Public Consultation : Review of Operation of LPT
Submission of Response to Public Consultation
Submitter: Bryan O’Grady
Overview
The local property tax could reasonably be described as another overlay tax imposed
on PAYE tax payers. Firstly, there is the PAYE income tax, then there is the USC, after
that there is the Local Property Tax, and finally (for now) there is the Water Charge.
In the case of the first two taxes, there is a structure to them whereby some account is
taken of the tax payer’s income and personal circumstances.
In the case of the latter two taxes, set amounts are charged with small account being
taken of the income and circumstances of the tax payer.
Because of that, these latter two taxes are inequitable (inherently unfair) – the current
property tax itself model, has, of course, been described many times as being
inequitable by leading economists and commentators alike.
As a principle, prior to the introduction of any such taxes, a full financial impact analysis
involving rigorous modelling exercises should be carried out in order to determine how
such measures will impact on all categories of tax payer nationally - especially on
pensioners and vulnerable people with low and static incomes – such an analysis
would help to ensure that in setting the tax level and the accompanying provisions - the
tax would be within tax payer’s means to pay and be seen to be equitable.
But was any such analysis carried out in the case of the existing property tax model
prior to it’s introduction I wonder? – all the evidence points in the direction of none
having been done.
The Current Property Tax Model
Equitableness
As stated above, any form of taxation introduced must be equitable. It is the case that
the form of property tax introduced is demonstrably and manifestly inequitable.
It is my contention that the terms of reference given to the ‘expert group’ were
insufficient in so far as equitableness was concerned. That may well have resulted from
the Government’s wish to have a simple form of property tax introduced quickly.
Two Reasons why the LPT is Inequitable:
First Reason
In the determination of liability for the property tax no account is taken of the income
circumstances of the property owner. This means that regardless of the income of the
property owner or ability of the property owner to pay, the liability for the property tax is
set simply in terms of the market value of the property – something over which no
individual property owner has control – and the use of a single ‘national’ multiplier.
Market value is of course highly dynamic and based on the geographic location of the
property. The use of a single multiplier ie 0.18 in the case of all properties nationally is
quite inappropriate and is itself inconsistent with and a contributory source of
unfairness.
A pensioner or a lowly paid person, will be charged the same as someone with a full
salary or someone who is highly paid. Someone living in a property where there are
several occupant with incomes (and where the property tax burden can be shared) will
pay the same as someone living alone on a pension or worse still an OAP living on
their own. This is most unfair as it imposes a heavy financial burden on a single home
occupant – especially the OAP living on their own.
The notion that every property owner who lives in a house that has 'high' value has the
means to pay this tax is a preposterous one. It has been said that the tax is fair as
those in the most expensive properties will pay most. Such a statement is a nonsense
unless it can be supported by evidence that that is always the case. Is there always a
correlation between property value and property owner income? – I say ‘no’ there isn’t.
There are very many people living in properties whose value is high but whose net of
tax income is low and yet, the tax system takes no account of this (their ‘ability to pay’)
in the determination of their property tax liability – why doesn’t it do so? – that it doesn’t
is not right and must be corrected in the interests of equitableness.
Second Reason
No account is taken in the model of the wide disparity nationally in the cost/value of the
same type of property. As an example, someone owning a three bedroom house in
South County Dublin will pay many times more that payable by someone with the same
property type living outside Dublin although their income circumstances are the same.
That is not right and must be corrected in the interests of equitableness.
The increase in property prices in Dublin over the last two years or so has significantly
exacerbated this fact. This has meant that property price increases have translated into
a significant increase in the liability of Dublin property owners for property tax.
The existing property tax model makes no allowance for the fact that both Dublin
property prices and it’s annual house price inflation are each very much higher than
those outside of Dublin. Statistics from the CSO will confirm that to be the case.
Overall, a disproportionate tax liability falls on Dublin property owners when compared
with that on property owners outside Dublin for the same type of property. That is
manifestly unfair and must be corrected in the interests of equitableness
.
The Required Remedial Action
There is now an urgent need for the following:
A recognition that the current property tax model is inequitable and that an alternative
tax model is required that will ensure, once implemented, it is nationally equitable with
the tax liability based on the property owner’s ability to pay and it being geographically
balanced.
The development of an alternative property tax model would involve obtaining data
from a variety of sources such as Revenue, Dept. of Social Protection, An Post, the
CSO (census data) and agencies such as DAFT in order to build up a profile of
property owners, their circumstances and their geographic location.
This data would then allow for a proper numerical / statistical analysis to be carried out
of the national multiplicity of property owner profiles and their individual circumstances
(personal/financial). Detailed modelling work would be required in order to determine
and assess the impact of the various tax model options identified during the analysis.
The essential criteria for ‘equitableness’ could be incorporated into the model design so
that the chosen model, once implemented, would ensure that the tax liability would be
equitably distributed throughout the State.
An approach that would help greatly towards rebalancing the property tax liability
nationally and providing both for equitableness and transparency would be to allow the
various local authorities to set their own charges based on the costs headings that they
have to bear – Capex and Opex. Separate multipliers that are geographically bounded
could be introduced that were appropriate to meeting their requirements.
UK Council Tax Model
Exemptions and Discounts
In the case of UK Council Tax for example, a wide range of exemptions and discounts is
available for qualifying situations. One example of this being that where there is one adult in
property, a 25% discount applies. The existence of these concessions reflects the acceptance
of the diversity of circumstances that apply in the case of property ownership nationally and the
need for fairness.
http://www.birmingham.gov.uk/cs/Satellite/ctdiscounts?packedargs=website%3D4&rendermod
e=live
It is more than regrettable that no such provisions exist in Ireland. In the interests of
equitableness, similar concessions should exist in Ireland and form part of the new property tax
model.
(The deferral provision that does exist is not of course a relief as the tax has to be paid, interest
applies (in other words it costs more to defer), the qualifying income is low and based on gross
income.)
Bands and Charges
The UK's local councils set their own individually banded (value based) tariffs for local services
independently of one another - this ensures that the taxes set are fair, cost based and
geographically distinct from one another.
It's design ensures transparency and that the taxes levied are demonstrably equitable. It is
clear from that model what the taxes are being collected for – no such transparency exists in
the Irish property tax model –Why doesn’t it?
http://www.birmingham.gov.uk/cs/Satellite/counciltaxbands?packedargs=website%3D4&render
mode=live
Appeal Process
In the case of the current LPT model, there is no appeal process – that is not right. A
facility should exist whereby those with difficulty in paying the property tax can make
their case, have it heard and then decided upon. Rules would of course be needed so
that such a facility was not abused.
Essential Requirements for a Different and Equitable Property Tax Model
-elimination of the 'Dublin tax' factor – geographic fairness.
-demonstrable equitableness across population profile.
-introduction of exemptions and discounts comparable to the UK
-availability of an appeal procedure.
The model must pass the test for equitableness in all cases and at all times.
Finally, members of the ‘expert group’ should each, before issuing recommendations to
Government, reflect very carefully on the financial impact those recommendations will
have on those affected by them – especially old age pensioners living alone in their
owner occupied property.
Response submitted by Bryan O’Grady
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