The decision of three local authorities in Dublin to continue applying reduced property tax rates to homeowners in their areas highlights the need for action to reform and update the system introduced in 2013. Councillors in Dún Laoghaire-Rathdown were told that continuing the maximum 15 per cent reduction this year would cost the council €7.9 million and lead to poorer services. But they ignored the warning.
The ability of councils to vary the level of property tax by up to 15 per cent is just one of the weaknesses in the system which was designed to broaden the tax base so that the State would never again suffer a collapse in revenues on the scale of the financial crisis of 2008 to 2010. At that stage it was the decline in stamp duty receipts from property and a drop in income tax that caused the problem. Now economists are warning that corporation tax receipts could drop significantly in the years ahead. Widening the tax net would reduce the dependency on often unpredictable tax categories. But the Government has run scared and is confronted now by the uncertainties of Brexit.
Property tax rates have not risen since the system was introduced in 2013 despite a big increase in property prices since then. A report commissioned by the Government earlier this year recommended that an overhaul of the system with an updated valuation system should be introduced on November 1st. However, the Government kicked the decision down the road for another year.
There is an obvious need for a revaluation of property since the recessionary days of 2013 as current valuations are out of date. There are other anomalies such as the continuing exemption from the tax for those buying new homes.
The review group examined five options to ensure a significant revenue stream from the tax. One of those was that councils should no longer have the power to reduce the rate by 15 per cent but only to increase it by that amount.
There is a real danger that unless the system is properly reformed it will fail to generate enough revenue and may even be struck down by the courts because of the anomalies within it.