Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

I will answer the last question first. The submission period is closed. It was open for two weeks and was extended for a further week. It was on the Department's website and was also in the media. A total of 12 submissions were received.

My proposal is designed to clarify the background to the local property tax, LPT, and its purpose and to note that a review of the tax is currently under way at the instigation of the Minister for Finance. The introduction of the LPT in 2013 was the largest extension of self-assessment in the history of the State, with more than 1.3 million taxpayers obliged to file LPT returns and pay the tax in respect of around 1.9 million properties. The LPT is producing a stable revenue yield for local authorities, although both yields and tax rates are modest by international standards.

The charging structure for LPT is progressive. The basic rate of 0.18% applies up to property values of €1 million, with a higher rate of 0.25% applying on the portion of value above the €1 million threshold. In addition to the progressive rate structure, and to the extent that those with higher income or wealth tend to own properties with higher values, the LPT is a progressive tax particularly over the life cycles of taxpayers.

From 1 January 2015, local authorities have had discretion to vary the LPT rates by plus or minus 15%. A number of local authorities have exercised this option. By the end of 2017 and since its inception, LPT has contributed over €2.2 billion to the funding of local authorities. The introduction of the local property tax fulfilled the objective of broadening the domestic tax base and replacing some of the revenue from transaction-based taxes with an annual recurring property tax. In the past, there was an over-reliance on transaction-based taxes and we know only too well how that dependence proved to be an unstable source of Government revenue when the financial crisis impacted. In contrast, international experience has demonstrated that property taxes provide a secure and stable source of funding. Stability needs to be the cornerstone of our public finances now and into the future. In that context, it is therefore surprising to hear proposals from some Opposition benches for the abolition of the local property tax.

Another positive feature of the local property tax is that it enables us to achieve our goals in a way that does not directly impact on employment. The Government has a strong record in the area of job creation and is determined to do everything in its power to protect and support the creation of jobs. The local property tax, as a measure which is a tax on assets, not employment, should not adversely affect job creation. In respect of ability to pay, the LPT legislation has a number of features providing that in certain circumstances one can defer or partially defer the payment of one's local property tax. Deferral arrangements are available where there is an inability to pay and certain specified conditions are met. A qualifying person may opt to defer, or partially defer, payment of the tax. Where a person qualifies for a full deferral then 100% of the liability can be deferred. Where a person qualifies for partial deferral, then 50% of the liability can be deferred. The balance of 50% of the tax must be paid. There are a number of conditions that must be met to qualify for a deferral. In the main, the income of the individual must be below €15,000 for a full deferral and below €25,000 for a partial deferral. Thresholds of €25,000 and €35,000 apply for couples. These thresholds can be increased by 80% of gross mortgage interest payments.

The LPT is an annual self-assessed tax charged on the market value of residential properties. The Revenue Commissioners are responsible for the administration, collection, enforcement and audit aspects of LPT. The property valuation must be determined on a specific valuation date and forms the basis for the LPT charge until the next valuation date. The first valuation date for LPT was 1 May 2013 and the valuation of a property set on that date remains valid until 31 October 2019. The 1 May 2013 valuation is not affected by any subsequent improvements or extensions to a residential property. Likewise, where a property is sold during the valuation period, and the value of the property has increased, there is no additional liability to LPT providing the initial 2013 valuation was accurate.

The local property tax is now well established as a significant element of our taxation system. It is important that its position is maintained, as research and experience internationally consistently show that taxes on immovable property are among the taxes that are least detrimental to growth. The introduction of the local property tax provided an opportunity for political reform at local government level. The local property tax will provide a stable funding base for local authorities and it can be altered into the future. This is a positive reform in local democracy whereby funds are ring-fenced for local authorities.

Because of its importance, in 2015, only a matter of two years after its introduction, the Minister for Finance asked Dr. Don Thornhill to conduct a review of the operation of the local property tax, in particular any impacts on LPT liabilities due to property price developments over recent years. Dr. Thornhill had chaired the interdepartmental group on the design of a local property tax in 2012. Dr. Thornhill’s central recommendation was for a revised system whereby a minimum level of LPT revenues in each local authority area would be determined by Government, ideally having regard to the apportionment between local authority areas of the historic yield. This in turn would allow for the estimation of LPT rates for each local authority area and the application of these by taxpayers and Revenue. Local authorities could adjust this rate upwards by a factor of up to 15%. The new system was recommended by Dr. Thornhill with a possible interim deferral of the next valuation date until November 2018 or November 2019.

Following this review, in 2015 the previous Minister for Finance proposed to Government that the revaluation date for the LPT be postponed from 1 November 2016 to 1 November 2019.This postponement meant that homeowners continued to have their homes valued for local property tax purposes on the basis of their 1 May 2013 declared valuation, and so were not faced with significant increases in their local property tax in 2017, 2018 and 2019 as a result of increased property values. Local property tax liabilities for 2019 will also be based on the 2013 declared valuations and, again, homeowners will not see increases in their local property tax liabilities for 2019. If there was no change, the valuations of properties on 1 November 2019 would be the basis for calculating local property tax liabilities in 2020 and beyond.

The Finance (Local Property Tax) (Amendment) Act 2015 gave effect to the postponement of the revaluation date of residential property for local property tax purposes and to two of the recommendations in Dr. Thornhill’s report, involving local property tax relief for properties affected by pyrite and relief for properties occupied by persons with disabilities. Among these recommendations is that local authorities be more engaged in supporting the Revenue Commissioners and that they provide the public and individual households with programmatic and other useful information on how they spend the public funds available to them and the proportionate contribution made by the local property tax.

The local property tax was designed on the principles of equity, transparency and simplicity. Under the local property tax, a liability applies to all owners of residential property with a limited number of exemptions. Limiting the exemptions available allows the rate to be kept to a minimum for those liable persons who do not qualify for an exemption. I note that the motion in the names of 12 Fianna Fáil Senators mentions the possibility of extending some relief from the local property tax for those in multi-unit developments paying significant management charges. There is no specific relief from the local property tax for the payment of such management fees. Issues such as ability to pay are addressed through a system of deferrals, subject to meeting the qualifying conditions. Those individuals who are liable for management fees to property management companies may be exempt or eligible for relief from the local property tax for another reason, or may be entitled to avail of a deferral arrangement under the provisions contained in the legislation. However, it must be noted that generally, properties in managed estates to which such fees apply would have been purchased by their owners in the knowledge that they would be taking on commitments to partake in and to fund the management of the estate, and that it was the intention that many such estates would not be taken in charge by local authorities, nor would it be appropriate for local authorities to do so. Management fees in these estates may, in some instances, include services such as refuse collection, maintenance of common areas and a sinking fund for certain repairs to the buildings. These are costs which homeowners in many other developments would have to fund themselves for their own properties. An exemption for apartment dwellers as suggested would, therefore, be unfair.

Local authorities provide a broad range of services in the public realm, the proper functioning of which are important for the well-being of every community and household. These include fire and emergency services, road maintenance and cleaning, street lighting and spatial and development planning. The net issue is that the local property tax applies to everybody, no matter where one lives. Irrespective of the position in which some people find themselves in owning property in managed estates, it is not envisaged that there would be a special category or a special exemption for them. That is not the position of the Government.

I note also that the motion as tabled contends that "Fine Gael wrongly diverted 30 per cent of the revenue in 2014 to Irish Water" While all local property tax receipts went into a single fund, that is, the Local Government Fund, it would not be correct to say that local property tax paid for Irish Water from the fund in 2014. The general purpose grant declined from €640 million in 2013 to €281 million in 2014, a fall in excess of €359 million. The Government decided in the context of budget 2014 that the former water-related elements of general purpose grants should continue to contribute to the water services costs that were previously met by local authorities. The funding provided to local authorities for the provision of water services from 2014 is governed by service level agreements between Irish Water and individual authorities and, therefore, the local authorities are no longer in receipt of funding for water services costs directly from the Local Government Fund. Instead, the fund provided a subvention to Irish Water in 2014 of €439 million. The Government does not accept the assertion made in the motion on the diversion of funding to Irish Water and, therefore, must oppose it. Also, the motion does not acknowledge that a review of the local property tax is already under way, which will report in late summer. The Minister for Finance considered it important that the Government was able to make its position clear on the local property tax so that households will be aware of its plans well in advance of the November 2019 revaluation date, and the associated local property tax liabilities in 2020 and beyond. The Minister further considered that it is essential that the principle that formed a central part of the terms of reference for the 2015 review of the local property tax, that is, achieving relative stability in local property tax payments of liable persons, both over the short and longer terms, will inform consideration of this matter.

Some local authorities have increased or decreased the local property tax. The Dublin local authorities have decreased the local property tax but while they did so, they still applied to the Government for other grants. The best example to give is sports capital grant applications. All of the local authorities received large chunks of money for sports capital projects at the same time as they decreased a funding stream. I was a Member of this House and of the other House when both Houses had to go through carnage during a difficult economic period because of a chipping away at the tax base over a period of time. Making the tax base too narrow and chasing transaction taxes was an error. We were the only EU jurisdiction that did not have a property tax. Perhaps they were all wrong and we were right, or else it is the other way around. I suggest it is the other way around. We collect approximately €500 million through the local property tax. Within the overall amount of €50 billion, it is a small quantity of money. We have a lot of other taxes that bring in an awful lot more money than the local property tax does, which have no consideration for ability to pay. Car tax has no consideration for somebody's ability to make the payment. The local property tax does not either. We can extend this further to income taxation. I know people who have properties with very large mortgages, and while they chose to take out a large mortgage, they are stretched to the limit. They pay 50% tax on all of their income, multiple times more than the local property tax. Ability to pay is not taken into consideration.