Depending on where you live you probably see the “mansion tax” announced in the budget as falling somewhere between a justified effort to soak the metropolitan rich or an unmerited assault on the property-owning class of south Dublin.
It is neither of these. The introduction of a third rate of stamp duty that will apply to the portion of sale prices that exceed €1.5 million will bring in about €80 million a year in extra tax according to the budget day documents.
This almost exactly matches the €80 million a year in tax forgone by increasing the tax-exempt inheritance threshold for children inheriting from their parents from €335,000 to €400,000.
Taken in the round the two measures pretty much cancel themselves out in terms of the long-term impact on the wealthy. They are also cost neutral for the exchequer and the whole fandango has the fingerprints of Department of Finance mandarins all over it.
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Jack Chambers ends up looking like a bit crafty, which for some reason is never considered a bad thing in a minister for finance. But one question he might want to ponder is why he felt under pressure to pull this little stroke when pretty much everybody in the country thinks their house is worth less than €365,000? Or at least that is what they have told the Revenue Commissioners when it comes to paying local property tax (LPT).
Undervaluing our homes for the purpose of LPT has developed into something of an art form. This time next year we will be poring over property websites and the property price register looking for cheap houses in our postcode we can plausibly compare with own house too. Many will compare notes with our neighbours in order to present a united front to the Revenue Commissioners.
We will be valuing our homes for the years 2026 to 2030 and will have to choose one of 20 bands which currently range from less than €200,000 to more than €1.75 million.
The extent of this national sleight of hand is now glaringly apparent from house price and RTP data.
The median house price in Ireland is about €365,000, according to the latest survey from Myhome.ie, which is owned by The Irish Times. The median is not the average. There are 1,943,068 residential properties in Ireland, according to the Revenue Commissioners. If you ranked them by price from lowest to highest the one in the middle – house 971,534 – is the median value and is worth €365,000. This puts it in band four.
The only part of Dublin where median house prices and self-assessed RPT valuations come close to aligning is Dún Laoghaire-Rathdown, where 65 per cent of houses are valued at below the median
All else being equal we would expect about 50 per cent of properties nationally to fall into band four or lower. The reality is that almost nine out of 10 homeowners say their house falls in the band four or lower. Even allowing for the 15 per cent rise in the residential property price index (RPPI) since November 2021, when people last valued their homes, it’s clear that there is a problem.
It is even more apparent when you isolate Dublin, where the median house price is €465,000 and falls into band five (€437,501 to €525,000). However, 83 per cent of homeowners in Dublin city and Fingal say their home is worth less than the median. The RPPI for Dublin is up 20 per cent since 2021.
The only part of Dublin where median house prices and self-assessed LPT valuations come close to aligning is Dún Laoghaire-Rathdown, where 65 per cent of houses are valued at below the median. This, of course, is also nonsense as Dún Laoghaire-Rathdown has the most expensive residential real estate in the country and some of the most expensive in Europe.
The apparent willingness of Chambers and his predecessors to turn a blind eye to this national exercise in telling fibs is politically expedient if short-sighted.
If the LPT was properly enforced, it would act as something of a brake on house prices. It would also provide local authorities with revenue which could be used to provide infrastructure – in particular services such as water and drainage – for potential sites for housing. Both of these actions would be effective in ameliorating the housing crisis.
The reluctance of Irish political parties to embrace the LPT is due in part to its genesis. Along with water charges, the introduction of LPT was one of terms of the bailout we got from the International Monetary Fund, the European Commission and the European Central Bank in 2010. Both measures were intended to broaden the tax base, which narrowed dramatically during the last property-fuelled bubble, which when it collapsed left a large hole in the exchequer. The rest is painful history.
The government of the day got the LPT over the line, but water charges proved impossible in austerity-battered Ireland and were abandoned in 2017. LPT has been seen as politically toxic ever since. Come next November the bands will be adjusted, the rate will probably be cut and the canard that 90 per cent of houses are worth less than the median house will continue to go unquestioned.
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