I propose that an annual residential property tax be introduced and collected at central government for an introductory period with a view to control being handed over to local government and the revenues generated by the tax to be used solely for local publicly provided goods. But for this to be an efficient and effective method of funding local authorities and not adversely affect the balances of the exchequer there needs to be an overhaul as to how local authorities are currently funded and run. Introducing a property tax will hopefully broaden the tax base and go some way to overhauling how the tax system works in Ireland and how local authorities are funded.
Rationale for a residential property tax in Ireland
There are many reasons in support of a residential property tax. Firstly, it will provide a stable and less volatile income for the exchequer, as is the case with a transaction such as stamp duty, and generally improve macroeconomic stability. The tax income collected by stamp duty made a huge contribution to the exchequer, but as we can see from Fig 1.1, it tended to fluctuate, making it more difficult to budget long-term and susceptible to market forces, as is the case currently. A “recurring annual tax is less economically distortionary than the imposition of tax on either income or capital” (TSG 09/07) and a more reliable and stable tax income achieved from a proposed residential property tax would help with investment planning, as an “over-reliance on expenditure and transaction taxes has resulted in tax revenue dropping more quickly than (nominal) GNP” (Commission on Taxation Report 6:2.2). As we can see from the data contained in the ‘Commission on Taxation Report 2009’ (Fig 1.1), revenues from stamp duty have large fluctuation year on year, and as of 2009 have fallen to their lowest level in 10 years.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
€m €m €m €m €m €m €m €m €m €m
282 265 349 528 752 945 1,311 1,018 445 85*
(Commission on Taxation Report Table 6.1)
*to end June
A proposed residential property tax would also broaden the tax base and decrease the potential for tax avoidance, as property is an immobile factor of production that cannot simply be relocated to the Cayman Islands to profit from a more favourable tax regime. “The absence of a property tax is widely regarded by economists and policymakers as one of the weaknesses of the Irish tax system. One of the key ambitions of the EU-IMF programme is to widen the tax base so that extra taxes do not fall on work as the Government tries to raise extra revenue” (Collins 2011). Also, in some cases of property transactions there is always the danger of tax avoidance by paying a portion of the cost of the property in cash and thus reducing the tax liability for the transaction. Once implemented, a residential will be unavoidable and ensure every person who owns a property (bar those exempt) will have to pay the full tax liability.