To read the opposite side of this debate, with my colleague John McGuirk, click here
_ _ _ _ _ _ _ _
Buying a home is by far the most difficult and stressful purchase most people will ever make. Scrimping and saving for a deposit; traipsing around to view houses; persuading the bank to lend you the money so that you can work like a dog for 30 years to pay it back almost two-fold in hefty mortgage repayments that significantly reduce your monthly income.
In return you get a home, somewhere to live – and for most people, somewhere to raise your family. But then you are also forced to pay an additional tax for the privilege of living in what is, for most people, your heavily-indebted, family home.
Property tax feels like a penalty for having made that enormous effort and taken on that huge debt, and the penalty is levied on you right up to the day you die, which might be years after you’ve retired and are living on a pension and a relatively small income.
Economist Milton Friedman, who was wary of taxes in general, once said that property tax was the “least bad tax”. In fairness, Friedman was talking mostly about land-value tax, and the ideas popularised by tax crusader Henry George in the previous century. George realised that many wealthy landowners were sitting on what he called ‘unimproved land’ – waiting for the value of their assets to rise, and indifferent to public need.
But, in the modern economy, as home ownership massively increased in the last century, property tax instead became an additional burden on already hard-pressed ordinary taxpayers. It’s not the super-rich or the elite who are paying the bulk of property tax, it is ordinary people, many of whom are already put to the pin of their collar trying to make ends meet.
Let’s look at the reality of what happens in regard to the State’s role in taxation, home ownership and local government.
The average taxpayer in Ireland is already seeing the government take a significant portion of their earned income in terms of income tax and social insurance levies. Then there’s the Universal Social Charge (USC) which is calculated on your income and applies to even low-income workers.
(I can never understand how the prospect of water charges led to such enormous opposition while the USC – the tax imposed on all of us to bail out the banks – was implemented and collected year after year without much of a fuss. Maybe it’s because the USC is mostly taken at source as part of PAYE and people therefore feel resigned to it, where water charges were seen as an additional bill coming through the door. But property tax is also seen as an additional levy, collected separately, and there has been far less opposition to this tax, although this may now change with the proposed increases.)
So, ordinary homeowners are paying a mortgage from an income already reduced by taxation. The house is a cost to you, and will be for a very long period of time, and it’s a cost many struggle to meet. Despite that, most people want to buy their own home, even though that is getting more difficult year on year.
Home ownership has fallen from almost 75% in 2006 to 68% in 2016 according to the CSO, but anecdotal evidence – and the demand for new homes on the market – underscore the desire of families in particular to have a place to call their own. And that entirely natural desire should be supported and encouraged, not penalised.
Two key factors should be considered in relation to property tax on family homes.
Firstly, homeowners are expected to pay what is essentially a wealth tax on something that should be considered as an essential asset fulfilling a basic need. In many instances, the asset – the family home – is not even actually owned by the taxpayer, who may be only several years into paying a lengthy mortgage. The taxpayer may even be in negative equity – or, as in the case of thousands of families in Donegal, be living in a house that is literally falling apart because of the use of Mica or other components. They are still liable to property tax.
Having a family home shouldn’t mean you are automatically viewed as a wealthy person owning a productive asset which is accruing wealth for you. It’s actually a huge expense that people undertake – and one which helps society benefit from stable families.
That’s an important and often overlooked consideration. At a time when the country is facing a crisis of gargantuan proportions because of the falling birth rate and fractured families, property tax is also another tax on larger families, the kind of families the nation so badly needs. Does a family with four children or more need a bigger home than a childless couple or a family with one child? Of course, but on top of all the other expenses that family will bear to give the country a viable future, they’ll also now pay increasing amounts of property tax. That’s grossly unfair.
Secondly, individual homeowners have no control over the market and on the rising cost of property. The average national listed price of housing in Ireland rose by 7.6% in the year to March 2021, but that didn’t bring a realised advantage or wealth gain to anyone not actually selling their home.
The fact is that, unless you sell your home, gains in the market are actually meaningless to you in real terms. Yet, especially under the newly revised local property tax system, you will pay more property tax in a rising market.
That’s also fundamentally unfair. Similarly, if you’re a pensioner, your mortgage has been paid off but your income is usually only a fraction of what it was previously. From that much reduced income you are expected to continue to pay a rising tax on your home.
The Revenue certainly does an excellent job at collecting property tax, and, in this country, if people are non-compliant, the tax can even be deducted at source from salary or occupational pensions.
But having to pay isn’t the same as wanting to pay, and polling in other jurisdictions has shown that property tax is wildly unpopular. People, with good cause, feel it’s unfair and it rankles.
A property tax on additional houses is, of course, a different matter. That would be seen as an expense which is part and parcel of earning rental income. Taxing the family home smacks of a mindset which is indifferent to the importance of families, and to the need for taxation policy to increase the greater good.
It’s sometimes argued that property tax may be yet another disincentive to purchasing a house, but that this is not a bad thing because Irish people need to lose their fixation with home ownership and get used to the more European custom of life-long rental. In my view, that’s an entirely bogus contention, made very often by people who already own their own homes, and would leave even more Irish people at the mercy of rapacious investment funds.
Recent figures from the CSO show that, in Dublin, the highest median price paid for a house was €380,000. Local Property Tax charge for 2021 on such a home would be €675. Over the course of 40 years of living in the family home, that would come to an unadjusted additional tax burden of €27,000, a very considerable sum to fork out for simply living in your own home.
It’s also an additional cost for families at a time when the country is facing into enormous economic difficulties because of the government’s mis-management of the Covid crisis.
That of course, is the elephant in the room. We’re about to come up against a huge deficit in terms of what is needed to fund the country and build back after a disastrous 15 months. Hitting homeowners with an increase in property taxes may be an easy way of shoring up funds for an inefficient, increasingly rudderless government, but it is unfair and should be opposed.