WHAT’S THE BEST way for the government to spend half a billion euro? If you asked a hundred people, you’d likely get a hundred different answers.
But it’s doubtful that many of them would propose using it to fund a tax cut which benefits the owners of the most expensive houses most. Yet this is what some politicians are proposing.
Local property tax (LPT) is back in the headlines as the rates are being adjusted.
When LPT was first brought in, the plan was to revalue every property in Ireland regularly, to determine how much tax would be paid. This is to ensure that those with the priciest houses pay more than others.
Because these revaluations were politically difficult, successive governments dodged the process each year since 2013, meaning that houses never did get revalued.
This created a loophole, where houses built since 2013 weren’t valued at all – and thus didn’t have to pay any local property tax.
The government’s failure to revalue created near-random tax inequalities based on the meaningless measure of when a house was built. This week, they announced a plan to finally revalue properties and restore some fairness back into the system.
About two-thirds of households will see their tax bill either fall or stay the same.
Why scrap the LPT?
But anytime local property tax comes up, some will call for it to be abolished. Sinn Féin’s Mary Lou McDonald and Eoin Ó Broin did just that on Tuesday, calling for the local property tax to be dropped in its entirety.
This would be a bad idea.
The local property tax is far from perfect. There are viable alternatives or reforms that the government should look at – another kind of property tax called a “site value tax” might well work better, for example.
But as it stands, the tax will bring in over half a billion euro each year – funds that are used to pay for public services across the country. In Dublin City Council, the funds support housing, the fire brigade, ambulances, parks and much more.
Ditching the tax would leave a big hole in public spending – roughly the entire cost of the courts and prison services combined.
Even setting aside what you can spend the tax on, there are two key questions that need to be asked before we propose ditching the LPT.
The first question is simple – who benefits? If we’re giving a tax cut worth hundreds of millions – are we giving it to the right target group?
The clear main winners would be those who already own their homes. As in every group, there will be people who face difficulties in paying the bills, but in the main, that’s a group that is better off than those who are renting.
I know this from personal experience. Up until late last year, I was renting a room in a shared, two-bed apartment. The monthly rent for the flat was about €1,500 between the two of us. I was eventually able to buy a house in the same area. The house is bigger, yet the mortgage repayments are around €1,000 a month.
These numbers are different for every household, but it’s clear that homeowners are in main getting a better deal than renters. It would be a strange choice to prioritise us for a tax cut.
Reform, don’t scrap
That doesn’t describe everyone, of course. There are those who own their own homes but don’t have much income. Opponents of the local property tax often rightly point to this group as needing special attention.
If your income falls below a certain threshold, you can indefinitely defer paying the tax. In the case of the low-income elderly, this often means that they don’t have to pay the tax, and simply have the deferred tax taken from their estate down the line.
There’s a good argument to be made that these thresholds should be higher, but that’s an argument for reforming a tax, not scrapping it.
The other key question we need to ask is whether we should tax property like this at all? To me, the answer is absolutely, yes. Nearly every country in Europe taxes land or property, as does the US – typically at far higher rates.
Part of the reason we tax property is that it is the greatest single store of wealth. An estimated 90% of all household wealth in Ireland is tied up in land and property. It’s near-impossible to move a house or land across borders, so the super-rich don’t have much chance of evading it either.
Municipal projects – ranging from new roads to parks – all increase property values, which benefits landowners. It is only fair that some tax is paid to recognise that.
And land taxation means that we’re not just betting our whole tax system on one horse. Nearly half of all taxes are labour or income-related – it’s important that we have a diverse range of taxes for any difficult times ahead.
Broad tax base
We also need to recognise that tax has different impacts on different generations. Younger workers, in the main, have faced insecure work, high housing costs, and flatlining opportunities. Older people, who make up the bulk of homeowners, have had to struggle, but are comparatively better off.
Refusing to tax their assets and loading all tax onto income essentially shifts the tax burden from older people and onto younger generations. We need more of a mix of taxes – on income, consumption, and wealth – to ensure that no one group is paying for the lot.
Nobody likes paying tax. Nobody is running enthusiastically running down to the Revenue, cash in hand. But people are not stupid: they understand that public services cost money to run.
For those of us on the left, who want to see more state spending and reduced inequality, we simply need more tax positivity. We need to be honest with people that decent services require proper, fair, and diverse taxation.
There’s a good chance that Sinn Féin will be in the next government. I hope they embrace taxation – including property tax – as a big part of bringing about a more equal Ireland.
Michael Pidgeon is a Green Party councillor for Dublin’s South West Inner City. He lives in Inchicore and works as a trade union official.
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