Sunday 17 December 2017

Ignore the PAYE hype, property tax could be doubled

Following the hammering both government parties took in last May's elections, Finance Minister Michael Noonan (below) is certain to announce at least some tax cuts when he delivers his 2015 budget speech to the Dail on October 14.

That's the good news, but be careful what you wish for.

With the public finances still tight and the government owing €210bn on our behalf - the equivalent of one-and-a-half times the value of annual economic output as measured by GNP - the scope for any tax cuts is likely to be extremely limited.

Less then limited. In fact, any cuts in income tax are likely to be funded by tax increases elsewhere.

One obvious candidate for tax increases is the property tax that is now paid by every homeowner.

This is currently paid at a rate of 0.18pc of the market value of the property. This means that someone who owns a house valued at €325,000 faces an annual property tax of €585.

However, it is no secret that, in the run-up to the introduction of the property tax in 2013 the Government was under pressure from various international bodies to pitch it at a much higher rate.

At the time, the Government promised that the current 0.18pc rate was only guaranteed until 2016, i.e. until after the next general election.


So, how much higher could the property tax go? Well it is a matter of public record that the IMF recommended that the Government set the property tax rate at a rate of 0.5pc of market value.

If the IMF's advice had been accepted then someone who owned a house worth €325,000 would be facing an annual property tax bill of €1,625.

They may yet find themselves paying property tax bills of this order of magnitude after 2016.

A leaked report by economists in the Department of Public Expenditure recommends a tripling of property tax in order to fund major cuts in income tax.

Tripling property tax, i.e. increasing the rate to the 0.5pc suggested by the IMF, would raise an extra €1.5bn for the exchequer the report points out.

So how likely is this to happen in practice? Fianna Fail finance spokesperson Michael McGrath has already declared that tripling property tax is a "non-runner".

I only wish that I could share Mr McGrath's confidence.

Despite all of the controversy which was generated by the introduction of the property tax last year, the fact remains that Irish homeowners still pay relatively little tax on their properties compared to the citizens of most other developed countries.


With taxes on labour having borne a disproportionate share of the €30bn fiscal adjustment which this country has endured since 2008 - even workers on relatively modest incomes now pay an effective marginal tax rate of 52pc - higher property tax rates are an obvious alternative.

So, whisper it quietly, regardless of which party or group of parties forms the next government, property tax rates are set to rise sharply after 2016.

Anyone thinking of buying a home in the next few years should budget for much, much higher annual property tax bills when doing their financial calculations.

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