Thomas Byrne (Fianna Fail)
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Gabhaim buíochas leis an Leas-Chathaoirleach as mo ábhar a roghnú ar an Athló sa Seanad. This matter is very important. There is huge unfairness with the property tax in general and this unfairness particularly manifests itself in the commuter belt in Dublin, particularly in areas of south County Meath. The property tax is based on a market value approach which does not take into account the fact that many of these houses have very high mortgages. While there is much emphasis on Dublin and Cork, last year in County Meath the average property in Dunboyne sold for ¤270,000 and the average property in Ratoath sold for ¤274,000. This puts both of these towns in the top 13% of average sale prices last year. The average house in Ashbourne sold for ¤220,000.

If one looks at the census to discover when houses were built one finds that 36% of houses in the Meath East constituency have been built since 2001. In Ratoath this proportion increases to more than 50%. A characteristic of houses built in the past ten years is a high mortgage. These people have high property values on paper but they also have high mortgages. While the Government is more than willing to take into account the high property value to claim a property tax, it is not taking into account the fact that almost all of these people to whom I refer are highly leveraged on mortgages. This should be taken into account. Nothing in the property tax takes into account ability to pay. Ability to pay is hampered even more for those in the commuter belt of Dublin by the fact they have large mortgages. The proposed property tax is inequitable and biased against many home owners in County Meath. I suggest the same applies in Senator O'Brien's area and in Kildare and north Wicklow.

There are also difficulties with valuing properties but we do have the property price register so we can have exact figures. The Government must look at this again. Another characteristic of commuter belt areas, particularly in County Meath, is underdeveloped county council services. People will pay these charges but will not receive the services they deserve because by and large many of these towns do not have town councils. They do not have their own dedicated staff looking after individual towns. People will pay the tax at a much higher rate than average but they will not receive the same services.

I am raising on the Adjournment this issue of huge unfairness because we did not have sufficient time on Second or Committee Stages of the Bill and I do not believe we debated Report Stage of this very important legislation. The Government will find itself surprised at the reaction of people to the property tax, particularly those with very high mortgages. As far back as 2009 I was quoted publicly in newspapers nationally as being opposed to a property tax for the reasons I have outlined today, which I told my friends and colleagues in government at the time. I made my position very clear.

I am not looking for the Minister of State to blame the previous Government for this tax. It is this Government's tax and I ask the Minister of State to make it fairer, particularly for those who bought houses in the past ten years who have very high mortgages and who happen to live in an area with theoretical high property values.

Joe Costello (Dublin Central, Labour)
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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.

Thomas Byrne (Fianna Fail)
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I have not argued that the site value tax would be fairer in the commuter belt. The Government suggested that households would be in a worse position under a site value tax, but that is not necessarily true. Sites in those areas are much smaller than sites in other areas. The Government's argument does not necessarily stand up, but I am not making the counterpoint.

There is no link in the Government's plans between property tax and mortgages. This fatal flaw will lead to hardship and unfairness for people with properties of high values and with large mortgages. They will struggle this year and will receive a big surprise when they receive their assessments. They will not stand for it. I call on the Government to reconsider and to devise a fairer tax and a fairer way to fund local services.

Joe Costello (Dublin Central, Labour)
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I will reply briefly. We are not likely to revisit the legislation at this point. It has already been debated and is due to come into application at the beginning of July. A decision was made on the present system of taxation, which will have the benefit of ensuring a regular supply of funding for local authorities. Those of us who were local authority members for many years found funding to be a major problem. This tax will allow local authorities to become real local governments for their areas.

We decided on this mechanism after a careful discussion on the Thornhill group report. One third of the country's dwellings were built after 2000 or thereabouts, which is not too far out of kilter with the situation pertaining in Dublin's commuter belt. Indeed, the situation in my constituency in the heart of Dublin is very much the same.

Difficulties arise in every system that we use. I take the Senator's comments on board and I will bring them to the Minister's attention.