Analysis: Given the unpopular nature of property tax with voters and politicians in Ireland and worldwide, there are a number of straightforward measures that would make LPT more acceptable to Irish taxpayers.
With the revaluation of properties due on the 1st November, there are a number of measures that Revenue and the authorities could take that will improve the integrity and legitimacy of the Local Property Tax (LPT).
Informed by the literature on the political economy of property tax reform we know what matters and what works, subject to the usual country-specific circumstances.
Given the unpopular nature of property tax with voters and politicians in Ireland and worldwide, here are eight relatively straightforward actions that would make the local property tax system in Ireland more acceptable to taxpayers.
1) It is widely acknowledged in economics that there are good and bad taxes. Property taxes are considered to be good taxes as they distort economic activity, behaviour and decision-making less than other taxes. Aside from the virtue of neutrality, a property tax has many of the characteristics of a good tax: it is salient, hard to evade, predictable and relatively stable.
The Irish government needs to continue to make the case for property taxes, as a way of mobilising revenue, widening the tax base, taxing wealth (rather than labour or transactions, for example) and funding local government.
2) Unlike many other taxes, property taxes can be viewed from very different perspectives. For some, it is a tax on capital. For others, it is a tax on housing consumption while alternatively it can be seen as a benefit charge, paid as a price for locally-provided public services.
Governments can take advantage of this when making the case for property taxes. By tailoring the message, they can make the property tax more tolerable to taxpayers and citizens.
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From RTÉ One's Six One News (Web), Local Property Tax reviews to be carried out every four years
3) While accepting that the LPT is a tax on property (but on residential properties as opposed to commercial or industrial properties which are subject to business rates), it is sometimes forgotten that it is a local tax. It is a tax assigned to local government, with the burden falling on local residents who use local services. Because of its immobile nature, and that it varies with changes in economic activity less than income or consumption taxes do, it makes for an ideal local tax.
While the base, assessment and collection are decided centrally, local authorities have rate-setting powers at the margin, where they can vary the base rate by +/- 15% per annum. Aimed at strengthening local government and promoting decentralisation, this makes local authorities accountable to their electorate, and on the hook for tax and spending decisions. In defending the LPT, authorities need to remind taxpayers of the local dimension to the tax, and of the importance of local autonomy and the principle of subsidiarity.
4) Following on from the above point, Revenue and the local authorities can inform taxpayers of the link between the LPT and local services.
These include social housing and homeless services, local and regional roads, planning and local enterprise supports, fire service, library services, leisure and public parks. As property values for purposes of the LPT are self-assessed, there is always the likelihood that some taxpayers will undervalue their properties.
In advance of the assessment date but also when LPT bills are issued, a list of the local public services that are funded by the LPT (in specific terms, using euro amounts, or percentages) should be communicated to all taxpayers, by means of traditional post but also a public awareness and social media campaign.
In addition, if local authorities use their discretionary powers to increase the base rate, details on how the extra funding is spent (on what services, and by how much) should be communicated to the public.
5) In the interest of transparency, the communications campaign should also include the old and new valuation bands, and the respective charges, so that taxpayers understand their LPT bill, how it is calculated and any changes from the initial liability.
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From Radio One's Drivetime, Senator Rebecca Moynihan, Labour party Spokesperson on Housing, Local Government and Heritage, on proposed legislation to deal with a legal loophole that allows landlords to impose double rent hikes of 8%
6) The reasons for the revaluation (and future periodic reassessments to reflect changes in property values) need to be fully explained and justified. An out-of-date assessment can undermine the short-term credibility and long-term sustainability of the property tax, lead to inequities across the distribution of taxpayers, and make future revaluations politically difficult, as we know from other countries including the UK and Germany.
7) The LPT has a very high compliance rate, estimated at over 94% in 2020. Indeed, this is one of the successes of Ireland's residential property tax.
The involvement of Revenue as the tax collection agency is viewed by many as a contributing factor, as well as the multiple payment options (including deduction at source, from salary, pension, or welfare payments, which helps mitigate the unpopular visible nature of the tax). Continuation of these options should help to retain the high compliance rate.
8) One common complaint against the property tax is its regressivity (perceived or otherwise), inequity (unrelated to ability-to-pay) and impact on low-income property owners, the so called 'asset-rich, cash-poor’ argument. Aside from the existing exemptions and deferrals, consideration could be given to the introduction of a tax credit for low-income taxpayers as this may be the best solution to resolve this issue.
Although a fan of property taxes and the LPT, I am reminded of the famous quotation from King Louis XIV’s finance minister, Jean-Baptiste Colbert, who supposedly said ‘the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing’.
When considering future operational and design changes to the LPT - including the thorny issues of the possible effects of property taxes on land use, urban development and property prices - our Minister for Finance would do well to remember the hissing goose!
The views expressed here are those of the author and do not represent or reflect the views of RTÉ
