Dublin politicians fear bulk of taxes will be collected from its residents, who own most of Ireland’s expensive homes
Irish government plans for a property tax have come under fire from the main opposition party amid concerns it will land homeowners with a bumper bill as they struggle to pay a string of other new taxes.
Protest meetings have heaped pressure on the finance minister, Kevin Noonan, to drop the plan, which is expected to raise €500m for the cash-strapped Irish coalition government in its first full year.
The finance ministry said at the weekend the tax, agreed by parliament as part of the International Monetary Fund’s bailout package in 2010, would go ahead alongside the country’s first water rate bills, which are also expected to raise €500m.
Letters will be sent to 1.6m households in March with estimates of house price values and where they fit in the 20 tax bands, which range from €100,000 to €1m, with a supplement for homes worth more than €1m.
The scheme is akin to the UK’s annual council tax charge, though it starts at a more modest €90 a year for homes worth less than €100,000 and takes in the most expensive homes, embracing the Liberal Democrats’ mansion tax proposal.
Political leaders in Dublin are concerned the vast bulk of the tax will be collected from the capital’s residents, who own the majority of the country’s expensive homes. According to a report for the Irish Revenue Commissioners, 1% of homes are worth more than £1m with 7.6% of properties worth more than €400,000. More than three quarters of homes (78%) are worth less than €250,000.
The annual tax on homes worth €450,000 to €500,000 will be €855, while a household living in a €1m home will be charged €1,755.
The IMF package has proved controversial because it has forced the government to impose severe cuts in welfare spending and public sector wages to meet debts run up by banks and property developers in the boom years.
Details of the property tax and water rates have also been thrashed out with the IMF, which is in favour of restricting extra income taxes in favour of higher taxes on consumption and wealth
Mass meetings in Dublin have drawn protesters from across the country and several prominent members of the Irish and European parliaments.
Olivia Mitchell of Fine Gael TD believes Dublin residents will pay disproportionately for local services because there is “huge inequity” in the way the new local property tax is calculated.
Mitchell, who represents a Dublin constituency, said most people “accept reluctantly” that a property tax is needed, but “bitterly resent the method that is used to calculate it”.
“A house in Dublin will pay up to six times more than an identical house in another local authority. Nobody, no matter where you live in Ireland, can think that is fair,” she said. “It is going to be difficult to pay and it is going to be extremely unpopular, but every tax has to be fair and reasonable.”
The tax is being watched closely in the UK by campaign groups that believe the Tory-led coalition should abandon much of its welfare cuts in favour of taxes on wealth.
The Green party is among many groups to support an annual land tax. The Institute for Fiscal Studies, the Joseph Rowntree Foundation, the Paris-based OECD thinktank and the IMF have also backed a tax on land as a substitute for taxes on incomes.
The UK Treasury has refused to consider a land tax, arguing it would be too costly to run. In a letter before Christmas to Green MP Caroline Lucas, Treasury minister David Gauke said a land value tax (LVT) “would be an extensive undertaking and come at a significant cost to the exchequer”. He refused to consider her request for a report to parliament on the expected costs.
He added: “Prior to implementing a LVT, ownership of vast amounts of land would have to be identified and would require all properties to be registered by the Land Registry.”
However, the Irish Revenue Commissioners has estimated the cost of setting up the system at €25.9m for 2013 “with an additional initial IT outlay of €9m, the majority of which will be attributed to the development of the property register”.
It said: “In line with standard costs associated with administering and collecting taxes, it is expected that Administrative Budget provisions equivalent to 2% of the annual property tax yield will be required in 2014 and 2015, decreasing to 1% after 2015.”
Lucas said the Irish figures, while not for a land tax, showed the costs were well withing the usual limits set by economists of 3% of revenue. The UK also has a computerised Land Registry.
“While the Irish government has chosen not to go down the route of a Land Value Tax (LVT), which is what I have called for in Westminster, the fact that it has been able to introduce a property tax at all – at such reasonable cost – should prompt the Treasury to ditch their refusal on cost grounds to even begin to address the UK’s property tax mess. It should now take on board the suggestion by the respected IFS Mirrlees review to conduct a thorough official effort to design a workable LVT system.”
The Greens say an LVT would achieve several aims of the coalition, including a rebalancing of taxes away from workers’ wages and business profits and calming the property market.
A tax on land would also spur property developers, many of which are sitting on vast tracts of former industrial and inner city land with planning permission, to build homes.
The Irish government, like the UK Treasury, relied heavily on revenues from property related taxes in the boom years. Stamp duty and capital gains taxes on home sales, combined with corporation taxes on property developers and banks, accounted for much of the extra tax enjoyed by both exchequers prior to 2007. The dramatic drop in tax revenues from these areas has accounted for much of the debts run up by both governments in recent years, combined with the bailout costs of banks that lent billions of pounds, mostly in property-related deals.
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