The Government is working on a major policy move that will freeze the local property tax until 2018, and “decouple” future increases from rising house prices by linking the tax to the consumer price index (CPI).

According to a ministerial source, the two-step strategy will assuage the concerns of homeowners of a dramatic jump in property tax when the current three-year freeze ends after 2016.

The proposal to link increases to CPI, which was put forward by the Labour Party, met no resistance from senior Fine Gael Ministers, it is understood. According to the source, using the inflation index as a measure will give reassurance to homeowners that future increases will be modest and predictable.

Price rises

In the period since property value assessments were completed for Revenue in 2013, house prices in the capital have risen by more than 42 per cent, and by lesser amounts in other cities. At least a dozen TDs have contacted Minister for Finance Michael Noonan expressing concern about the impact that these rises will have when the moratorium comes to an end.

The tax was set at €405 for a property worth between €250,000 and €300,000 but such properties in Dublin could be worth well over €400,000 by late 2016. It would mean the yearly property tax would almost double to €765 in 2017, although a 15 per cent discount agreed by many local authorities, including Dublin’s four, would also likely apply.

The broad principle of the two-tier approach was informally agreed by both Coalition partners earlier this autumn.

A separate source accepted that the initial plan might have been rushed because of pressure from the troika to introduce a property tax.

“We need a more sustainable property tax model. The best is a site value tax which will neutralise fluctuations and create certainty,” said the source.

*This article was amended on Monday, December 1st