Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I welcome the opportunity to contribute to the Second Stage debate on the Finance (Local Property Tax) (Amendment) Bill 2013. It is little surprise to me and to many colleagues in this House that just two months after the property tax legislation was rushed through the Dáil and the Seanad, we are here debating an amendment Bill to it. The original legislation was unsatisfactory for a number of reasons, not least the fact that it was rushed through the Oireachtas, and a number of deficiencies have subsequently come to light. During the debate last December on the property tax Bill itself, the Opposition tabled 88 amendments but none was accepted by the Government. In fact, only three hours were allowed for the Committee Stage debate on one of the most important pieces of legislation this Oireachtas will consider in this term. Today, the Government is attempting to right some of the obvious wrongs which have been identified in that legislation. I will try to deal with some of these but first I would like to say a few words about the economic, social and political context in which this tax is being introduced.

Even with the passage of this Bill, the property tax will remain a deeply unfair tax which will disproportionately hit low and middle income families. In his opening remarks, the Minister accused some of us on this side of the House of having forgotten commitments made by the previous Government to the troika but we have not forgotten them at all. The Minister does not like to be reminded of the Fine Gael manifesto, which Fine Gael put before the people two years ago in the election and campaigned on that basis. The Minister made the point very clearly at that time that an annual recurring residential property tax on the family home was unfair and that what would be viewed as fair in south Dublin might be viewed as unworkable in rural Clare. I am sure some of the Minister's colleagues sitting behind him might agree with that. He went on to say that in this context, Fine Gael would empower local authorities to put in place, following the 2014 local elections, a number of alternatives which would include local user charges for waste and the option of a site sale profits tax and that all of these options would be fairer and more economically sensible than an annual recurring property tax. That was the Fine Gael position going into the election and the memorandum of understanding had been published a number of months earlier. Those are the facts and they must be put on the record.

The Labour Party took a different position. In the election two years ago, it accepted that there was a need for a site value charge but it went on to state that it must be done on a fair basis which takes account of the value of property in different regions, which this tax does, the need to exempt some categories of home owners and the need to take account of those who paid large sums in stamp duty or who are in negative equity and that any charge of this sort, therefore, could not be put in place before 2014. That is the political backdrop in regard to Fine Gael and the Labour Party. It is absolutely clear that neither party has a mandate to introduce the property tax in this form, notwithstanding the commitment in the memorandum of understanding to introduce a site value tax during the course of the programme.

The backdrop for introducing this tax has worsened over the past two months. Yesterday, we got new figures from the CSO on the housing market. The data point to a housing market that is quite literally moribund. House prices have fallen in the past two months nationally, bringing a halt to what appeared to be a small recovery in prices. The small move up in prices towards the end of 2012 seems to have been entirely driven by a rush to avail of mortgage interest relief before its abolition for first-time buyers. House prices are approximately 50% lower than their peak level in 2007, with prices in Dublin recording the biggest drop at 54% below peak levels and apartments down a staggering 61%.

We all acknowledge that some recovery in the level of housing transactions is key to the recovery of this economy. The Government implicitly accepted this when it introduced, over the past couple of budgets, a range of measures designed to stimulate the sector, including the capital gains tax relief for properties purchased before the end of 2013. However, to date, these measures are failing to lift the market in any meaningful way. Only 8,500 new homes were built in 2012, down 20% on the previous year which was itself the lowest since data were first recorded in 1970.

We saw from the quarterly household labour market data that, notwithstanding the modest overall improvement in the number of people at work, which is to be welcomed, employment continues to contract in the construction sector. The introduction of a property tax is likely to delay any recovery in the housing market and by extension, further damage the domestic economy.

Yesterday, during parliamentary questions, I emphasised the issue of ability to pay and the need for the Minister to revisit, at a minimum, the income thresholds within which people will be entitled to get a deferral of this tax. When one breaks it down on a per week basis, an individual earning anything more than €288 per week - aside from the mortgage issue, to which I will return - will not be entitled even to a deferral. A family on €480 per week gross will not be entitled to defer this tax. Those thresholds are ridiculously low and need to be revisited. I hope the Minister intends to do so on Tuesday when we return to this issue.

Last December, I took issue with the Minister's contention that the property tax was fair, progressive and that the wealthiest would pay the most. That is simply not the case. It is the case if one measures wealth as the gross value of the property but that is not the measure of wealth. It would be one thing if the Minister allowed the value of the mortgage to be off set because then it would be a net asset with which one was dealing. However, this tax takes no account whatsoever of the income profile of the household. That is one of the fundamental weaknesses and flaws running through this entire proposal.

Houses do not represent wealth in Ireland today. For most people, they represent debt. An annual property charge is essentially designed to be a form of wealth tax. In the current Irish mortgage situation, it would, in a great many cases, be a tax on debt. The reality for many people is that their home is no longer a store of wealth as its value has fallen massively in recent times. According to a recent report by Davy stockbrokers, more than 50% of residential mortgages are in negative equity, including the majority of those taken out since the turn of the millennium. Imposing a recurring tax on an asset which has a negative net worth in circumstances where people have no option to dispose of the asset is fundamentally unfair and will have a disproportionate effect on people who bought their houses when prices were at their highest.

The Government intends to raise up to €0.5 billion from this tax in a full year, but has not provided any meaningful exemptions from the tax. It will hammer those already struggling to keep the household finances in the black.

This is not the right time to land people with such a deeply unfair, hefty charge on the family home, particularly in light of the spiralling mortgage arrears crisis which we have debated many times in this House, including yesterday. As the Minister knows, the most recent data on residential mortgages shows that 86,000 residential mortgage accounts were in arrears of over 90 days at the end of last September. That is an increase from 81,000. These borrowers collectively owe over €15 billion. The upward trend in arrears has slowed marginally, but getting worse more slowly is not the same as getting better. In fact, when one probes those details a little further, one finds that approximately 45,000 residential mortgages are now in arrears of more than 12 months and almost half of those have not been paid for two years. The reality is that many of those mortgages will simply not be regularised without being fundamentally restructured.

In fairness, I believe struggling mortgage holders have an ally in the Governor of the Central Bank, Patrick Honohan. He has been vocal in calling for more action to be taken. In a recent interview on "The Week in Politics" programme, he said that Central Bank officials were literally tearing their hair out at the lack of progress in dealing with mortgage arrears. While his intentions and, I believe, the intentions of the Government are clearly good, what we need now more than anything is action from the banks, because when the mortgage arrears data is examined in more detail it shows that, by value, almost 30% of residential mortgages are either in arrears or have been restructured. Hitting these households at this time with an additional charge risks driving them deeper into financial difficulties. People who are 188 days or more behind in their mortgage payments are most likely to be unable to pay any form of house tax.

Not only can people not afford this tax, but the tax will also suffocate further a property market that is on its knees and reduce domestic spending, thus damaging the domestic economy. Elderly people living in properties they worked hard to own and in which they raised their families are now being driven out of them by an onerous tax on the very homes they committed their working lives to build.

Yesterday, I told the Minister that I deal with a number of individual mortgage cases. I will bring two examples to his attention now. They involve people who contacted me with regard to the property tax. Both cases involve people who bought their properties at or close to the peak of the market. One couple got a mortgage of €270,000 from the bank in 2006 to buy their house. Both were working in the public sector. The bank stretched their repayment capacity to such an extent that it advised the couple to go on interest-only repayments for a period of two years. That was at the start of the mortgage term, when the couple were borrowed to the hilt. The couple managed to keep up the interest-only payments for the following two to three years. In 2009 and 2010, however, the cutbacks in the public sector began to affect them and they ran into difficulty with their mortgage. They were allowed to remain on interest-only repayments for a period of time. One of them became quite ill, is unable to work at present and might not be able to work for some time to come. The other person has suffered a dramatic drop in their wages.

The couple are now paying approximately €500 per month towards their mortgage when they should be paying well over €1,000 per month, if they were paying both interest and capital. They are a very solid couple. They do not drink or smoke. That is the reality with which they are living. Under the Minister's proposals I believe they will be entitled to a deferral up to 2017, but he is not giving them a permanent or indefinite deferral. It is a time limited deferral and carries a penalty interest rate of 4%. I realise it is simple interest, not compound interest, but it means the liability will increase.

The second couple I am dealing with bought a property for €330,000 at the peak of the market. Again, they were a very prudent couple. They had saved a large amount of money and got help from their families. They took out a mortgage of only €240,000. However, they are now only able to pay a little over €100 per month on their mortgage. One of them is not working at present due to illness and the other person is now self-employed, having lost his job, and trying to make ends meet. How will these people be able to pay a property tax for the foreseeable future? I do not believe they will be able to pay it. Exemptions should have been given to people who are in genuinely difficult circumstances, where the capacity to pay this tax simply does not exist.

There is also the issue of unfinished estates. The Minister for the Environment, Community and Local Government, Deputy Phil Hogan, is drawing up a revised list of unfinished estates which will be exempt from this property tax. However, I understand the list will be quite different from the list of unfinished estates which were exempt from the household charge. In briefings given by some local authorities to councillors, the councillors were advised that a far more forensic approach will be taken to identifying not just the estates but also the houses within the estates that should be exempt. What appears to be proposed is that if one is living in a house between Nos. 1 to 20, and the entrance to the estate is finished, the street light is working, the footpath has been completed and there is a bit of grass across the road, one will have to pay the property tax. However, if one is living in a house between Nos. 21 to 40 and that part of the estate is not finished, one will qualify for an exemption. That appears to be what is envisaged. Those are the directions, as I understand it, the Department of the Environment, Community and Local Government has given to local authorities, because that is what the authorities have conveyed in briefings for the councillors. Even within unfinished housing estates, therefore, people who have had the misfortune of buying in estates where the developers have gone bust, the estates have not been finished and the bonds could well be lodged with IBRC and are now valueless, will now have to pay the property tax. When the list of estates and the list of the house numbers within each estate are produced, there will be a great deal of trouble. The Minister will have to be careful about how he addresses that issue in the next few weeks.

I will now discuss some of what is contained in this amendment Bill and, equally important, what is not contained in it. With regard to the powers of the Revenue Commissioners, the amendment being introduced to give the Revenue Commissioners the power to defer property tax payments for people who have suffered a significant and unexpected financial loss or expense is nothing more than a fig leaf. It is a sham to deflect attention being focused on the lack of fairness inherent in the legislation. The briefing supplied with the Bill states that the deferral cannot commence until the Revenue Commissioners have received from a liable person whatever information and documentation they require to make a decision and, having made that decision, notify the liable person that a deferral is allowed. In practical terms, we have no idea how many people might qualify for this deferral. I suspect that it will be such a convoluted and difficult process that many people who deserve to have such a deferral will not be given the relief because they will simply be deterred from applying. The chairperson of the Revenue Commissioners recently appeared before the Committee of Public Accounts and made it clear that what is not involved here is people who are struggling each week to make ends meet and pay their bills. What is envisaged in this amendment is people who experience a sudden and unexpected shock in their lives which results in financial distress. It does not deal, in a genuine way, with the issue of ability to pay.

It is difficult to believe that the Minister set out to make the tax even more unpopular than it already was, but he certainly appears to be doing that based on the additional reporting requirements provided for in the legislation. I listened carefully to what he said about the obligation on the purchaser of a property to report to the Revenue Commissioners in a situation where there has been an under-declaration by the previous owner. He made the point that this protects the purchaser from having to deal with any legacy liability on the property. There should not be a legacy liability for the purchaser of a property who purchases a house in those circumstances. If the vendor has under-declared the valuation of the property over a number of years, the liability should rest with the vendor. The Revenue Commissioners have extensive powers and they are well able to pursue the vendor for that. There should not be an onerous requirement on the new purchaser to report that issue to the Revenue Commissioners.

In addition, the powers given to the Revenue Commissioners in the original legislation to deduct the property tax from weekly welfare payments, a person's payslip or, indeed, to execute a direct deduction from somebody's bank account will cause enormous problems. For many people who genuinely cannot afford to pay the tax, the Revenue Commissioners will be dipping into bank accounts that are already overdrawn or in the red. They will have to intervene in that way.

I welcome the concession granting a three year exemption to houses affected by pyrite.

In my view, the Minister must go further. People living on estates affected by pyrite whose houses are not themselves affected do not receive an exemption. In most cases, those people will be unable to sell their houses as no bank will provide a mortgage to a prospective purchaser in such circumstances. The cost of proving pyrite damage may be prohibitive even though a visual examination would show its obvious presence.

The Minister has granted a limited exemption to charities including scouting and girl guide associations which provide weekend-type accommodation to their members. This is welcome. Charities fulfil an important societal need, particularly at the present time. Their State funding has been cut and donations are well down. The exemption in the original Bill is only for charities that use properties solely or primarily to provide special needs accommodation. Special needs accommodation is defined as "accommodation provided to persons who by reason of old age, physical or mental disability or other cause require special accommodation and support to enable them to live in the community". The definition is potentially too narrow. We would appreciate if the Minister could clarify whether it is intended that the exemption will also apply to persons with special needs whose accommodation is of a type which could not be considered to be in the community. Examples include the accommodation of very vulnerable people such as those living in Stewarts Hospital, which assists people with a range of intellectual disabilities, some of whom can interact with the community and some of whom cannot. Other examples include the facilities attached to Crumlin Children's Hospital in Ronald McDonald House and the accommodation at Temple Street Children's Hospital for the parents of very sick children. We are concerned that these facilities may not meet the definition in the legislation. A requirement to pay the property tax would place an unfair burden on the providers of these services.

If the property tax is to work in practice, it is essential that a clear and detailed guide to valuation is provided to underpin compliance and ensure property owners pay the appropriate level of tax. In reality, the Revenue Commissioners will say one's house has a particular valuation and it will be up to one's self to show that it is worth less than that, if it is. The cost of a professional valuation is likely to be prohibitive and in many cases people will simply give in and pay the Revenue Commissioners' assessment. Consumers often complain, for example, about the high valuation for VRT purposes imposed by the Revenue Commissioners in respect of imported cars. The economist Ronan Lyons has suggested this could be avoided if people were given a tax credit to have their homes assessed by a qualified professional working to a standardised national checklist, as happens in the BER scheme. This scheme would provide the Revenue Commissioners in the first year with the necessary information on dwelling type, size, age, location and other factors affecting value in order to perform meaningful auditing. The newly established property price register does not assist in this regard as it contains none of the property characteristics required to assess value. The register will be of limited use to most people in determining their liability under the taxation regime.

The Bill represents a missed opportunity. It is Fianna Fáil's genuine view that this is not the right time to introduce a tax on family homes. We published alternative proposals which would have raised at least as much revenue in 2013 as the property tax. Given that the Government has enacted the primary legislation required to introduce the tax, it will rue the opportunity it has missed with the Bill before the House now. The Government could have established a much fairer basis for the charge if it had adopted some of the measures Fianna Fáil proposed. It is not too late. Committee, Report and Final Stages take place next week and we have tabled, as have other Opposition parties and groupings, amendments which will make the tax fairer and help to achieve a greater degree of public acceptance.

In the next couple of weeks, the Revenue Commissioners will start to issue letters to householders nationally. People are very fearful. An elderly man called my office the other day to express his fear that he would lose his home because he is not able to pay the property tax. While we reassured him that will not be the case, it is a measure of the fear and anxiety that exists. People are genuinely finding things tough, as the Minister knows well. The thresholds he has set for a deferral are miserly and need to be reviewed. I do not know when was the last time a Cabinet member tried to live with his or her family on €480 a week. Half of that sum will be spent on essential groceries alone, with a further requirement to pay for electricity, gas and other essential household bills, before one even considers the mortgage. The thresholds must be revised. While the Minister is clearly not going to reverse the decision to introduce the tax, he could certainly make it far more palatable and fair than is provided for currently. I hope that in the debate on Tuesday some of the amendments that have been proposed will be accepted.

See this speech in context