“An interim measure, set at a modest level and exempting many low income families” is how the Irish Times last Monday  described the new  Household Charge,  to be introduced at a flat rate of €100 per residence for the first year (2012), with limited exceptions.  It has been signalled as the precursor for  a more considered property tax to be introduced in 2014 but a story in today’s Irish Times (21 December)  suggests that the real tax may be brought forward to 2013, and will involve some form of self- assessment.

Everyone expected the €100 charge at least to double in 2013. A head of steam has been building up in opposition, with  a number of politicians ( left and  independents) plus some  high profile people, declaring they would not pay and urging  the public to boycott registering for the charge. One Socialist T.D. declared  that this issue could be the defining one for igniting public protest.  The decision to bring forward the property tax is clearly a political one designed to defuse the issue. (The cabinet also decided yesterday to tinker with the HSE in advance of phasing it out in preparation for the eventual introduction of universal health insurance. Again, the political intent is clear – to be seen to do something in an area subject to sustained public criticism, and where, moreover, there is mounting public anger at steep rises, announced and threatened, in the cost of private health insurance.)

Bringing forward the property tax to 2013 could show some Machiavellian intent also. Today’s story cites sample figures for a property tax based on the 2009 recommendations of the Commission on Taxation; not surprisingly the last government left these on the shelf. But even if the eventual rates introduced are substantially less than the samples mentioned, the tax is going to hurt, and hurt big time,  in any event, so why not get it over and done with quicker in the life of the government. Niccolo would certainly have approved.

Moreover, there is the bigger picture. It is just possible that, if there was full and frank discussion around the cabinet table, with the latest opinion polls and economic forecasts as background, the fast tracking of the property tax, which will hit the middle classes (some would say the coping classes) most, is the political quid pro quo from Fine Gael to Labour to secure its support for the inevitable cuts in welfare benefits and the probable reopening of the Croke Park Agreement necessary next year to try to tackle the structural budget deficit.

Perhaps that is crediting the politicians with too much. But assuredly the introduction of a property tax, however laudable the idea of one in theory, will test the government’s mettle and is likely to prove deeply unpopular. One consideration, not to be underestimated, is the widespread feeling among the middle classes that to describe a property tax as “widening the tax base” is cynical and misleading. As they see it, the same narrow group of people pay all the time.

This in fact is what led partially to the demise of the last attempt at a property tax, the Residential Property Tax (RPT). Deeply unpopular in concept, and introduced when a previous Fine Gael/ Labour government was on its uppers in the mid-1980s, the RPT relied on a system of self- assessment, with generous exemptions, the whole quickly degenerating into farce and non-compliance. It is important that this time the government gets it right. There is an opportunity now to establish a viable and reasonably equitable system, avoiding the mistakes and half-baked efforts of the past. And, incidentally, the amounts recommended for middle ranking  properties by the Commission on Taxation are probably less than what would have been the annual bill for domestic rates had they not been abolished in 1978.

It is worth recalling briefly the history of Domestic Rates– and its demise -in Ireland. Domestic Rates were levied in Ireland until 1977. They were extremely unpopular with those who had to pay them (local authority tenants were exempt), particularly in the latter years, as they began to rise sharply. The rates were levied by local authorities and used to fund their expenditure. This included – right down to the 1970s – a significant element spent on health and education, now paid from central funds, a historical hangover from the old Poor Law system.

Rates were calculated on an antiquated system of valuation, dating back to the mid-19th century, patched and amended piecemeal over the years. Theoretically the valuations were meant to factor in location, size of dwelling and plot, as well as amenities (indoor toilet, two bathrooms, etc.); in practice, like most patchwork efforts, the result was a melange demonstrating  very dubious levels of equity and fairness. The “valuations” were in 19th century money terms, translated into the present by a multiplier set annually by the local authority. For example ( a hypothetical but not unrealistic one) in 1975 a house with a rateable valuation of £20.00 could be levied at “£7.50 in the Pound” i.e. the annual bill would be £150.00. This at a time when the gross  average industrial wage was less than £2000 per annum!

How did people pay? The answer is “with great difficulty”. Pat Kenny spoke last week on radio about the  heavy burden on his parents of paying the rates. He did not exaggerate. Ask anybody who was a householder in 1975 about rates. It was, after income tax, the major financial item in the average annual household budget, and , unlike PAYE, it had to be paid in one or several instalments. A particularly devilish practice was for the local authority to “value” newly built houses – and there was a relatively significant  building boom in the early 70s – relatively highly, but to grant rates rebate on a sliding scale over 10 years (i.e. 90% declining to zero over 10 years). This helped ease in the heavy payments and to an extent neutralised coherent opposition to the system.

Yet opposition grew, particularly as rates increased dramatically in the late 60s in  line with public demands for better services at local level. The system was manifestly unfair, with house owners in new estates on the urban fringes with few amenities paying the same or more than those in older more desirable (and wealthier) areas (contrast, e.g. Raheny with Ranelagh, or Tallaght with Terenure). The rates burden even had a marginal effect on house sales, inhibiting some trading up and also first time buyers from buying older houses. Calls for reform were common, but no one seemed able to come up with anything workable. The usual Irish wringing of hands took place as the rates bill mounted.

Then came the 1973 General Election. Fianna Fail, in power for 16 years, and which fought the election initially on security issues, was wrong-footed by  a joint pre-election programme from Fine Gael and Labour which inter alia proposed to cut domestic rates by transferring the health and education elements to central government funding (in anticipation of the first income transfers from Brussels). As the election date approached, Fianna Fail, in a cynical and desperate attempt to avoid defeat, announced that, if returned to power, it would abolish rates on domestic dwellings. The ploy didn’t work and Fianna Fail was defeated, but it was perfectly obvious that , next time round, rates would be gone. And so it proved; Fianna Fail swept back in the famous give away election of 1977 and domestic rates were abolished.

By the mid-80s a national hangover had replaced the party atmosphere of 1977 and attempts were made to claw back the worst excesses of Fianna Fail’s 1977 largesse.  Road tax on cars was reinstated. All parties baulked, however, at “bringing back rates” (such had been its burden on the ordinary taxpayer)and the eventual solution was the Residential Property Tax (RPT) , half-hearted and half-baked. The RPT aimed at NOT being a resurrection of Rates, and it certainly achieved that. It relied on self-assessment, there was widespread non-compliance and anecdotally  considerable cooperation at community and street level leading to coordinated under declarations of market value. The tax yield , accordingly fell far short of expectations, and, at a time when property values were static and marginal tax rates very high, the tax proved very unpopular. The Irish Times editorial last Monday quoted Albert Reynolds’ famous remark that “a delivery boy on a bicycle would identify more qualifying properties in Dublin 4 in half-an –hour than had been registered with the Revenue Commissioners for many years.” The  government of the day finally threw in the towel in 1997 and the tax was dropped, coincidentally as the economy was picking up and pressure on government finances was easing.

It’s worthwhile looking at the operation of the RPT; there is much to be learned from it. It was an annual tax, charged on the market value of residential property owned and occupied on the valuation date of 5 April at a rate of 1.5%. So far so good. However, the exemptions and the system of self-assessment robbed it of teeth. Anybody renting was exempt. A market value exemption limit applied, as did an income exemption limit. These  were set at surprisingly generous figures. In 1996 the “market value exemption” was £101,000 (roughly €130,000) and the ”income exemption” was £30,100 (roughly €38,000); it should be noted that this was broadly equivalent to the top of the civil service assistant principal pay scale at the time.  Marginal relief applied for those with incomes less than £40,100 (€50,000), roughly what a T.D. was paid, and, to cap it all, the final tax payable was reduced by 10% per child. Throw in a system of self-assessment, where anyone caught by the income  threshold could “value” their own property and it is not difficult to see why the RPT proved farcical. It was the ultimate self-delusional  “tax” approved by politicians determined to heed lobby groups and avoid public opprobrium and discontent.  The analogy with the camel designed by a committee is not far off the mark. Legislators and the expert-group- to- be- established take note!

The modalities of the property tax are to be worked on in the months to come in time for a report to be submitted to the Minister by next April. There is early dire speculation that some form of self-assessment may be employed.  Let us hope this is not the case.  The country can’t afford it. Moreover, a small team of public servants, dedicated to the task in hand, should be able to value the vast majority of properties in the country in a short period of time. It’s not rocket science! The suburb where I live has roughly 1500 dwelling units and several estate agents. Virtually every house and apartment could be value assessed, roughly, in a day by two people. This could be replicated throughout most of urban Ireland. Much of the work could be done on the phone and on the Internet. Whatever was left, the fine tuning, of non-estate houses, of “period properties”,  could, again be inked in fairly quickly, using value bands. We don’t have to get it right; just roughly right – the small print can take care of serious deviations from the norm later.

After the valuation there are the issues of geography and exemptions. The geography issue certainly presents political dilemmas. Should house owners in high value areas such as Dublin or Galway pay a premium for living there rather than elsewhere, particularly if incomes are the same  across the board?  Should the teacher in Malahide pay more than the teacher in Carrickmacross, who perhaps has a superior property? And if so – how much more? Well, that’s what we elect a government to do – take the hard decisions. Ditto with exemptions. They should be as few as possible. The notion that large swathes of the population should be consciously exempted is, again, something the country cannot afford. So far the omens on this are not good. The Universal Social Charge was an attempt to get everyone to pay at least a little, thereby inculcating a sense of ownership and civic duty in place of the existing culture of entitlement and away from the notion that someone else would or should pay. However, the recent budget , by raising the income  threshold for payment, reversed much of this. Special pleading from or on behalf of the usual groups for exemption from the property tax can be anticipated. More in hope than expectation I would urge that this be resisted. Generally, perhaps a leaf could be taken from the old Rates’ practice of phasing in the full amount over a number of years!


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