Phil Hogan (Carlow-Kilkenny, Fine Gael)

Its collective amnesia is astounding. Is this not the same Fianna Fáil Party which was in government from 1997 to earlier this year when all of these issues were apparent but nothing happened? What did it do when it was in government to ease the pressures on small and medium-sized businesses? What changes in the rating system did it deliver? Why has the rating system suddenly become not fit for purpose since the turn of the year? The issues are the same now as they have been for years during which nothing happened, but the Government will change this.

Since the abolition of property tax and agricultural and residential rates in 1977, the pressure has always been on the small business sector and businesses generally to balance the books on behalf of local authorities. This was a very bad decision and a very bad mistake which was made for political reasons. I emphasise that the Government is acutely aware of the pressures on many businesses and the challenging economic environment in which many property and business owners operate and which the Government inherited. In this context, the Government is focused on reducing the cost of doing business to support competitiveness and employment in the economy generally and protect the interests of local communities.

As Deputies are aware, local authorities are under a statutory obligation to levy rates. Rates must be levied on any property used for commercial purposes, in accordance with the details entered in the valuation lists which are prepared by the independent Commissioner of Valuation under the Valuation Act 2001. The levying and collection of rates are matters for each individual local authority. The annual rate on valuation which is applied to the valuation of each property as determined by the Valuation Office to obtain the amount payable in rates is decided by the elected members of each local authority in annual budgets. Its determination is a reserved function of a local authority.

As stated in the amending motion, rates income is a very important contribution to the cost of services provided by local authorities. Rates income contributes to the provision of services such as roads, water, fire services, public lighting, development control, parks and open spaces. The continued provision of these services is essential in creating and maintaining the local environment in which business can operate and prosper.

The factors that influence local authority members' decisions on the annual rate on valuation include the level of services they wish to provide in the local authority area and the income required from all other sources to fund these services. Therefore, elected members adopt the annual rate on valuation they consider necessary to provide the range of services for the communities, including businesses, in their area. Local authorities have responded positively to requests by the Department and me to exercise restraint in recent years in setting commercial rates. Annual rates on valuation reduced in 2010 and again in 2011, although not by enough to take account of the present economic and financial climate. All commercial rates are collected and spent locally on essential public services. This is local democracy in action.

The Commissioner of Valuation who has sole responsibility for all valuation matters is conducting a programme of revaluation of all commercial and industrial properties throughout the State. The aim of the programme of revaluation is to provide up-to-date valuations for properties subject to local authority rates. It is an important programme, especially given the significant changes in values and rents in recent times in the context of the economic downturn. The revaluation process is the mechanism whereby economic changes in the market are reflected in the valuation lists and, ultimately, individual ratepayers' rates bills.

The purpose of the revaluation is to redistribute commercial rates liabilities among ratepayers based on up-to-date property values. Following revaluation, there will be a much closer and uniform relationship between rental value and commercial rates liability and this relationship will be maintained by means of recurring valuations to be carried out under the provisions of the Valuation Act 2001.

The Government is aware that the roll-out of the revaluation programme has been much slower than anticipated. However, unlike the previous Government, we are going to do something about it. The Commissioner of Valuation, in consultation with my colleague, the Minister for Public Expenditure and Reform, Deputy Howlin, has been reviewing various options for streamlining the valuation process and speeding up the national revaluation programme in the interests of both ratepayers and the local authorities. Any changes will require amending legislation and the Minister, Deputy Howlin, intends to bring proposals for a valuation Bill to the Government shortly.

It is important to acknowledge that commercial rates, as a local tax, and the rating system generally are deeply embedded in the local government system. A large body of case law is well established and local authorities and ratepayers are, in the main, very familiar with, and generally accepting of, the operation and practice of the rating system. Rates are also a stable source of financing for local government which is not affected unduly by short-term changes in economic circumstances.

A property-based tax such as rates has a distinct advantage over any tax based on profits or incomes as it is generally found to be easy to collect and difficult to evade; people can move but property cannot. The success of rates as a tax is in no small part due to the ease with which the liable person can be identified. A system having regard to economic factors on an ongoing basis would create uncertainty by providing for continuous change to the valuation base. Such a system would not provide a stable basis for funding local government and would require significant additional resources to operate.

While commercial rates provide an important contribution to local government funding, the Department also provides local authorities with significant resources from central government grants and subsidies. General purpose grants from the local government fund of €790 million have been allocated to local authorities in 2011. These resources have assisted in reducing the overall burden that would otherwise have been placed on commercial ratepayers.

It is recognised that the existing revenue base of local authorities is too narrow by international standards. This was a consideration in the introduction of the €200 charge on non-principal private residences in 2009. While the non-principal private residences charge represents a dedicated source of funding for local authorities which is relatively stable, it does not go far enough in addressing the imbalance in the sector's financing. A proper broadening of the revenue base for local government will be achieved as a result of the introduction of the household charge in 2012 and the subsequent property tax in due course. The €100 charge to be levied on the majority of households in the State is in accordance with the requirements of the EU-IMF programme of financial support for Ireland. The household charge which has the potential to contribute up to €160 million towards the provision of local services is an interim measure and proposals for a full property tax will be developed and considered by the Government in due course. It will provide a more meaningful base of financial support for local government and ease the pressure on the commercial rate paying sector.

The Government is not solely focused on the funding of local government. I am also concerned to ensure local government delivers the services our communities expect as efficiently and effectively as possible. I agree with Deputy McGuinness that much work can be done to reduce the burden on commercial rate payers and make possible a more effective and efficient delivery of services at local level.

I am determined to ensure local authority cost bases will continue to be rigorously examined and reduced to maximise efficiencies which, in turn, will impact positively on business. The realisation of the savings and other efficiencies identified in the local government efficiency review report will involve implementation over a focused and achievable timescale. In May I established an implementation group with an independent chairperson, Mr. McLoughlin, who has business expertise to drive and oversee the implementation of relevant prioritised recommendations of the report of the review group. The group is focusing on key recommendations in areas such as shared services, procurement, ICT and human resources that will remove costs and yield early financial savings for the local government sector. It is preparing its first report on progress since its first meeting in June and I look forward to receiving it by the end of the month and examining the assessment of progress made to date. This work must take account of the reduction of more than 6,500 staff in local authorities in recent years, well ahead of any other area of the public service. This is the biggest single contributor to efficiency and productivity.

The Government's commitment to align the community development sector with local government will also see an expanded role for local authorities in local enterprise and community development. This, in turn, will maximise the impact of investment to produce jobs at a local level. My Department will continue to work with the County and City Managers' Association to identify best practices in the local government sector in building stronger sectoral approaches and eliminating variances between local authorities.

While there can be no doubt that these are difficult economic times for many businesses, Deputies will appreciate that local authorities play, and must continue to play, a central role in delivering local services at a local level. Local authority capital and current budgets, economic planning and development, and the provision of goods and services, as well as community infrastructure, feed into the communities that they serve.

Local authorities have an important role in providing support both for the retention of existing jobs and the creation of new employment in their areas. There are many ways in which local authorities are being proactive in this regard. For example, business support units in each county and city council are providing a focal point for business and enterprise to engage with the local government system and smooth their path in setting up and managing businesses. This Government will continue to impress upon local authorities the need to continue measures to enhance efficiency with a view to minimising rates and charges for business.

Significant progress has already been made on a range of work on local government reform and the development of local government structures in accordance with the programme for Government. As regards structural reform, I announced a Government decision, on 28 June 2011, to create a single local authority to replace Limerick city and county councils with effect from the local elections in mid-2014. In addition, the Government decided to establish a unified county council in Tipperary also with effect from the next local elections. These are examples of some of the work that is going on to reduce costs and ensure synergy between the services that local authorities provide.

I have established a local government committee under the Local Government Act to consider whether the creation of a unified authority in Waterford would be desirable. These measures are being progressed ahead of more comprehensive policy proposals which I intend to bring to Government in relation to local government structures at regional, county and sub-county levels.

I have outlined to the House the details of this Government's achievements within a short period, which focus on the sustainable development of our local government sector well into the future. I want to assure Deputies that I will continue to keep all matters relating to commercial rates, local government funding, and a new system of valuation under review.

The ineptitude of previous Administrations in the management of our economy has placed many small and medium size businesses in an unenviable position. This Government will not be found wanting in trying to deal with these issues and putting them right.

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