The Government is right to ensure households do not face a big jump in their property tax bills in 2016. Households need some kind of certainty in planning their finances and the additional sums which would be owed, based on the recent rise in property prices, would, in some cases, be substantial. However, care is needed in addressing this issue, too. Part of the problem with the Irish taxation system was that it was overly reliant on taxes on income – one of the motivations of the property tax was to address this.
Of course the immediate imperative for introducing the tax was to raise money and the property tax is now a significant contributor to the exchequer. It is little consolation to households, but had the tax not been introduced, then the hikes in income tax would have been all the greater.
After the emergency tax increases of recent years, the future structure of the tax system is now an important issue – and a highly controversial one. The water charge protests reflect, in part, the burden of the combined tax and charge increases of recent years on disposable income. In this environment, households will understandably object to paying several hundred euro extra in a property tax bill from 2016 on. In addressing these legitimate concerns, however, the Government needs to avoid another piecemeal solution.
There are two issues here – how the property tax is levied, and the wider issue of balance in the tax system. In terms of the tax itself, local authorities now have the power to increase or cut the levy in their areas by 15 per cent. In whatever formula the Government comes up with, it needs to protect the overall level of revenue being collected. It also needs to deliver a reasonable level of certainty to households.
The immediate problem is the huge jump in house prices in some areas. Whatever is done in the short term to protect households from a huge tax hike, the political question is whether, in the long term, the tax should be based on property values. The proposal to base the increase on the consumer price index, as opposed to house price rises, would mean that this would not be the case
This Government needs to strike a balance in whatever solution it finds, reassuring households, but also not closing off options for the future. Taxing property is one of the most straightforward ways of taxing assets, although as the tax has no relationship to household income – or to whatever mortgage is held on the property – affordability can be an issue.
The political debate on this in recent days has not addressed the issues in a serious way. Yes, households need to be protected from an increased based on a sharp rise in property prices. But the future of the property tax as a source of revenue also needs to be safeguarded. If tax is not raised in this area, it will just have to come from somewhere else.