unlikely to be similar in, for example, Dublin City to Donegal.

    2) In my view, there is an urgent need to “starve the beast” of Irish local govermment. Local authorities are staffed for boomtime levels of planning and infrastructure development activity. They are just about to lose their most important other function (water and sewerage maintenance and operations). Dublin City Council’s extravagent spending on non-urgent work on parks, paths and cycleways says to me that it, at least, has more money than it needs even after continuing to pay redundant planners, engineers and others. If we are going to be landed with property taxes to fund local services, the flip side should taking an axe to this waste.

  50. John Foody Says:

    @ Ronan L

    Welcome, I’m glad to see new blood on irisheconomy.

    I have a point that I’m not sure if you addressed or not. It’s a city/country thing. Do you except that for the state and others service providers (esb, gas, post) it is more costly to have a citizen in the country relative to one resident in the city?

    There’s also others things less apparent, an increased loss in exported revenue via Petrol/Diesel sales as opposed to a dart/Luas/bus ticket.

    Given that, why should we incentivise someone to live in the countryside via a lower property tax versus someone resident in one of our cities?

  51. paulr Says:

    @Ronan.
    You wrote ‘That argument is that while people maintain their properties, no-one maintains the land - it is created by society, for free for the land-owner.’
    Society does not create the land upon which my house sits, that is nature or God if that is your believe. As for free, no paid for that, the land cost made up half of the cost of my home when I bought it.

  52. BeeCeeTee Says:

    Just following on from my last point, every time I hear the “It’s for local services refrain”, I feel uncomfortable about having paid my €100 household charge. I’d rather have contributed to a “drop it from a helicopter” fund it than given it to the local authorities.

  53. Ronan Lyons Says:

    @BeeCeeTee
    I agree - all SVT revenues should be kept local and fund local services and amenities. National inequality can be addressed through national taxes.

    @John Foody
    It is indeed the case that 4 million people living in 5 cities would be a lot more efficient than 4 million in 500 towns. However, the inbuilt mechanism in SVT is land value - people consume a lot more land (perhaps 20 times as much) in rural areas than in the city. This means that urban life is not punished.

    @paulr
    I didn’t mean that land is created by society, rather that the *value* of land is created and maintained by society, not any one individual. You individually only contribute a minuscule proportion to the value that your land will retain when you go to sell it. (Your buildings are a completely different story on the other hand - but then, they are not part of the commons.)

    In other SVT news, an architect was on to me today (with citations): apparently at least nine Nobel Laureates in Economics have been explicitly pro-SVT. Unfortunate in that context - and bearing in mind what Karl said above about Denmark, US, Oz etc - that the ESRI went down the route of “Sure no-one else is doing it so what should we?” this morning. (Not least because there are moves afoot in the UK to look at this!)

  54. Antoin O Lachtnain Says:

    I like Ronan’s idea.

    However, as I understand it, it is not a site value tax. It is a land value tax. That is a different thing. It is based on the average value of land in your local area, and the size of your holding.

    But maybe I have missed something and Ronan can explain it.

    Site value is a different thing. Site value is determined not just by the local average land value, but also by how commercially exploitable the land is. If the land is land-locked, it is not worth much at all. If it is covered in protected structures, it is worth less than if it were not.

    I think that Ronan’s tax would be good as an interim tax, until a more comprehensive valuation can be carried out (which would realistically take 10 years).

  55. shaun byrne Says:

    Why assume that land has “inherent value”? It is only worth what someone will pay for it.
    What will happen to someone who has a house, has a mortgage and on the dole? Will she pay the same as someone who has a E100000 job next door. If people have no money they cannot pay. And if you have exemptions soon half the country will be exempt. The cost of implementation will not pay for the what you get from it. So much easier to increase income tax, almost free collection and then change planning rules and tax exemptions to manage land banks.

  56. Yields or Bust Says:

    @Shaun

    The argument against income tax increases so it goes is that there comes a point at which it works against the interests of increasing ones productivity and hard work and punishes risk taking where potentially jobs could be created and drives away ‘talent’.

    In my view the actual reason is that it drives many into the black economy and we all saw the result of that regime (2 tax amnesties in 1988 and 1994 if my memory is correct).

    I’m not entirely sure however that simply increasing income taxes at the top end would be such a bad way to raise the revenue this tax will likely raise. No doubt there will be many reliefs be they mortgage related or simply a lack of means to pay, either way the tax take from a SVT to me looks like €250m tops based on net property values taking mortgage debt into consideration.

    Despite what Aisling and Ronan believe with mortgage debt completely mispriced against such a huge proportion of dwellings in the country its a nonsense to think any tax on such properties can conveniently avoid the very large elephant in the room hoovering up most of ones disposable income. In theory it sounds great but I live in the real world.

  57. Aisling Says:

    @YOB Do mortgages not hoover up a huge load of income or am I living in a completely different land?

    We have a problem with mortgages. Of course we do and people are struggling. Yet as a nation we’re broke, and we need to not only raise revenues, but raise it in a sustainable way.

    If you increase income taxes that will add to pressure on mortgage holders nearly as much as a property based tax. But not more. Why? Pensioners. The ghost of Blythe means that their income tax exemption will not be touched. Their pensions will not be touched. A lot of them have properties without mortgages.

    CSO data suggests that younger families are struggling the most while the older age groups are struggling the least.

    Any sort of wealth tax will help address this. Exempting negative equity would not only negate the revenue raising powers of the tax. It would also greatly offend those taxpayers who didn’t participate in the bubble.

  58. David O'Donnell Says:

    You couldn’t make it up!

    First up we have the father of six who was fraudulently claiming the dole. Using a false name he claimed over 14,000 euro that he wasn’t entitled to. Doesn’t sound like a particularly admirable character, does he? Although it should be noted that he did turn up in court with 1,500 euro as part reimbursement. The judge wasn’t impressed. I mean 14,000 euro is a lot of money to fiddle, isn’t it? What did he get? He got a year in jail. A year for 14,000 euro. I don’t know, what do you think, is that a ‘you couldn’t make it up’ story?

    Or is this more of a ‘you couldn’t make it up’ story. Friend of developers, politicians and journalists, Michael Fingleton, ran an institution, Irish Nationwide that has so far cost the Irish state, the Irish taxpayer, the men, women and children of an entire country, 5.4 billion euro. In fact, Fingleton, even after the state bailed out his ‘private bank,’ gave himself a million euro bonus and when this saw him forced from office presented himself with a retirement gift of an 11,500 euro watch. Yes, a watch. A watch, only a few thousand less than the entire amount that saw the father of six dole fiddler sent down for a year. Michael Fingleton is not in jail. Michael Fingleton remains in a very luxurious house. Now, what do you think? Could you make that up? A year for fiddling 14,000 euro. Nothing for costing the state 5.4billioneuro, giving yourself a million euro bonus when you’re broke and then an 11,500euro watch when the game is up. Seriously, could you make that up?

    http://www.irishleftreview.org/2012/04/16/you-couldnt-make-it-up/

    No Comment!

  59. David O'Donnell Says:

    Second up, we have the 132 people who were sent to jail in this state between March and December last year. In fact if we trace the graph of our economic collapse we can see that of these particular types of criminal, 31 were jailed in 2006, 32 in 2007, 54 in 2008 and 62 in 2009. Clearly the financial collapse has seen a clear upsurge in this type of criminal behaviour. So what do you think those 132 criminals did last year? What crime against society did they commit? And remember, I’m not making this up. Those 132 people last year went to jail, went to sleep in prison cells, because they hadn’t paid their television licences. Honestly, I am not making this up. I mean, you couldn’t make it up, could you? 132 Irish people in Irish jails because they hadn’t bought a licence in order to watch Fair City. You couldn’t make it up. After all, if you are going to make something up it has to be faintly believable.

    I’d say we could be heading for a property boom in JAIL BUILDING - household charge, water taxes, property taxes, littering, refuse charges, fresh air taxes, blasphemy against austerity, NO voting, non-Soma consuming, and so on.

    Where, oh where, are all the ordinary decent criminals going to sleep?

  60. Aisling Says:

    @YOB need to amend previous post. Amendment to income tax rates will, I suspect, impact more on people struggling with mortgages than a property tax, not less.

    Issue being asset rich pension holders who are subjected to limited income tax.

    I wrote it correctly, and then amended it incorrectly when I read it back. I guess that this suggests I’m bad at explaining things, even to myself!

  61. JohnD Says:

    Aisling stated “Pensioners. The ghost of Blythe means that their income tax exemption will not be touched. Their pensions will not be touched.”

    This is incorrect; people in receipt of pension income are taxed based on their tax credit certificate for the relevant year. Their income is subject to income tax. Their pension provider is essentially their “employer” who pays them their pension after deduction of income tax and USC. They also receive an annual P60 from their provider similar to those in employment.

    As an aside there was a recent incident where it was discovered that in some cases state pensions were not being taxed correctly. I mention this to highlight my point that it is incorrect to state “Pensioners……income tax exemption will not be touched.

  62. Aisling Says:

    @JohnD My reference was to to the fact that those over 65 can “earn” €18k of income without being taxed on it, that’s potentially 36k for an elderly couple.

    http://www.revenue.ie/en/tax/it/leaflets/it1.html#section2

    A young family is not entitled to any such exemption despite their potentially greater outgoings.

    Hence I think it remains correct to talk about “pensioners’ income tax exemption”.

  63. shaun byrne Says:

    @Yields
    I know that increasing tax will increase avoidance but many more will avoid the property tax. I agree with a property tax but it has to have an ability to pay part to it, which just makes it an income tax by another name.
    But my main point is the government does not care about the property tax, they want a revenue generator, if that is what they want then income tax is the cheapest and easiest way to do it

  64. Colm Brazel Says:

    Ronan’s piece concentrates on a demographic based on site value and makes the claim I wouldn’t disagree with that assumptions on the basis of site value can reasonably be made. I’m sure they can, but are they fair? The indo piece notes,

    “The report also concedes such a tax may further knock house prices as it could act as a disincentive to own property.”

    This would mean an extra hidden cost against the property only realisable on trying to sell it.

    There is a culture of owning property in Ireland that is not shared throughout Europe. On the face of it, it would appear a system fit for Europe will be imposed in Ireland that will drive people out of home ownership and into rented property? This will further distress property prices.

    There is the possibility of providing relief to current property owners with property tax only introduced on the sale of current property, who would take property tax into account for their new purchase and not have it foisted unfairly on them?

    When does an amenity become an unfair tax levy? For example, a teacher forced to purchase a house in a reasonable area in Dublin gets whacked with an extra Dublin levy compared to a teacher purchasing a house in another city or town in another county. Will this become an anti Dublin levy? I won’t delve into the minutia of a site with a view as against a site up a lane not in charge of the County Council ?

    Will property charges become the mess of decentralisation under a different roof ? Perhaps we have here the FF/FG version of Pol Pot year zero with the financial equivalent of the troops ordering people to abandon their homes and leave because of unpayable and excessive charges including property taxes ? Will money raised be funneled outward to pay the debt of casino banks while local amenities such as road repair be left by the wayside.

    Because of the lack of vision or clarity of thought and planning around water charges and property taxes, it would appear another great mess looms.

  65. Yields or Bust Says:

    @Aisling

    I have sympathy with your drafting issues particularly in relation to matters taxation. As I indicated above its a daft subject so no worries if it dulls the brain.

    I’m not for change on the subject matter, crazy mortgages are part and parcel of our property market whether we like it or not. Seeking to raise a tax on a property which has no monetary value to the current owner goes against all the tenets of tax I’ve ever seen, daft and all as they are. I hear what your suggesting regarding the recent stance within the Consoldiated Taxes Acts with regards to leverage - sadly it too is probably incorrect. We need to get real and realise that debts of the magitude that are sitting in almost all corners of todays economy are unsustainable, interpreting laws and devising new ones without cognisance to that hard to bear fact is dumb.

  66. Ronan Lyons Says:

    @Colm
    I would note two things:
    (a) Ireland has a very average home-ownership rate, in the European context. Certainly high compared to Germany but not unique by any stretch of the imagination.
    (b) Site Value Tax is not aligned to any particular model, but the quirks of policymaking mean that it is perhaps more adopted in the Anglo-Saxon world (parts of US, Oz, NZ and now being discussed in the UK) than in the Continental world.

  67. John Corcoran Says:

    A letter on this issue in today’s Financial Times;Time to tax empty second homes

    From Mr Michael Modiano.

    Sir, Chris Giles advocates easing planning restrictions to reduce the UK’s excessive cost of housing (“The Nimbys should learn to love developers”, Comment, April 12) and Steven Clarke suggests taxing the rental value of land in accordance with planning consent (“Move property taxation to site value rating”, Letters, April 16). Both point out that rapid house price inflation has redistributed wealth from the haves to the have-nots and in particular from the young to the old.

    Ever more parents and grandparents are trying to rectify the inequality and inequity of the situation by lending or giving their offspring the funds to enable them to get on the housing ladder, but not all are in a position to help. The long-term implications are serious as a lack of affordable housing restricts labour mobility, erodes motivation and many youngsters including those with good jobs are unable to leave home and start a family.

    Is it not time to consider a tax on non-primary residences, in particular on those which are not rented out and lie empty much of or even all of the year?

    This would motivate sales and lettings of a scarce resource, essential to the have-nots but non-essential to the haves who might then reconsider just how important a second or third home really is. It could also help to resolve problems associated with the much-debated “mansion tax” whereby the asset-rich but cash-poor, especially the elderly, would be under pressure to move home. If primary residences were excluded this would not be an issue.

    Tighter regulation of non-primary residences has worked in other countries such as Switzerland and Austria, particularly in alpine villages where building land is limited. Such policies have ensured that youngsters and locals can continue to live, work and raise families in those communities, thereby ensuring their future.

    Michael Modiano, London SW1, UK

  68. grumpy Says:

    @Aisling, John D

    I have bleated about this question before.

    What (anybody, anybody al all?) is the reason why pensioners and ‘artists’ should have other taxpayers to subsidise their much larger tax exemptions?

    (Note: “‘cos of the votes”, doesn’t count)

  69. Colm Brazel Says:

    @ Ronan,

    Thanks for that. Surprised ‘home-ownership’ in Ireland does not exceed rates in France, Belgium, for example; definition I’m assuming does not differentiate between house ownership, or apartment ownership ?

    Re, Property tax. In general I’m an admirer of the tax/welfare systems of the nordic countries, Sweden, Denmark. Ireland is both a low tax and unfair tax system with a basic 1:2:3 system. Roughly the wealthy are one on that scale in the amount they pay. If this was reversed, and we adopted a Swedish tax system with the welfare and educational/health system entitlements that benefit all in those economies, I would be in favour of a property tax such as theirs:

    In Sweden,

    “Annual property tax is charged at rates varying between 0.5% and 1% on the tax assessed value (as determined by the tax authorities) of most real estate. If the real estate is only held for part of the year, the tax is reduced on a pro rata basis. Certain types of property are exempt, e.g. hospitals or communication buildings.”

    http://www.deloitte.com/view/en_gb/uk/f3c534be6d2fb110VgnVCM100000ba42f00aRCRD.htm

    I would be in favour of a .5 - 1% tax such as the above. I’m no expert though, but above seems fair enough for me.

    An added incentive would be if we all said No in the coming referendum, left the Euro, joined a new Commonwealth area of UK, Sweden, Denmark, replaced the current government with people who know how to write off bank debt, close banks, negotiate debt write down with our lenders. That would be nice and not the current mess :-)

  70. zhou_enlai Says:

    @Aisling

    If pensioners income tax is too low then increase it. Of course a lot of the money put in to the pension has been taxed once already.

    @YOB
    +1

    We are listening to people trying to justify taxes unrelated to income, wealth, or cost of services.

    It is the same as 100 years ago except now it is globalised. There is a new world aristocracy of bankers, financiers and associated vampire squids robbing the ordinary people. When things get tough they tax us more.

    The bloodsucking aristocracy have their heels on our necks again when we are introducing nonsensical taxes unrelated to income or wealth just to service these debts. My blood boils when the fact of our being under the cosh is used as an excuse for arbitrary and unfair taxes.

  71. V Barrett Says:

    @ aisling
    I erroroneously assumed that CGT applied to primary residence sales while you could not carry losses on the same assets….I had a fundamental problem with that inequitable proposition coupled with a property tax to add insult to injury…however, as stated my initial premise as false.

    However, I do not have as you suggested, “a problem with property tax”. I do not have a problem with the concept or its application as outlined by Lyons….i a vaccum. The fundamental issue i have is that we are engaging in illuminating debates about the merits and application of the tax but i sincerely hope that is within the confines of the vaccum….because as Paulr has pointed out the government proposal has nothing to do with theoretically justified application of a tax - it is to do with raising incremental tax revenue by hook or by crook. In the current climate, the public won’t tolerate it and in many cases will not be able to meet the demands of the proposed tax without relief elsewhere - there is no intention of granting such relief elsewhere…its all about getting more. The country is sinking in a mire of debt - the domestic economy cannot recover in this environment so discussing the minutiae (not sure that is spelt correctly!) of how a property tax will apply practically is ingoring the socio-political reality that it just won’t wash. As Garrett famously once said “thats all very well in practice but will it work in theory”!

  72. Colm Brazel Says:

    Ronan,

    Also, I’m sure from above “tax assessed value (as determined by the tax authorities)” includes the sum of two components, the value of the site and the value of the property, why split hairs and break it down to 2 components, just take them both into account and call it a ‘property tax’?

    Are you suggesting the property aspect should be ignored eg no difference between an old cottage on a half acre to a 20 + room mansion with helipad/indoor swimming pool; and only the site value be taken into account?

  73. Aisling Says:

    @Grumpy Can’t believe it is the votes with the artists - are there that many of them? And of those that there are, how many would vote for mainstream parties (gross generalization I know).

    We need to seriously review numerous tax reliefs available and reconsider their policy objectives. As the various property reliefs demonstrated, they should be reviewed frequently and not just withdrawn after the bubble they contributed to has burst in a spectacular way.

    Pensioners? !

  74. Aisling Says:

    @Zhou no it hasn’t. Where the income is from a pension then tax relief will have been granted on the making of the contribution, the notion being that the income will be taxed as it comes out the other side. The exemption distorts that meaning pensioners are being subsidized by the general taxpayer. But there will be no political appetite for increasing the tax on our traditionally militant grey voters. despite the inequity of the situation.

    @V Barrett. Yes, it is about revenue raising. Because we need the revenue. We can’t just pretend that, given our current budgetary position, the Government can just say “alright lads, we know you’re all having a hard time so we won’t look to take any more off you”. Cuts and revenue have to come from somewhere to balance the budget. At the same time, expectations of individuals which were inflated during the boom need to come back down. Not being able to spend €400 on a first communion dress is not a definition of “hardship”.

    A sensible proposal for how that revenue could be raised in a sustainable manner is far more interesting than the nationally prevailing cries of “Tax THEM”, “Cut THEM” but leave me alone.

  75. zhou_enlai Says:

    @Aisling

    I cannot be definitve and am open to correction, but I don’t think there was always a definitive pension contribution allowance. Thefore a lot of money in pensions may have been taxed before.

  76. V Barrett Says:

    @Aisling

    I generally don’t disagree with your point - although i believe the debt is unsustainable so we are aiming to close a revenue gap that cannot be closed without causing intolerable damage to the state - that is why i continually call for a debate on leaving the Euro - but that is by the by.

    As the government continues to try and close the gap you are talking about they are increasingly going to approach lines that simply cannot cross without a backlash (you identify the grey vote yourself)…my view is this is one of those lines - you cannot naively approach something purely on the basis of theory….people have taken income tax hikes and cuts in numerous areas on the chin - but the 100 euro household charge created consternation. Do you really believe charges of 400-1000 euros next year for the same thing is not going cause a much greater upheaval? If the government wants to box clever, they need to keep approaching all the lines to their limit but not crossing them. Do you genuinely think this is not going to be a much bigger problem for the government than simply tagging another percentage point on to income tax?

  77. Garry Says:

    thanks for pointing out that letter John Corcoran.

    Another good argument for having some kind of “use it or lose it” property tax….

    Cant see the debate being brave enough to push for that here… but it makes sense…

    empty commercial property…. encourage landlords to rent it out… get rents low….
    empty residential property/holiday homes…. have a higher tax…. …
    set aside agricultural land…. have a tax…
    unused coillte land… tax it…

    If the general principal of a property tax is conceeded, then why should it just apply to residential property…. and to private individuals….

  78. Michael Hennigan - Finfacts Says:

    Welcome Ronan as a contributor,

    Eurostat data shows that the rate of Irish owner-occupied homes without a mortgage is over 40% — about 4 times the Dutch and Swedish rates.

    It would be useful to improve democratic accountability at local level by giving some flexibility on the rate that can be charged.

    It’s interesting that communities or individuals did get involved in development/planning issues during the bubble usually only to shakdown the developer for cash or some free enhancement such as a new wall or landscaping.

  79. zhou_enlai Says:

    @V Barrett

    +1 re political realities.

    It is perverse to suggest imposing an unfair tax on set of people (householders) because of the politicial consequences of imposing a fair tax on another set of people (grey brigade).

    My view is that the Government will fly their kites and will realise that this proposal would be political suicide.

  80. John Corcoran Says:

    @zhou_enlai

    I am sixty and IMHO pension contributions always got tax relief and at the top tax rate- hence Michael Fingelton etc etc then you were allowed redeem 20% of the fund as a tax free lump sum. The oligarchs rule ok.

  81. Aisling Says:

    @ Zhou Finance Act 1972 brought in occupational pension scheme with tax relief on employer contributions, employee contributions, and tax free appreciation of the fund. As such the risk of any significant double taxation in this regard is pretty remote. Even if an 80 year old did make a contribution in 1971 the tax borne on that contribution would be minuscule.

    Furthermore, the more significant pensions tend to be semi-state or public sector and as such the income is in no way representative of any actual contributions into the scheme.

    It remains an unjustifiable anomaly.

  82. zhou_enlai Says:

    @John Corcoran

    Point taken.

  83. zhou_enlai Says:

    @Aisling

    ditto

  84. Aisling Says:

    @ V Barrett I think you’re right. Hiking income tax by 1% would probably be easier. That doesn’t make it better.

    We have a lack of accountability at a local level which some form of local tax should seek to address. We need some form of local property based tax. We also need to raise revenue.

    I’m not remotely convinced that a 1% hike in income tax is going to hurt people struggling with mortgages any less.

    The reason that it would be accepted, unlike the household charge, is two fold. Firstly we’re used to income taxes, we’re used to the rates changing. So one more change is just that, it doesn’t mess with our expectations about what can and cannot be taxed. Secondly there’s evidence that people object more to taxes that they have to physically pay, to taxes deducted at source. The household charge, by virtue of being a salient tax, is somehow more objectionable that the income tax hike.

  85. John D Says:

    Aisling I must disagree that your post was correct.

    It appears that you intentionally misrepresented the exemption limits for those over 65 by presenting it as an “income tax exemption”.

    I think in a debate such as this, which can be very emotive, it is important to present facts fully.

  86. Nos O'Toole Says:

    http://www.HomeTaxPetition.net

    Electorate views …….

Leave a Reply