Flat rate property tax is the slippery slope

Will he or won't he introduce a property tax? All sorts of new and higher taxes will be introduced by the finance minister in his next budget, but the one that has the country in a state of speculation is the property tax. Just a couple of weeks ago, the taoiseach ruled out a property tax, on the grounds that nothing's been done about a national property audit. It would also be hugely unpopular. Yet everyone accepts that an annual property tax is one of the few consistent, guaranteed revenue streams for the state. No doubt Messrs Cowen and Lenihan have been too busy these last two years bailing out the banks and all their property related debts to address property tax reform, but it seems that some kind of property tax might yet have to be introduced now that the IMF has put its tuppence worth into the debate and has recommended that it not be taken off the December budget agenda. Yet without a proper audit and survey of the numbers of properties to be taxed, their location, square footage, site value, building value and market value, the Department of Finance's options are limited. This data is essential because it allows the bean counters to determine what sort tax system to adopt. For example, do they tax according to square footage, in order that mansion commands a higher rate than a cottage? Do they also take into account market value? After all, a decrepit mansion isn't worth as much as one in perfect order. Ditto for cottages or three-bed semis. And what about the owner? A pensioner might own the mansion, barely keeping body and soul together on €230 a week as they live in a single room illuminated by a single bulb. Could they lose their home if they can't afford the higher square footage or market value assessment rate? And what about all those young families in negative equity who are subsisting on jobseekers benefit? It's easy to see why the government, even with a €20 billion budget deficit and a weekly borrowing bill of €400 million, would prefer to shelve the property tax idea. But a properly executed property tax could bring in a billion euro a year. Ministers that are beggars (at the IMF) can't afford to be choosers as well. In a recent Sunday Times column, Karl Deeter of Irish Mortgage Brokers suggested that the most cost efficient and fair property tax is one that is assessed on the site and not the dwelling on it. The tax payable is relative to the cost and quality of the services and amenities the site shares, like roads, sewage, lighting, waste disposal, schools and hospitals. The Danes, he wrote, assess property this way. And while taxes are high in Denmark, so is the quality of the services and amenities and the administration of the scheme is cost effect at only about €20 per site. (Here, Deeter estimates that since all government-run activity costs about 20% of the tax collected, another reason to model our property tax system and (for once) maximise the amount that can be paid over to the local authorities.) I can hear people already muttering that we are not in Denmark, but no matter what kind of property tax model is ultimately adopted here, someone is going to say it's unfair. Already the thousands of people who paid huge stamp duty on their homes are saying they've already paid a lifetime's worth of property tax. They're followed by pensioners, many of whom say they should be exempt from any new tax because of the contribution they've already made during their working years. Next, there are property owners in negative equity, followed by the unemployed and social housing residents and homeowners with large families to feed, dress, educate and house. Have I forgotten anyone? Probably. But the only people left to pay the tax, if politicians succumb to these interest groups, are the shrinking number of middle class, middle aged, still employed and unencumbered homeowners with few children. When you take all the above into consideration, I think we're probably looking at an interim flat rate tax to be introduced in the December budget or shortly after. The easy success of the €200 second dwelling tax added €51 million to the state coffers in 2009. A €200 tax on the million principal households would easily raise another €200 million. Could they risk €300 or €400? Eventually, a more conventional property tax, based on a percentage of the site, market value or square footage, will probably be introduced. Until then, we've simply run out places to hide from our catastrophic budget and national debt. You should be factoring in some sort of property tax for 2011 and accept that everyone will pay, out of existing income, future income, the sale of the property or from their estate (if low income pensioners are exempt during their lifetimes.) There's one sure-fire way to avoid the tax: become a renter. Meanwhile, renters may want to hang on to their deposits until they have a better picture of the tax liability they may be facing.