Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I will speak first to amendment No. 66 which seeks a report on options for the abolition of LPT. LPT is designed to provide a more sustainable system of funding for local government and place the provision of local services on a sounder financial footing. It has led to greater transparency and accountability at a local level and it is certain that the stronger democratic relationship and clearer lines of accountability created can only have a beneficial impact on service provision from the perspective of the service user. LPT is also a significant base broadening measure. The level of income expected to be generated by LPT in 2017 is approximately €460 million. Deputies will be aware that, under the terms of the Stability and Growth Pact, Ireland may not introduce discretionary revenue reductions unless they are matched by other revenue increases or expenditure reductions. This means the Government must consider carefully any tax changes as any reductions will have to be offset elsewhere by tax increases. A report by the Think-tank for Action on Social Change, TASC, published on 4 November, includes the statement:

An annual property tax is a tax on capital/wealth and as such contributes to social equity. The new Irish property tax has generous thresholds but is also a very stable tax. It is hard to avoid and so is a sound source of revenue for the State.

As regards abolition of LPT, it is well established that the taxation of property through an annual recurring tax is less economically distortionary than the imposition of tax on income or capital. This is supported by economic literature and OECD analysis which underscores how an annual tax on land and buildings has a relatively small adverse impact on economic performance. Both international and domestic research indicate that property taxes are more growth friendly than taxes on labour.

The Government is determined to do everything in its power to protect and support the creation of jobs. The introduction of a property tax is part of a broader approach to the taxation of property. The aim is to replace some of the revenue from transaction-based taxes, which have proven to be an unstable source of Government revenue, with an annual recurring property tax, which international experience has shown to be a stable source of funding. With LPT we have a stable source of funding which is fair and progressive, with the owners of the most valuable properties paying most. The tax is equitable, has reference to ability to pay, conforms to international norms and significantly broadens the domestic tax base. We have seen how previous over-reliance on revenue from transaction-based taxes, such as stamp duty, capital gains tax and capital acquisitions tax, led to a significant fall in tax revenue when the number and value of transactions decreased sharply from 2007 onwards as a result of the economic and banking crisis, creating enormous problems for Ireland’s fiscal position. In the circumstances, I do not propose to accept amendment No. 66.

Regarding amendment No. 67, I have taken on board the concerns expressed by home owners during the past two years regarding the potential impact of increasing property prices on their LPT liabilities, particularly in urban areas. The Finance (Local Property Tax) (Amendment) Act 2015 provided for the postponement of the next LPT revaluation date from November 2016 to November 2019. Projected impacts on LPT liabilities due to increasing property prices have been examined as part of the review of the operation of LPT which I initiated and which was completed in mid-2015. The review was carried out by Dr. Don Thornhill, who chaired the interdepartmental group on the design of a local property tax in 2012, and it focused especially on the issue of property price developments. Dr. Thornhill’s report on the review of LPT was published on budget day last year on my Department’s website. The postponement of the revaluation date for LPT means home owners have not been faced with significant increases in their LPT for 2017 as a result of increased property values, and it gives sufficient time for the other recommendations in Dr. Thornhill’s report to be considered in full.

The cost associated with the deferral of the revaluation date for LPT is estimated to be approximately €125 million in a year. The Thornhill review of the local property tax estimated an increase in LPT collection to €560 million in 2015 if residential properties were revalued at May 2015 property prices. This compared with the €435 million estimated LPT collection in 2015 if May 2013 property valuations were maintained.

If factors such as property prices and the rate of exemptions and deferrals were to remain the same until 2019, the estimated cost, as I said, would be €125 million per annum, not taking into account any changes in property prices since the review. The amendment sought would be a significant undertaking and would only be appropriate in the context of the wider work on LPT.

A previous exercise which examined the impact of property price developments for LPT liability for the period May 2013 to May 2015 as part of the Thornhill review took approximately six months to complete and required significant resources. The results from that report are likely to be still valid in terms of the distribution of the changes in LPT liability, though the level of the changes would be higher, reflecting more recent increases in property prices. The review found that revaluation as of May 2015 would have been associated with: significant increases in tax liabilities for some taxpayers; higher value properties as of May 2013 experiencing the largest increase in tax liability; and a wide degree of regional variation in changes in liability, with the largest increases mainly occurring in the Dublin area. Forecasting of future property prices would be fraught with difficulty and would likely be highly inaccurate even at an aggregate level. Forecasts at a more detailed level which estimated different price paths on the basis of location and property characteristics would be even more unreliable. It would be misleading to base estimates of changes in household LPT liability on such forecasts. In light of these considerations, I am not supposed to accept the amendment.

On questions raised by Deputy Doherty as he proposed the amendment, there are obviously two variables. There is the value of the property subject to LPT, but also the rate at which the LPT is charged. I am sure that whatever Minister is involved in reassessing the position in advance of a new revaluation date of 2019 will take both variables into account in order that dramatic increases in property taxes for individuals would be avoided.