Joe Costello (Dublin Central, Labour) | Oireachtas source

I thank Senator Thomas Byrne for tabling this Adjournment matter. The introduction of the local property tax will deliver significant economic and fiscal reform through broadening the revenue base to pay for vital public services in a manner that does not directly impact on employment. It will be fair and progressive, with the owners of the most valuable properties paying the most property tax.

In February 2012, the Minister for the Environment, Community and Local Government established an interdepartmental group under the chairmanship of Dr. Don Thornhill, the Thornhill group, to consider the structures and modalities for a full property tax. The group's terms of reference were to consider the design of a property tax which is equitable and is informed by previous work and international experience.

The Government accepted the greater part of the 18 core recommendations made by the group on the policy and administration of the tax, including its recommendation that the basis of assessment for the tax should be the market value of residential properties, based on the following considerations. Previous work of commissions on taxation from 1982 to 1985 and 2009 recommended market value as the basis of assessment. With regard to international experience, market value is the predominant means of assessment where property taxes exist. Market value is simple, better understood, transparent and has greater scope for public acceptance, as shown by its wide use. It is equitable as it comes within the ordinary understanding of what is fair, and while other options such as site value tax arguably are more economically efficient, this is at the cost of simplicity, transparency, equity and public acceptance. The market value of a residential property is related to the characteristics of the building itself, the site on which it is located, and the characteristics and amenities of the neighbourhood. There will be a relationship between the market value of a house and benefits to the owner in terms of enjoyment of the amenity value of the property.

The Thornhill group examined the issue of broadly similar residential properties which have different chargeable or market values because of their location, with values usually higher for urban properties. Having regard to its term of reference to "ensure the maximum degree of fairness between rural and urban areas", the Thornhill group considered whether a tax assessed on market value would unfairly discriminate against urban dwellers. Consideration was given to other bases of assessment, including floor area, site value tax, house type, or a combination of possibilities. These are detailed in the group's report.

All other options were found to have serious shortcomings. For example, if house type was used as a basis of assessment in urban areas, large terraced houses in affluent areas would incur lower tax liabilities than smaller detached houses in less valuable areas. Similarly, a large and valuable apartment with excellent amenities in a high-value urban area would be taxed more lightly than a modest rural detached house.

The site value option can lead to the same rate being applied to two different properties on similar sites. Its international use is low due to the high level of litigation associated with its usage. The application of a site value tax to properties such as those mentioned by Senator Byrne, namely, properties in the commuter belt of Dublin and particularly south County Meath, would not alleviate the cost for home owners in those areas. If anything, a liability based on site value would probably be greater than a liability based on present market value rates.

The Government also sees the introduction of this tax as an opportunity for real political reform at local government level. The local property tax will provide a stable funding base for the local authority sector, incorporating appropriate elements of local authority responsibility. This will strongly reinforce local democratic decision making and will encourage greater efficiency by local authorities on behalf of their electorates.

Providing local authorities with significant responsibility for raising local revenue has the potential to increase the level of oversight of local authority operations by the electors and thereby strengthen democracy at local level. It also facilitates a level of local decision making that can be used to address urban-rural variations in value. To that end, the local property tax legislation provides that, from 2015 after the next local elections, local authorities can vote to vary upwards or downwards from the national central rate by up to 15% so that they can more closely match the tax-to-expenditure needs and commitments in the local authority area in which it was collected.