Oireachtas Joint and Select Committees
Tuesday, 12 December 2017
Committee on Budgetary Oversight
Revaluation of Local Property Tax and Commercial Stamp Duty: Revenue Commissioners
4:00 pm
Colm Brophy (Dublin South West, Fine Gael)
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Before I begin, I remind members and witnesses to turn off their mobile telephones. Interference from mobile telephones affects sound quality and transmission at the meeting. I welcome Mr. Keith Walsh, the chief revenue economist at the corporate affairs division of the Revenue Commissioners. He is accompanied by Ms Jean Kennedy, the head of capital taxes and personal tax division, and Ms Fionnuala Ryan, assistant principal at the statistics and economics branch and corporate affairs division. I thank our witnesses for making themselves available to the committee. We do appreciate their attendance.
Today we are discussing the local property tax re-evaluation and commercial stamp duty. I understand that the officials in the Department of Finance are not available to attend our meeting today. It is the normal practice that they do. We will, however, have an opportunity to meet with the officials to discuss these matters in further detail on 16 January. The purpose of this meeting with officials from the Revenue Commissioners is to discuss the concerns the committee flagged last September around the revaluation of the local property tax, LPT, and the potential sudden increases in LPT arising from the revaluation process. We will also discuss the commercial stamp duty measures introduced in budget 2018.
I will now refer to privilege before we hear the opening statements of the witnesses. I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.
Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.
Dr. Keith Walsh:
We welcome the opportunity to meet with the committee today and to provide whatever assistance we can around the matters covered in its letter of invitation.
I understand from the invitation letter that the committee wishes specifically to discuss a review of local property tax, the budgetary implications of the current process of revaluation and a review of costings around taxation matters, for example in relation to excise duties for tobacco and stamp duty. I will discuss both of these issues in my presentation. We will be happy to address any questions the committee might have on these topics. While we will provide whatever assistance we can, the committee will appreciate that Revenue is constrained by law, specifically by section 8(5)(i)(a) of the Taxes Consolidation Act 1997 from discussing the tax affairs of any taxpayer on confidentiality grounds. This includes any information that might lead to the identification of a taxpayer.
I am sure the committee will appreciate Revenue's role in costings and budgetary matters. As the tax administration of the State, Revenue collects taxes and duties, and through this we have access to, and are able to provide statistical information and analysis of, tax returns and tax receipts. While it is our role to provide facts and advice to inform the policy-making process, it would be inappropriate for us to make any comment on policy matters.
As the committee will be aware, at the introduction of local property tax in 2013, property owners were asked to self-assess the valuation band on their property on 1 May 2013. The original intention was for this valuation to hold for the purposes of LPT until the end of 2016. At the time of the first valuation in 2013, Revenue provided extensive valuation guidance to property owners, including an interactive tool on our website and estimates generated with the returns that were sent out to owners. We ran media and communication campaigns to ensure that property owners were aware of their obligations to assist in meeting these. In 2015, the Minister for Finance published a review of local property tax implementation by Dr. John Thornhill, which was informed by a public consultation exercise. Revenue and Department of Finance officials provided information and secretarial support to Dr. Thornhill's review.
Dr. Thornhill notes the successful response of the Office of the Revenue Commissioners and its staff to the challenge of setting up the new assessment and collection arrangements for this tax. It should be noted also that compliance with LPT is high, at 97% or 98% for each year of operation so far.
Our most recent statistics for LPT at the end of October 2017 indicate the compliance rate for 2017 is also around 97%.
The valuation period was extended from 31 October 2016 on foot of the Finance (Local Property Tax) (Amendment) Act 2015. The current valuation period is now 1 May 2013 to 31 October 2019. At the end of the current valuation period, under the current legislation, owners will be expected to value their properties on 1 November 2019 and this will form the basis for the subsequent valuation period. Revenue intends to run a compliance communications campaign to assist property owners to value their properties and file their returns in the run up to this valuation date.
In the context of the possible budgetary implication of LPT revaluation, it may be of interest to the committee to note that as part of the Thornhill review, the Department of Finance undertook an analysis of the implications of property price increases for LPT liabilities. At the time of the review in 2015, property prices had risen by 26% nationally and 41% in Dublin since May 2013. This analysis indicates that based on property prices at that time in 2015, 48% of properties would have remained in their original valuation band and thus not generated any increase in liability; 35% of properties would have moved by one band and thus generated an increased annual liability of €90; and the remaining 17% of properties would have moved by two or more bands. While more indepth analysis will be required to update this work, it is important to note that this indicates that property price increases do not necessarily translate into liability increases in many cases because of the valuation banding system in LPT. The Thornhill review made a number of recommendations, some of which have been implemented since. Any further policy decisions on LPT remain a matter for the Department and the Minister.
I will now turn to costings on taxation matters. An important part of Revenue's role is the provision of high quality advice and support to the Department of Finance and, through the Department, to the Government and the Oireachtas in the development of tax policy. To assist with this objective, Revenue decided from 2014 to move all of our published statistics derived from tax receipts and returns to a new and dedicated section of our website revenue.ie. This has significantly enhanced the service we provide to policy makers in a number of ways. Statistics published online, of which we now have over 100 datasets, are published in accessible and machine readable formats. As well as making it easier for researchers to query and join our data, our approach means we are at the forefront of the Government's open data initiative. By publishing statistics on our website, we ensure consistency by making the same information available to all. This also enables us to become more effective in the use of our resources. By diverting simpler queries to our website and published material, we also have more time to address more complex or specific queries. I have provided a table that gives more detail on the tables we publish and also on the fact that we answer significant numbers of parliamentary questions. Around one third of those are answered by reference to published material.
With statistics published, they are open to comment or critique. This makes us more accountable and assists in identifying errors, if any. In addition, through 2017, we engaged with the Central Statistics Office to achieve the official statistics accreditation which is a type of quality mark to indicate our statistical processes meet a series of quality standards and principles. In December 2017, the CSO confirmed that Revenue's audited official statistics, which is nearly 50 datasets, can be published under the official statistics quality mark. Revenue is the first Government Department or office outside of the CSO to achieve this standard. Our statistics are also more timely. Whereas previously we published material once a year, we now do so on a regular basis as updated data become available. We have also dedicated statistical releases, for example monthly reports on the help-to-buy scheme, quarterly reports on LPT and annual profiles of the farming sector. All of these statistics complement our more in-depth research papers on particular topics of interest. Perhaps our most significant resource published is our ready reckoner. The ready reckoner shows the estimated Exchequer impact of changing rates, thresholds, bands and more for nearly all of the main taxes. The ready reckoner is updated pre-budget and post-budget based on the most recently available data from tax returns and receipts and so presents our best assessment of current conditions and the impacts of potential changes.
For most taxes, costings presented in the ready reckoner assume no behavioural change and for the majority of cases, this is a reasonable approach unless very significant policy changes are being sought, for example, big increases in rates. An exception to this relates to tobacco products' tax. Revenue's estimated impact of receipts from changes in excise duty on cigarette packets uses the elasticity measure to partially reflect the responsiveness or change of behaviour of smokers following duty and price changes. As research shows that smoker behaviour can be quite variable, a range of estimates is used to reflect this. Variations in tax receipts from tobacco in recent years suggest the use of the range is appropriate but also that the higher end of the range is likely the most suitable to use when undertaking costings.
The committee's invitation notes costings of stamp duty as an interest and these provide a useful case study to outline the method we use to generate costings estimates. To produce costings for a stamp duty change we use data for recent years to estimate the taxable base. This is done on a prudent or conservative basis. In particular, for stamp duty on non-residential property, in estimating the pre-budget 2018 base, the assessment included factoring out a series of very significant transactions in prior years that we deemed to be once-off and thus not likely to reoccur. Had we not done that, the estimated yield would have been higher. In addition, revisions to macroeconomic growth forecasts post-budget suggest a slightly higher potential yield than we would have indicated before the budget.
We have noted that commentary regarding the basis for the stamp duty increase in budget 2018 has not been supported by estimates in market transaction volumes. However, based on revenue returns and actual tax paid with regard to non-residential stamp duty, the considerations in the market are around €9 billion or so over the past three years even when once-off factors are excluded. In summary, Revenue is publishing increasing amounts of information on tax statistics, tax receipts and costings of tax policy options. We do this because we believe it is a key part of our role to bring what facts we can based on tax returns and other data to the tax policy making process. We will answer any questions raised by the committee, subject to the constraints I mentioned in my opening comments.
Colm Brophy (Dublin South West, Fine Gael)
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I thank Mr. Walsh. I propose that we discuss the local property tax revaluation first. When that item is concluded we will move on to commercial stamp duty. Is that agreed? Agreed.
Following the discussion, there might be requests for more specific information in advance of our next meeting with the officials of the Department of Finance in early January. I will now call on members in the order in which they indicated. Deputy Calleary was first.
Dara Calleary (Mayo, Fianna Fail)
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I welcome the delegation and thank them for their ongoing work. What level of engagement has the Revenue Commissioners had with the Department of Finance on LPT since 2015? Was engagement parked subsequent to the Government decision not to proceed with the revaluation?
Mr. Walsh said that very few 2015 valuations would be affected by increases. We are in 2017 now and we have new figures today showing that in Dublin prices have increased 80% since 2008. How would the figures Mr. Walsh has be affected by that? What would the average increase in LPT be for homes in the Dublin area that are being affected most particularly by property tax? What would the increase in the overall yield of LPT be based on current bands and based on the 2017 valuation? Will Mr. Walsh clarify a couple of specific situations? Are new houses built since 2013-2014 when the tax was introduced still excluded from LPT? What is the position there? Houses that have been diagnosed with pyrite continue to be excluded from LPT. There has unfortunately been an expansion of houses that have been found to be affected by pyrite or mica. What is the process for those house owners to get the exclusion that is available in some parts of the country and not in others? Is there not unfairness in that?
This question is connected to LPT. As a result of Revenue's success in LPT, it has been recommended as the agent to collect the TV licence fee. Was there any consultation with Revenue on its capacity to do that in advance of the report being published by the Department of Communications, Climate Action and Environment last week?
Mr. Keith Walsh:
I will try to address the first couple of questions and Ms Jean Kennedy might comment on the new houses and the pyrite. In terms of engagement with the Department of Finance, the most comprehensive engagement was as part of the Thornhill review which ran for a fair chunk of the early part of 2015. Aside from that, we have fairly regular engagement on topics. When parliamentary questions are asked we respond to them jointly. Beyond queries coming in and that sort of thing, we have not had any significant engagement since the Thornhill report.
In terms of the yield and the estimates, the Deputy is absolutely right that property prices have moved on a lot since the 2015 analysis done for the Thornhill report. We have not updated the analysis since then.
The reason I was highlighting this in my opening statement was to make the point that, just because there is an increase in property prices, this does not necessarily translate one-to-one into an increase in local property tax receipts because of the valuation banding system. A property can increase in value but stay within its valuation banding system. If a property worth €125,000 increased to €140,000, it would stay within the same local property tax, LPT, valuation banding. The Thornhill report indicated that, even though property prices have gone up by 26%, nearly half of all properties would not change valuation band, based on that analysis.
Dara Calleary (Mayo, Fianna Fail)
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Price rises of 26% would have a relatively small impact. What level of increase would flip that and result in the majority moving into a different band?
Dara Calleary (Mayo, Fianna Fail)
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How many houses are in that situation?
Ms Jean Kennedy:
We do not know. We would be aware of some data coming through our electronic stamping system. However, we have not kept detailed records of that. If we have to update the register because there is another valuation date, we will do so at that stage. We do not know how many new houses have come on-stream at this stage.
Specific criteria are needed to establish the existence of pyrite and to provide evidence that a house is actually affected by pyrite. Some increased flexibility was introduced in this regard following the Thornhill report in 2015. We moved away a little bit from the insistence on having an actual certificate from an engineer and a laboratory analysis of the affected materials. There could still be houses that might have a low degree of pyrite and it might seem as if there is pyrite damage. However, they do not meet the level of damage required for the exemption.
There is currently no statutory basis for any exemption because of mica. It has not been examined so far.
As for Revenue taking on the television licence work, I am not aware that there has been any detailed consultation with Revenue on that. However, I do not know whether there has been at a higher level.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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The estimates of what a revaluation might look like are based on a review in 2015. Is that correct?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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This week the Central Statistics Office, CSO, estimated property prices in Dublin have increased since 2013, the year of the original valuation, by 86%. The Thornhill review is based on a rise in property prices of 26% nationally and 41% in Dublin. The CSO, however, stated the increase is actually 86%, more than double the valuation on which Thornhill operated. If the latter increase is the case, it would be fair to say that the overwhelming majority of people will see a significant increase in their property tax. Given the current spectacular rises in property prices in Dublin, many householders might be jumping nearly three valuation bands. Is that a fair comment?
Mr. Keith Walsh:
The Thornhill analysis was carried out in 2015 and, as the Deputy said, property prices have increased continuously since then. One would expect LPT liabilities would have increased over that period too. The main point is not to assume that a property price increase leads to an increase in valuations because of the banding system. It is important to bear in mind that a fair proportion of the properties in the first valuation period in 2013 fell into the first valuation band of €0 to €100,000. That valuation band is wider than the other valuation bands which go up in intervals of €50,000. Properties in that band would be less impacted.
Aside from that, the points the Deputy is making are valid. It was the Department of Finance which undertook this analysis. As far as I am aware, it has not updated the analysis since then.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Even as it stands, based on 2015 prices which in Dublin were less than half what they are now, 52% of households saw a jump of either one band or two. It would be safe to say that, if the CSO figures are correct, property prices have jumped to the extent that the overwhelming majority - we already had a majority in 2015 - will jump at least one band, if not two and, potentially, three. Is that fair to say?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Is the Department of Finance suggesting that Revenue should update its estimates of the potential impact of property tax increases based on current property valuations?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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How long would working out projections and estimates take?
Mr. Keith Walsh:
It is difficult to say in advance. For the next valuation period, I would imagine we would have to do similar work that we did last time such as sending out large volumes of returns and building the IT systems to capture information to provide evaluation guidance. Our IT resources, for example, are planned a year in advance. We would have to start planning it for the end of next year. It is difficult to be more specific than that, however.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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What proportion of payments are deferred?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Does an exemption mean the householder is not required to pay at all?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Is the number of deferrals fairly steady since the tax came in or is it increasing?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Is the number of deferrals increasing?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Are most of those deferrals anything to do with an inability to pay?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Up to 95,000 deferrals-----
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Rather, it is 62,000 and that figure is rising. Their incomes are too low for them to be able to pay that tax. How much, on average, do they owe? What is the cumulative figure of what they might owe?
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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There are no figures on how much they might owe.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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It would be useful to get a breakdown of how much could be owed both in totality and aggregate and what the average figures in terms of liability might be.
Has any analysis been done or would it be possible to do an analysis when Revenue is estimating a revaluation of the impact that might have, how much the increases in the tax would be, how many people would move from one band to another and so on to cross-check that against people's income? Revenue has figures on people's income. Such analysis would help inform us of the benefit, or otherwise, of a tax such as this one. Is it disproportionate in its impact and to what extent is it hitting people on different incomes?
As an opponent of the local property tax, I believe it is regressive and will hit those with lower incomes hard and disproportionately but regardless of that being my view, it might be useful in any estimates or revaluation process to examine the impact on different income levels of a certain level of property price increase and revaluation based on those property price levels. Is that possible?
Mr. Keith Walsh:
Yes. I would point out, and the Deputy is probably aware of this, that the local property tax is based on the value of the home and the deferral is based on the income of the individual, so the link is limited. We could have a look at where home owners and property owners under the local property tax fall within the distribution to see if they are more at the top end or whether they are spread out across income deciles or something like that.
Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I suggest to the Chairman that such a proposal would be a good idea. Regardless of what one might think of the local property tax, that would be useful information for us to have and we could recommend that.
Colm Brophy (Dublin South West, Fine Gael)
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There is agreement on that. I call Deputy Jonathan O'Brien.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Most of the questions I had have already been asked but I have a brief one related to the revaluation process. Mr. Walsh commented that Revenue would probably start preparing that process at the end of next year. Could he give members some detail of the timescale which would be needed by the Revenue Commissioners to carry out that revaluation process?
Mr. Keith Walsh:
It is difficult to be specific but, as I said, we would probably need to start planning for it in 2018 and the actual implementation would occur in 2019. If we look back to the experience of 2013, the valuation date was 1 May. In 2013, we started sending out returns in February or March of that year. The returns went out two or three months in advance and perhaps something similar could happen in 2019, which would give people time to value their property and get their returns back to us before the end of the year. We would need to have them back before the end of the year in order that payroll systems and matters like that could be updated if people are choosing to pay in that manner. It is not something we put a huge amount of time into planning out or scheduling in great detail, but on the assumption that it would happen in roughly the same way or if the tax is still structured as it is in 2019, we would expect to start planning for it in 2018 and then scheduling returns, IT systems, bills and everything else within 2019.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Following on from Deputy Boyd Barrett's point on a significant increase arising for many people as a result of that process, does Mr. Walsh believe that would have an impact on compliance rates? Were a home owner to have a large increase in his or her local property tax demand within the space of three months, would that form part of Revenue's forecasts in terms of how such increases could affect compliance rates?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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How likely is that?
Mr. Keith Walsh:
With the local property tax, we were very careful to provide as much assistance to home owners as we could in advance. We provided valuation guidance and whatever assistance we could to help them file their returns. People could file returns online or on paper. We made it as easy as possible for people to pay. There were seven or eight different payment methods and there is the deferral option as well. One can pay over the course of the year through direct debits or whatever. Again, we will be trying to make it as easy as possible for people to pay. The experience from the local property tax so far suggests that even though people may not like the tax, they are willing to pay it. The compliance rates have been consistently high throughout the whole process. We have a compliance programme that we run every year that follows up on people who do not pay or who do not file their returns. We would be fairly confident that the compliance rates would be maintained.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Revenue would have a mandatory deduction at source as part of that.
Colm Brophy (Dublin South West, Fine Gael)
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I call Deputy Burton.
Joan Burton (Dublin West, Labour)
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First, regarding the yield from the tax and potential reviews of the local property tax, has Revenue modelled what the different approaches might be? In particular, if Revenue wanted to maintain the yield from the tax as being broadly in line with increases in the consumer price index, has it examined how it would achieve that by maintaining valuations but lowering the rates, which is the way it is approached in a number of countries? For householders, the idea that on foot of increasing house prices they would face, as indicated by some newspapers, potentially very large increases in the tax, would be very unfair and counterproductive in terms of our understanding of the tax being devoted to funding local services. Has Revenue carried out any evaluation given current levels of property values and what kind of rate would be appropriate to yield increases or decreases that were broadly in line with the consumer price index?
Second, I refer to older people and those who may be in nursing homes or some form of care where they are maintaining their residence in the hope they will return to it but where in practice that hope may turn out not to be realistic. Many people - the individuals concerned and often family members - are unclear as to what their options are in that situation. Has Revenue prepared an easy guide in that respect? I refer in particular to people who may be moving into nursing home care or hospital care over a long period. In the context of the current housing crisis, constant references have been made to houses that are vacant because a person has gone into hospital or a nursing home in the expectation of returning home. During that time, however, the house ends up being vacant over a protracted period. We are constantly told that for many families where a fair deal agreement is involved it causes problems regarding property tax. Has that issue been brought to Mr. Walsh's attention?
A third issue that is important relates to areas such as big cities and towns in which significant amount of property tax are being paid because of higher property tax and higher valuations. Does Mr. Walsh have details of the equalisation and what that costs councils in, for example, Cork, Dublin and Galway, where not all of the property taxes paid in those areas go to fund the councils in those areas?
Such a council may have services, such as homelessness services, which it finds it difficult to fund because a significant amount of property tax generated in that council area is being awarded to other areas and because such counties are not getting the boost they need from general taxation.
Mr. Keith Walsh:
I will respond to the Deputy's first and third question and Ms Kennedy will respond to the question on nursing homes. On evaluation of the other options mentioned, we have not undertaken that type of analysis. The first Thornhill interdepartmental group was responsible for the design of the local property tax. In this regard, Revenue supported the supervision of information and analysis as requested and we did the same in respect of the Thornhill review in 2015. Beyond that, we have not undertaken any more detailed analysis as yet. It is probably a matter for the Department of Finance and the Minister but Revenue has not been asked to undertake any further analysis.
Joan Burton (Dublin West, Labour)
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Does Revenue need to be asked to do that by the Minister? I think it would be an interesting exercise.
Mr. Keith Walsh:
The role of Revenue is to administer the local property taxes as set out in legislation. We are more than happy to examine options for change. We feed a lot of information into tax strategy group papers and so on in the run-up to the budget but we do not necessarily have the time and the resources to examine all the options for all of the different taxes. We work closely with the Department of Finance and we try to prioritise its requests for research or analysis.
On the question regarding equalisation, I do not have a huge amount of information on this issue because, again, it is a little beyond Revenue's role. We collect the tax and we hand it over to the Exchequer or to the local government fund. We do have a little information on the local adjustment factor, which is somewhat related to equalisation. As the Deputy is probably aware, the local adjustment factor allows local authorities to vary the local property tax rate up or down by 15% of the standard rate. For example, 11 local authorities have availed of the opportunity to vary the rate for 2018. In our estimation, this covers approximately 0.9 million properties and will probably lead to a slight increase in the amount collected in local property tax for next year. Approximately 20 local authorities have decided to not change their rate. Three local authorities have increased their rate by 10%. Limerick City and County Council has increased its rate by 7.5% and two other councils have increased it by 5%. Waterford City and County Council has increased its rate by 2.5%. The four Dublin local authorities have decreased their rates by either 10% or 15%. Across the spread of those 11 increases, we expect a marginal increase in the receipts collected.
Joan Burton (Dublin West, Labour)
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Mr. Walsh might send that information to the committee in tabular form, if available.
Ms Jean Kennedy:
On the nursing homes question, there is an exemption for a house that has been vacated because the person has gone into a nursing home or is being cared for in the home of a relative but the nature of the person's infirmity has to be certified by a doctor. Also, the person must have been out of the house for 12 months or a doctor must certify that there is no possibility that the person will return to live in the house. Another condition is that the house must remain vacant while the person is being cared for elsewhere. There is information on that exemption on our website but I am not sure if it is specifically tailored towards older people. There may be scope for us to review what other Departments or bodies publish in regard to facilities for older people that we could supplement.
I am not sure what the interaction between the fair deal and the nursing home would be. In regard to market value, the local property tax market value is fixed as of 1 May 2013. Market value under the fair deal scheme would have to be determined at the point at which the person applied for the fair deal scheme. I cannot think of any other possible interaction or conflict between them.
Joan Burton (Dublin West, Labour)
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Many of the articles being written about housing refer to large volumes of houses lying empty that could be let to the local authorities for long or short periods or let into the general rental market to help ease the housing shortage. However, as there is a great deal of confusion around the rules people are standing back from doing that. Has the Department of Housing, Planning and Local Government contacted Revenue about this issue? As I said, there is a stream of empty houses, certainly in my constituency, that are not occupied. Does Revenue have round-table meetings with other players, particularly the Department of Housing, Planning and Local Government, local authorities and the Health Service Executive, on the 62,000 exempted properties and what proportion of them could be made available to rent because people in practice no longer live in them? Perhaps if the fair deal-style problem could be ironed out, a proportion of these houses could be made available to rent. The Taoiseach regularly speaks of a whole-of-Government approach. I put it to the witnesses that cross-departmental engagement on how some of these properties could be made available would be appropriate. This would help to alleviate the current shortage of properties to rent. There does not seem to be any comprehensive source from which to identify these properties. I am sure the witnesses are aware that many people are accidental house minders because of situations that have developed with parents and so on who, if the rules were clarified, might be prepared to make these houses available. While they might lose the local property tax exemption, assuming they are in receipt of rent that would not be a problem.
Ms Jean Kennedy:
There is a statutory rule that requires the property to be vacant. Our records indicate that 7,500 exemptions have been claimed in respect of homes that have been vacated. We generally do not have any direct interaction with the Department of Housing, Planning and Local Government. Our interaction tends to be with the Department of Finance. Unless there is a change in policy decision and the statutory rule we have to continue to operate the exemption based on existing legislation. We can provide statistics to anybody who wants to examine policy in this area.
Eamon Ryan (Dublin Bay South, Green Party)
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I am conscious that the witnesses were not involved in discussions on the possibility of the broadcasting charge being collected by Revenue but are they aware of any restriction to such a charge being collected by Revenue rather than An Post? During consideration of this issue by the Joint Committee on Communications, Climate Action and the Environment, of which I am a member, reference was made to this not being possible because this fee is a charge rather than a tax. Are there any restrictions on Revenue collecting this charge if that is what the Minister directs?
As a Dublin Deputy I am concerned about the statistics which indicate that 29% of all households in the State account for 38% of local property tax receipts. Given that price increases in Dublin are significantly higher than elsewhere it could well be the case that 50% of the tax will come from Dublin households. There is in equity issue here because typically a lot of those properties would be small and different in character to houses elsewhere in the country. Have the Revenue Commissioners undertaken any work on the alternative property tax collection mechanism, which would be based on site value? I recall I heard a Minister say that this option is being reviewed.
Has the work on title and the land ownership register that I know was started a number of years ago been completed, so that we have full understanding of who owns what property, which would facilitate the introduction of a site value tax? Have any of the officials here done any background work on that as an alternative mechanism? That is an alternative to a situation where Dublin prices would continue to rise and property tax would be very heavily skewed towards the capital, in a way that certainly would have equity issues. In particular, someone in a very small, cramped apartment might pay a multiple of the amount paid by someone in a very large property, with very large costs to the State in providing social and other services. There is an equity issue if we just continue with the current system.
Ms Jean Kennedy:
In regard to the broadcasting charge, I am not aware of any statutory reason that Revenue would not be able to collect it. Obviously what happens there and how it might be charged are policy issues. Whether the charge should be linked to existing properties that are on our local property tax, LPT, register, or based on people's ownership of televisions will be a policy decision for the Minister for Finance. If that is going to happen, I am sure there will be discussions with Revenue in the future.
On the site value issue, the original Thornhill inter-departmental group, which was set up in 2012 to consider the introduction of property tax considered both the house value base and the site value base. The group came down on balance in favour of a market value basis. It was seen to be more efficient, but against the criteria of simplicity and transparency, and possibly equity, it did not measure up so well. However, I am not aware of any work having been done in that area in the meantime. Certainly Revenue has not been involved in looking at any different criteria. Again, the basis of the charge would be a policy decision, and that would not be a decision for Revenue. Moreover, I am not aware of any work being carried out in connection with the Land Registry to arrive at a situation where one could have a site value tax. I do not know if the Department of Finance has looked at this either.
Colm Brophy (Dublin South West, Fine Gael)
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No other member is offering at this point, so I am going to draw our consideration of the local property tax to a conclusion. I propose that we move onto commercial stamp duty. Is anybody offering on that area?
Martin Heydon (Kildare South, Fine Gael)
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I have a few questions about projections of stamp duty in general. Does Revenue believe that there is sufficient consultation with and by the Department of Finance in advance of this measure being introduced? I will start with the preparation of the budget each year. Is it normal practice for officials from Revenue to compile data and projections for the Department of Finance on any revenue-raising measures? Does Revenue provide the Department of Finance with any data or projections on commercial stamp duty to inform the preparation of the budget and if not, why not?
Is it the case that Department of Finance officials accompany officials from the Revenue Commissioners to meetings with Oireachtas committees so that policy matters can be covered? The practice should be followed in meetings with the Committee on Budgetary Oversight as well, but that is an issue for another day.
To repeat my first question, is it normal practice for officials from Revenue to compile data and projections for the Department for any revenue-raising measures?
Mr. Keith Walsh:
The answer is "Yes". As I mentioned in my opening remarks, in the last few years we have published more and more information. Probably most significantly, we publish a ready reckoner and we update it in the run-up to the budget. That ready reckoner shows a series of tax policy options, including the impact of increasing or decreasing universal social charge, USC, rates, and the impact of changing value added tax, VAT, rates. It is pretty much those sorts of changes to rates, bands and thresholds for all of the major taxes. We publish that on our website and it is available to everyone, including the Department of Finance. Aside from that, we interact with the Department. Sometimes in the run-up to the budget Department officials will simply look at the ready reckoner and will use the figures there. Sometimes they will want clarifications or figures that are not exactly covered by the ready reckoner or they might want something to be refined or confirmed. It is a little difficult to give a general answer, but we certainly have ongoing interactions with the Department of Finance on budgetary matters. That starts well before the summer, before the tax strategy group papers, and continues all the way through the budget process into the Finance Bill.
I will now address the commercial stamp duty or non-residential property stamp duty change in the budget. The increase provided for in the budget, from 2% to 6%, was shown in our ready reckoner. The figure projected there, a €376 million increase, was taken by the Department of Finance and accounted for in the budget.
I will explain where that figure comes from. When we are trying to project stamp duty, there are three phases to our work. First, we look back at the most recent year for which we have complete data, in this case it is 2016. We look at 2016 to try to get an idea of the general taxable base during that year. We try to factor out once-off revenues, because if they are once-off in nature they are not a good indicator for receipts in future years. In 2016 in particular, we factored out a number of very significant once-off payments that inflated the tax base. If we had not factored them out, we would have had a higher estimate for commercial stamp duty.
Looking at 2016 data is the first phase. Then we look at 2017 data. We try to see if the trends that we expected from 2016 have continued, and if there are changes we should be aware of. Lastly, we look at the growth prospects based on the Department of Finance forecasts for 2018. Based on that assessment of data from 2016, trends since then in 2017 and expectations for 2018, we formed a view that the taxable base for non-residential property for stamp duty purposes was around €9 billion in the last several years. The consistent or stable tax base is about that, and we think that will reoccur next year. That is essentially the basis for the costing of the increase from 2% to 6%.
Martin Heydon (Kildare South, Fine Gael)
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I would also like to ask about the changes on Report Stage concerning consanguinity arrangements for land. Does Revenue have a valuation of the impact those changes could have? Also, given that this is a transactional tax, have the Revenue Commissioners any concerns about dependence on volatile tax revenues to fund permanent expenditure?
Mr. Keith Walsh:
There would always be some concern, but the process I mentioned, whereby we tried to factor out the once-off payments during 2016, is our template in trying to adjust for that. Our forecasts are based on an assumption of no behavioural change. We look at what we think was raised in 2016 once the outliers and once-offs are excluded, what is happening in 2017 and what we think will happen in 2018. Based on that, we make an assumption or we draw a conclusion on what we think will happen next year. We are fairly confident that when once-offs are excluded, the activity levels for the last two or three years are actually quite stable where stamp duty is concerned. I have seen some commentary from industry groups or groups within the market suggesting that the figures are too high. That said, the figures and estimates that some of industry groups have produced look too low to me, considering the actual tax receipts that we collect and what they imply about a commercial base. Based on the tax receipts that we collect, that is, the actual money coming in, we are fairly confident that there has been a broadly stable base of around €8 billion or €9 billion in consideration values for non-residential property in the last couple of years. We do not have any reason to assume that will not continue, certainly for the next couple of years. I have not seen any convincing forecasts suggesting that level of activity will suddenly drop off. It may change over the longer term, but we are fairly confident that it is representative of recent years' trends.
It may change over a longer term, but we are confident that it is representative of the trend in recent years. The forecast is based on an assumption that there will be no behavioural change and that exemptions or reliefs will remain unchanged.
The Deputy mentioned consanguinity relief. We costed that measure and estimate that if it was applied at the new 60% rate and the age rule was removed, it would cost approximately €9 million per annum.
Martin Heydon (Kildare South, Fine Gael)
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That presumes there would be the same level of activity.
Martin Heydon (Kildare South, Fine Gael)
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The argument is that it would not be tax forgone in that the activity probably would not happen.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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I wish to raise a number of issues, on some of which Mr. Walsh touched in his replies to Deputy Martin Heydon. The first relates to the commentary since the budget on how accurate and reliable is the figure presented in the budget. Mr. Walsh has outlined the process Revenue went through to arrive at the figure, taking out one-off large-scale sales. I would appreciate a little more detail on the process involved.
The Revenue Commissioners provide data for the Department of Finance in the preparation of budgets. Was this part of that process or did the Government seek the information specifically from Revenue? If so, how late in the day did that happen?
Does Mr. Walsh have concerns that we are potentially moving to a position where we are relying on future expenditure being based on transaction taxes which could go up or down?
Dara Calleary (Mayo, Fianna Fail)
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On the same issue, the commentary was not just confined to commercial or property interests. The IFAC is cautious about it. Again it suggested the policy decision was based on activity in 2016 and early 2017. The concern is not confined only to people who may have a horse in the race.
Mr. Keith Walsh:
I will also try to address that comment. I will go through Deputy Jonathan O'Brien's questions in reverse order. His final question was related to concerns about basing the tax system on transaction-based measures. It is not for Revenue to comment on that issue; it is more a matter of policy for the Minister or the Department of Finance.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Unfortunately, departmental officials are not present. It would normally be the case that they would be present.
Mr. Keith Walsh:
I appreciate that, but it is not for us to comment on the issue.
On whether there were contacts between us and the Department of Finance about this measure in the run-up to the budget, as I mentioned to Deputy Martin Heydon, it is one of the measures included in our published ready reckoner. It was published some time in September, perhaps a month or so before the budget was announced. As far as I can recall, there was no contact between us and the Department on the rate increase. There was some contact either just before or just after the announcement of the budget on the cost of continuing the exemptions or extending some of them such as consanguinity relief, but as regards the rate increase, the Department just used the information in the published ready reckoner. It varies a little, depending on the different measures being proposed. It is not unusual for the Department to simply take the published figure and-----
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Did the ready reckoner exclude once-off transactions?
Mr. Keith Walsh:
Absolutely. The Deputy's first question was about the process involved. When we were trying to figure out costings for budget 2018, we looked back over a three-year period. Therefore, we looked at 2016 as the most recent complete year and tried to factor out once-off transactions. In 2016 there were some significant transactions that when we reviewed them we deemed to be once-off. I cannot say much about them for reasons of confidentiality because there were not that many. However, this is a manual process where we examine the largest transactions to identify whether they are likely to recur or whether they are once-off or outliers of some kind. The value of non-residential property transactions in 2016 was more than €12 billion, but when we factored out what we thought were once-off transactions, the figure reduced to approximately €9 million. There were no major once-off transactions in 2014 and 2015. The value of non-residential property transactions in both of those years was €8 billion or €9 billion. One never knows what will happen in the future, but that is why I have some confidence that if we look at the three-year period 2014 to 2016, there is a steady rate of transactions when once-off transactions are excluded valued at €8 billion or €9 billion. That is on what the ready reckoner costing for the increase from 2% to 6% was based.
On Deputy Dara Calleary's comment, I was not trying to ignore the IFAC. I am open to correction, but it is my understanding the council did not have detailed information and that it may have quoted industry sources in its report. Without singling out any of them, the industry is slightly underestimating the value of transactions in recent years because when I compare the estimates the industry is putting out with what we are taking in in tax payments and hard cash, our figures are consistently higher over a three-year period. For the first three quarters of 2017 the value of transactions was approximately €6.5 billion. If that trend continues in the fourth quarter, the yield will reach €8 billion or €9 billion. We have three and a half or three and three quarter years of transactions in the market with a value of €8 billion or €9 billion, which suggests a certain level of consistency on which we can rely at least in the short term.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Will Mr. Walsh clarify that to the best of his knowledge the Department did not come back to Revenue seeking clarifications or to have a conversation about this measure before it was introduced?
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Mr. Walsh may not be aware of this, but I have just been handed a note. Facebook has announced that it is moving to a local selling structure in countries where it has offices. It means that the company's advertising revenue will no longer go through its headquarters in Dublin. Can Mr. Walsh comment on this? I will not put him on the spot by asking him how it will affect corporation tax forecasts. However, from a revenue-raising point of view, what impact is it likely to have?
Colm Brophy (Dublin South West, Fine Gael)
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That is an unfair question to land on anybody at this point. Mr. Walsh does not have necessarily have to comment on it.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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It is something on which Mr. Walsh can come back to the committee.
Colm Brophy (Dublin South West, Fine Gael)
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I have no doubt that there will be plenty of follow-up on it.
Jonathan O'Brien (Cork North Central, Sinn Fein)
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Unless Mr. Walsh wants to answer the question now.
Mr. Keith Walsh:
The Chairman has responded well. We cannot discuss individual cases because of taxpayer confidentiality. As a general comment, there was a significant increase in corporation tax receipts in 2015 and 2016. At the end of November this year, receipts were of the order of €380 million or €390 million, or 5%, ahead of target. Over the course of this month we will see the final figure for the year. Aside from that general comment, I cannot talk about individual cases.
Colm Brophy (Dublin South West, Fine Gael)
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Departmental officials will appear before the committee on 16 January 2018. I forgot to ask one question about the local property tax before we concluded our discussion on it. With regard to the movement of the local authority mean up or down, Revenue indicated earlier this year that there could be an increase because 11 local authorities had raised the rates.
How does that compare to the number of local authorities which actually raised the rates of LPT in previous years?
Mr. Keith Walsh:
Twenty local authorities have stated they are not going to make any change next year, while 11 have stated they will either increase or decrease the rates. Among the 11, the four local authorities in Dublin will be maintaining the lower rate and staying below the standard rate, while the other seven will be increasing their rates by various amounts up to 10%. On average, we think there could be a marginal increase of perhaps €2 million or €3 million.
Josepha Madigan (Dublin Rathdown, Fine Gael)
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How many local authorities increased the rates in previous years?
Josepha Madigan (Dublin Rathdown, Fine Gael)
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I thank the delegates for attending.