Property Tax

IMF survey paper here.

Summary: The tax on immovable property has been characterized as probably the most unpopular among tax instruments, in part because it is salient and hard to avoid. But economists continue to emphasize the virtues of the property tax owing to its relatively low efficiency costs, benign impact on growth, and high score on fairness. It is, therefore, generally considered to be underutilized in most countries. This paper takes stock of the arguments for using real property taxation, and presents an updated data-set for high-and middle income countries to illustrate its use. It also reflects the renewed and widespread interest in property tax reform globally, and discusses the many policy and administrative issues that must be carefully considered as prerequisites for successful property tax reform.

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19 thoughts on “Property Tax”

  1. Blanket property taxes, not linked to the cost of local services imposed on low wealth individuals (the “Irish Model”), are very effective.

    Essentially they are a form of slavery and like most forms of slavery render workers and economies very productive.

    Allowing people to retain and preserve their after tax income would give people independence and autonomy. That would be very detrimental to the economy.

    It is critically imprtant that the state not only tax the income and gains of the lower and middle classes, but that it also taxes anything that might give them any security for the future, such as pensions and property. Financial security is the enemy of capital which needs compliant and desperate workers.

    It is also important that any such tax be targetted at assets most commonly held by the lower and middle classes.

    The wealthy and super wealthy should be given tax breaks for investing in other types of assets and investment vehicles, thereby preserving their supremacy and uneven bargaining power.

    Eat the poor.

  2. LPT should be renamed the Large Penal Tax. It will indirectly be used forever to pay interest on the bank and other debt incurred by our genius elite. The level of coercion to pay this is unprecedented…the rev com commissars going on the media to tell us they will take it out of your social welfare, wages or bank account or indeed any source of money they can find is really shocking. Thankfully they didn’t target the communion money…yet.

  3. Maybe we do need a property tax, but it is being introduced 10 years too late at least and in such a ham fisted manner that its abolishion will be a big election promise at the next election. On the Consumer Show on RTE the other night they had a section on Management Companies. They reckon 10 percent have to pay these charges and one third of properties in Dublin are affected. The government went for the big money grap and just ignored all these people who are all ready paying for most of the services this tax is meant to provide. Then you also have all the people who paid large amounts in stamp duty.
    When the Commission on Taxation reported and said a property tax should be introduced this was not what they meant. This is a disgrace as it is just stealing from peoples after tax income. This does not broaden the tax base in any way, just shrinks the economy because there will be less in peoples pockets to spend or cover the bills.

  4. Lets see how long it lasts when SF and ironically FF set out to dismantle it in their pursuit of power. This coalition removed by the banana skin that FF left for them!

    Unpopular tax? Roll on the election.

  5. @zhou

    “Financial security is the enemy of capital which needs compliant and desperate workers.”

    +1

    They will keep coming back to this well again and again until we are all paying four figure property taxes. It will be the tax that keeps on giving.

  6. @PR Guy
    No. They moved to another well today. Water charges from Jan 2015.
    As I said before the interest bill will bleed us dry. As a pr person though I’m sure you will appreciate the level of stage management.

  7. Fiat,
    Most of the extra interest is due to running an unaffordable fiscal stimulus. But to correct that would require more of the dreaded A word.
    The property tax will yield a lot of data on people who acquired large properties with no taxable income. That should be fun to watch.
    The populist will promise to remove bur that will be the first promise broken after the election. The lefties will also promise to remove but will be tempted to increase the tax cos they like the money.

  8. @ paulr: “…it is just stealing from peoples after tax income. This does not broaden the tax base in any way, …!

    Indeed. When in doubt, tax waged-labour. Creates so many jobs, it does! Mind you, with some modest reforms of our existing taxation systems … …

    The more difficult – but equitable property tax, would be a % of the transaction price, levied on the ‘seller’, each time a property changed ownership. In principle this will work, but there are several ‘hard cases’ that come to mind – where the tax would have to be paid from income. There are workable solutions around these cases.

    Citizens have to ‘wake up’, get off their arses, and insist that Local Government is transformed, and mandated to have a balanced budget – say over a 3 year span. I cannot see this happening.

    Water charges are a completely different matter. Some other time perhaps.

    @ zhou_enlai: “Eat the poor”

    Capital suggestion! Now Ollie Goldsmith got there first; [A modest Proposal]. Very tongue in cheek stuff – and somewhat in bad taste, if you pardon the pun!

  9. @paulr – “Maybe we do need a property tax, but it is being introduced 10 years too late at least”.

    Try 36 years.

    @Brian Woods Sr – it wasn’t poor Noll, but Jonathan Swift.

  10. No one seems to remember the 1977 election when FF swept back to power with a landslide? Anyone that thinks that the electorate have had enough of FF and will give FG/Labour brownie points for introducing property and water taxes are kidding themselves, you only have to watch the recent opinion polls.

  11. @BW Snr +1
    @Aiman- lets agree that that ship has sailed and that past governments of all colours missed that tide and build an economy based on property transaction taxes because that was easy and did not demand accountablity of the local services provided.

  12. It is quite common for property taxes to used to fund the operations of town and regional governments with a separate levy to partly fund local School Boards.

    The going rate for both levies combined is 0.8 % of the assessed (market) value of the property per year. On a Euro 400,000 house it would be Euro 3,200 per year. To my eyes this looks reasonable but then I have experienced many strange things.

    If you are forking over Euro 3,200 per year to the Town Council you will be paying attention to the honesty and competence of the individuals running for Councillor. Now the manna falls largely from Kildare Street and nobody gives a damn how it is spent.

    A root and branch job (Dec 11th, 1640) will have to be done on the party system as it relates to the national, regional and local governments. So much to be done and so little will to change anything short of a major disaster.

  13. @ Airman: Ooops! Bad mistake! Thanks for the correction. Good fable all the same.

    @ MH: I’m not disagreeing with you, but property taxation must (in ‘normal’ circumstances) come from the actual property itself, not out of the income of the owner. Else its basically an extra level of tax on waged-income.

    And our taxation system has all sorts of hinky dodges to allow for much tax avoidance on incomes (especially for non-PRSI folk, and the non-earned sort). You would have to slam these shut – permanently! No Irish politicians seeking electoral power (including the Irish Nationalist Socialist party [SF] will go with a million miles of tax reform. Ok, some tinkering. But that’s it.

    Our local government is an absolute disgrace – and transformation is most unlikely. Too many interests at stake. The idea that I, or any other taxpayer should give those money spending addicts a single penny is obscene. They might be accountable if there were only five regional councils for the entire state, based on pops of approx 1 million each, with three yearly elections, recall ballots and you could only serve three terms – and they published their accounts! – on time!

  14. RB,
    Plus 1. The next govt will be FF & SF plus a few of the gene pool for support. Things will then get interesting.

  15. The age old tragedy of Ireland is we hang on like grim death to the devils we know. FF and FG are peas in a pod, identical twins if you like. We have concocted in our minds self serving rules wrt taxation that take on the import of Biblical truths or Papal dogma.

    I am Irish myself and have employed the reasoning processes commonly used. Somewhere along the way we have to step out of the bog to see the bog. The bog is as deep on O’Connell Street as it is in Kerry, Mayo or Donegal. We need good government to provide us with the safety nets and services that cannot be sustained individually and are more effectively and efficiently provided by the state as a whole.

    Taxation is a fact of life and cannot be eliminated. My predecessors were imposing an 8% levy on everything entering the mouth of the Shannon from the 14th century until the 17th century when the British cut off the head of the Clan and put it on a pike in front of Windsor castle.

    Today we have the choice of a root and branch revamping of our political and taxation systems or of sleep walking back into poverty for the next half century. This will require an earthquake of Famine proportions based on our past performance. The coming decade will be a replay of our fifty years of stagnation. It does not have be longer than one decade.
    We should be scouring the world for examples of political and taxation systems that work. Instead we hold all our dysfunctional ideas close to our chests like two year olds with a favourite Steiff teddy bear.

    From where I look at it Irish politics at all levels is rotten to the core, the taxation system is a mixture of scams, sleaze and inefficiency.

    We are proud people, we do not need to make fools of ourselves trying to justify the unjustifiable before the court of world public opinion. The mealy mouthed justifications of corporate tax policy coming out of the Dublin business community are laughable.

    We sleep walked from 28% to 120% debt to GDP, time to wake up.

  16. I’m in favor of site based property tax including farmland and development land – levels could be figured out.

  17. @ D’OD: Fair enough – but out of what will the impost be paid? If its out of ‘rent’ or other non waged-labour income: then fine. But waged-labour incomes are unsuitable: this base is both too narrow, and in future will be uncertain except for those with full-time, permanent positions. The majority of our future labour force (the working ones) are more likely to be contract and non full-time. This latter will have a profound affect on mortgages as well. There is a lot of hard thinking to be done on the entire question of taxation to pay for state services. Serious questions and even more serious answers.

  18. In 1959 the National 3 bed s/d house price was €1,500.The Annual National Average Industrial Wage was €600.You could purchase the above house for just 2 and a half times the Annual Average Industrial wage.In 1973 the same house cost €10,000 and the Average Industrial Wage was €4,000.Again you could purchase the above house for 2 and a half times the Average Industrial Wage.In 1996 the same house cost €60,000 and the average industrial wage was €20,000.You could purchase the house again for 2 and a half times the Annual Average Industrial wage.In 2007 the same 3 bed s/d cost €313,000 and the Average Industrial Wage was €37,500 NOW IT WOULD TAKE 8.35 TIMES THE NATIONAL AVERAGE WAGE TO PURCHASE IT. So from 1996 to 2007 the national average industrial wage increased by around 100% but house prices increased by about 400%.Clearly Prices MUST fall back to the 1996 ratios before they bottom out.A drop of some 49% on the current National Average house price of €156k.

    I believe also that taking into consideration budgets to come where over €8 billion is to be taken out of the economy over the next 2/3 years or so,there will be further reductions in property prices of the order of 20 – 30 % as predicted by both Moodys and Morgan Kelly

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