DEBATE: Property tax is an annoying tax, but a good one

To read the opposite side of this debate, with my colleague Niamh Uí Bhriain, click here

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The worst kind of tax, a wise man once said, is the kind that you have to pay. For non-smokers, an extra euro on a packet of cigarettes makes no difference. For a person on a low salary, an extra 5% on income over €100,000 probably seems like a good idea. In Ireland, especially, the most popular tax increases are always those that take effect on people who earn about €5,000 more per year than you do. Property tax, then, is widely unpopular, because it is widely paid. And it is very hard to avoid.

Property tax strikes many people as unfair because it is not a tax on income. After all, it is perfectly possible to own a spacious house, but struggle to pay the ESB bills. The problem is that when you pare everything else away, this is about the only substantial argument against it. And it is not an argument we use on taxes that operate on the same principle.

Car tax, for example, is fixed, based on your car ownership. There are plenty of people with older cars, and low incomes, who nonetheless face an annual car tax bill in the hundreds of euros. We do not, generally, hear calls for it to be abolished. The arguments for property tax are much more numerous, and, in my view, stronger, than the argument against it.

For one thing, unlike most taxes on wealth, it is hard to avoid. Other assets, like cash, can easily be moved overseas. A person with a high income can become tax resident elsewhere, if they please. A house cannot, at least with current technology, be moved to Monaco or Malta. The more homes you have, and the more valuable those homes, the more you pay. This is not true, for example, of very wealthy people who make their money from speculating in the stock market, who often manage to pay capital gains tax, rather than income tax, on their earnings, and end up paying a lower effective rate of tax than their employees.

Second, property tax provides the correct incentives. Put simply – if you own a home worth a million quid, but cannot afford the property tax, then you should be selling your home, buying something smaller, and putting family homes on the market for families who desperately need them. Both parties to that transaction, if the market is working properly, will end up richer. It is odd, for example, that many of the political parties who oppose a property tax support – at the same time – a vacant site tax, which is designed to do the exact same thing.

Third, it is a genuine, and fair, wealth tax. Sinn Fein, who oppose the property tax, also intend, they say, to introduce a wealth tax. How would this work, if property is excluded? A person with ten million euros in assets could simply invest that money in homes, declare property exempt from taxation, and then say that they do not have to pay a wealth tax – even though they are just as wealthy as before. You cannot say you are for a wealth tax, and against a property tax. To do so is incoherent.

Fourth, what are the alternatives? The property tax brings in half a billion euros annually, most of which flows into local Government. Replacing the property tax means finding another half a billion in other taxes. (We will set aside, here, my own policy of de-funding Ireland’s NGO sector, since nobody in politics will ever consider it). That money has to come from somewhere, and who do we expect to pay it? Renters? Higher VAT? More income taxes? If we are honest, our answer to this question is almost always “somebody else who can afford it”. But that cannot be the answer to everything.

The Government is proposing this week to increase the property tax, but it is not really an increase at all. They are abolishing an exemption granted to people who built their own homes – an exemption that did not make any sense, and was not fair. For example, in a family where one child buys a home, and another child builds on a site provided by his or her parents, the second child probably faced lower costs than the first, and got a tax break for it, to boot. That was never fair.

In addition, properties have been valued, for the guts of a decade, at 2010 values. Many Irish people are not even paying property tax on the real value of their homes, which have appreciated considerably. Meanwhile, somebody who bought last year is, by contrast, paying full whack. That was never fair either.

Abolishing the property tax, then, or keeping it as it is, would disproportionately benefit those who are in the best position – people who have owned their houses for years, and have seen the value of their properties rise. They are mainly secure, and comfortable.

Tell me – who on earth else should we be taxing, just to give people like me, in that position, a tax break?

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