Tuesday, 8 December 2015
Finance (Local Property Tax) (Amendment) (No. 2) Bill 2015: Second Stage
The local property tax was introduced in 2012 and was designed to serve a dual function. First, it provided a stable funding base for the local authority sector, incorporating appropriate elements of local authority responsibility. As such, it strongly reinforced local democratic decision making and encouraged greater efficiency by local authorities on behalf of their electorates. Second, it delivered significant structural reform through broadening the base for taxation in a manner which does not directly impact on employment. Accordingly, it contributed to meeting immediate financial requirements of the EU-IMF programme in place at the time of its inception. The local property tax has met this objective and has replaced some of the revenue from transaction-based taxes with an annual recurring property tax.
We know only too well how our reliance on transaction-based taxes proved to be an unstable source of Government revenue in the past. By contrast, international experience has shown that property taxes are a secure and stable source of funding. No one will deny that stability in its public finances is precisely what Ireland needs, now and into the future. Moreover, the local property tax enables us to achieve our goals in a manner which does not directly impact on employment. The Government has been steadfast in its determination to do everything in its power to protect and support the creation of jobs. As a measure which is a tax on assets, not employment, the local property tax does not adversely affect job creation.
Due to its importance, and conscious of the concerns of homeowners over increasing property prices and potential effects on their local property tax liabilities, especially in urban areas, the Minister for Finance asked Dr. Don Thornhill to review the operation of the local property tax and, in particular, any impacts on local property tax liabilities due to recent property price developments. Dr. Thornhill has a distinguished record of public service and chaired the inter-departmental group on the design of a local property tax in 2012. In his report, published on budget day, Dr. Thornhill made several recommendations. His central recommendation is for a revised system whereby a minimum level of local property tax revenues in each local authority area would be determined by the Government, ideally having regard to the apportionment between local authority areas of the historic yield. This, in turn, would allow for the estimation of local property tax 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%. This new system was recommended by Dr. Thornhill with a possible interim deferral of the next valuation date until November 2018 or November 2019.
In his 2016 Budget Statement, the Minister for Finance announced he would be proposing to the Government that the postponement of the revaluation date for the local property tax from 2016 to 2019. This postponement means that homeowners will not be faced with significant increases in their local property tax in 2017 as a result of increased property values. The postponement also gives sufficient time for the other recommendations in Dr. Thornhill's report to be considered fully by the next Government. It is appropriate the next Government, whatever its composition, is given the opportunity to deal with that report. The postponement of the revaluation date - alongside the publication of the report and the mandate the next Government will receive - provides the opportunity and the space in which that can happen.
The Bill will give effect to the postponement of the revaluation date of residential property for local property tax purposes. It will also give effect 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. The Bill provides for a relaxation, in certain limited circumstances, of the requirement for the certification of pyrite damage by a competent person for the purpose of local property tax relief. In addition, on reliefs for properties occupied by persons with disabilities, the changes being administered by the Revenue, under their care and management provisions, will be covered by this Bill, dispensing formally with a requirement that adaptions to property had to have been grant-aided by a local authority. Eligibility for local property tax exemption for properties occupied by incapacitated persons is being relaxed so that they will no longer, for example, have to have been the recipient of a court award or an award from the Injuries Board. Issues relating to the implementation of other recommendations in the Thornhill review report will be a matter for consideration by the next Government.
Section 2 concerns a minor technical amendment to section 3 of the principal Act to correct an omission in a cross-reference to the sections contained in Part 2 of the Act.
Section 3 amends section 8 of the principal Act, which relates to an exemption from the charge to local property tax for second-hand properties purchased during the year 2013 and occupied by the purchaser as his or her main residence. The section, as introduced, specifies the period of exemption as the liability dates in the years 2013 to 2015, inclusive, which dates correspond to the years 2013 to 2016, inclusive. The general rule, as contained in section 14 of the principal Act, for the treatment of properties exempt on a particular valuation date, is that they continue to be exempt until the following valuation date. As a result of the retention of the current valuation date of 1 May 2013 for an additional three years, the next valuation date will be 1 November 2019 instead of 1 November 2016. The amendment is required to change the reference in section 8 to the year 2016 to the year 2019 in line with the postponement of the next valuation date until 1 November 2019.
Section 4 amends section 9 of the principal Act, which relates to an exemption from the charge to local property tax for new properties purchased from a builder in the period from 1 January 2013 to 31 October 2019, the date immediately preceding the deferred valuation date of 1 November 2019. Again, this will bring the principal Act into line with the decision to postpone the revaluation date.
Section 5 amends section 10A of the principal Act, which relates to an exemption from the charge to local property tax for certain properties that have been damaged by pyrite. As recommended by Dr. Thornhill, this exemption is being extended to include some additional situations. Up to now, the exemption has been available for those properties that have been certified by a competent person, such as an engineer, as having significant pyrite damage following assessment and measurement in accordance with regulations made by the Minister for the Environment, Community and Local Government. Revenue is precluded from approving an exemption where a property owner has not obtained the required certificate of damage. Dr. Thornhill recommended the exemption continue on this basis. However, he considered it should be extended to certain properties which have been shown to have the required level of damage but which have not been certified by a competent person in accordance with the relevant regulations.
When the exemption was introduced, it was envisaged that all properties which would be accepted into the remediation scheme to be operated by the Pyrite Resolution Board, would undergo testing of the under-floor hard-core building material and certification of the level of pyrite damage. However, in some cases, the board can be satisfied that the property has the required level of damage without carrying out such testing to verify this. In the absence of testing, the certificate of damage completed by a competent person required by Revenue may not be available. For this reason, Dr. Thornhill recommended that evidence of acceptance into the remediation scheme be accepted by Revenue in lieu of this certificate.
Dr. Thornhill also considered that properties which are remediated as a result of a successful claim against an insurance company should be exempt. This could happen where builders have insured their properties against structural defects or where property owners have insurance policies which provide cover for structural defects. The rationale for extending this exemption is that an insurance company would only pay out on foot of a claim for the cost of remediating a property where it was satisfied that the presence of pyrite had actually caused significant damage to the property. A similar rationale underlies the recommendation that the exemption be extended to those properties that are remediated by the builder or property developer who built the particular property. It was considered that remediation, or the provision of the funds for remediation, would happen only where the builder was satisfied that the presence of pyrite had actually caused significant damage to a property. While builders may unilaterally volunteer to remediate a damaged property, remediation may also come about following the institution of legal proceedings against a builder or against the person who provided the building material containing the pyrite.
The changes are being implemented retrospectively. Accordingly, in the case of remediation by the Pyrite Resolution Board, the effective date will be the date of acceptance into the remediation scheme. In the case of remediation by insurance companies and builders, the effective date will be when the remediation has been completed and certified or when sufficient funds to carry out the remediation have been provided by the relevant party.This is about ensuring the people who were originally meant to benefit from the exemption can do so without having undergo too much bureaucracy while ensuring we keep the exemption targeted at those at whom it was originally targeted.
Section 6amends section 10B of the principal Act which relates to an exemption for residential properties that are acquired because of their suitability for occupation as a residence by certain severely incapacitated individuals or those properties that are adapted to make them more suitable for this purpose. Eligibility for the exemption depends on an individual being permanently and totally incapacitated, because of a mental or physical infirmity, from being able to maintain himself or herself. When this exemption was introduced, an incapacitated individual - I do not like the word "incapacitated" but it is the word that is used legally - was required to have received an award from the Personal Injuries Assessment Board or a court in respect of a personal injury or, alternatively, to be a beneficiary under a trust that was established specifically for the benefit of the individual. However, in practice, there are individuals who are permanently and totally incapacitated to such an extent that they are unable to maintain themselves and whose condition is so severe that it dictates the type of property they can live in and who would be eligible for the exemption were it not for the fact they have not received the required award or benefited from a public trust fund. For this reason, the Minister for Finance decided in May 2014 to relax these conditions. The exemption no longer depends on the receipt of an award from the Personal Injuries Assessment Board or a court or the establishment of a public trust fund for the incapacitated individual's benefit. Instead, the nature and extent of the individual's incapacity is established by the submission of relevant information to Revenue. The individual's doctor is required to provide information in relation to the individual's condition and why the particular property or adaptation was considered to be necessary. The Minister for Finance asked Revenue to implement this new procedure on an administrative basis until he had the opportunity to make the necessary legislative amendments. We are now proposing to make those legislative amendments through this section.
With respect to section 7, the Government agreed to the Minister for Finance's proposal to postpone the next valuation date for local property tax from 2016 to 2019 in line with a recommendation made by Dr. Thornhill in his recent review. The valuation date is the date on which property owners are required to establish the market value of their properties. Section 7 amends section 13 of the principal Act to retain the current valuation date of 1 May 2013 for an additional three years up to and including 2019. The next valuation date will be 1 November 2019 instead of 1 November 2016. This postponement means that property owners will not be faced with significant increases in their local property tax liability in 2017 as a result of increased property values since May 2013. It also allows sufficient time, as I outlined, for the other recommendations made by Dr. Thornhill to be considered and implemented in whatever way the incoming Government considers fit.
Section 8amends section 14 of the principal Act which contains the general rule in regard to the treatment of properties that are exempt on a particular valuation date. Such properties continue to be exempt until the following valuation date.
Section 9 amends section 15A of the principal Act which relates to a relief that is available in respect of certain properties that are adapted to make them more suitable for occupation by a person with a disability. The relief takes the form of a reduction in the chargeable value of a property where the adaptation work has the effect of increasing the chargeable value. A condition for the relief, as introduced, was that the adaptation work be grant-aided under one of the local authority schemes available for this purpose. However, in practice, as we all know, there are people with a disability who occupy properties that have been adapted to make them more suitable for this purpose but where, for various reasons, the adaptation work was not necessarily grant-aided by a local authority. For this reason, the Minister decided in May 2014 to relax this particular condition. The relief no longer depends on the receipt of a local authority grant. Instead, the nature and extent of the disability is established by the submission of relevant information to the Revenue Commissioners. The disabled person's doctor is required to provide information in relation to the disability and why the particular adaptation was considered to make the property more suitable for occupation by that person. At the request of the Minister for Finance, similar to other amendments, Revenue has implemented this procedure on an administrative basis. This section now gives effect to this procedure on a retrospective basis.
In addition to this new procedure, Dr. Thornhill recommended a change to the way in which the allowable reduction in the chargeable value of a property is calculated. Currently, the allowable reduction is linked to the maximum grant that would have been payable under the relevant local authority scheme and to the amount of the increase in the chargeable value of a property that is attributable to the adaptation work that was carried out. This is being changed to a reduction of a fixed amount of €50,000, which coincides with the width of the local property tax valuation bands. This change will ensure that most people who carry out adaptation work that increases the chargeable value of their property will benefit from a reduction in their local property tax liability of the amount attributable to each one band increase in value, which is €90. This new method of calculating the allowable reduction in the chargeable value of a property is being implemented with effect from the next liability date of 1 November 2016 in regard to local property tax that will be payable for 2017.
Section 10 amends section 35 of the principal Act which relates to the submission of returns to Revenue by liable persons in relation to residential properties. The information to be included on a return includes, for example, the liable person's assessment of the market value of the property, a claim for an exemption or a deferral of payment and the preferred payment method. In the normal course, a liable person who submits a return in relation to a particular valuation date does not have to submit another return until the following valuation date when the market value of the property has to be reassessed, unless their circumstances change in the intervening period. As a result of the retention of the 1 May 2013 valuation date for an additional three years, the number of years for which returns do not have to be submitted is also extended. This amendment provides for that extended period that includes 2019 and brings the law in line with the announcement by the Minister.
Section 11 amends section 153 of the principal Act which contains the list of bodies from whom Revenue may request information. Revenue can only request information that it reasonably requires for the purposes of establishing, maintaining and ensuring the accuracy of its register of residential properties and its administration of local property tax. The list of such bodies includes, for example, the Local Government Management Agency, the Private Residential Tenancies Board, the Minister for Social Protection and the National Asset Management Agency. Following on from other amendments made in this Bill, this amendment adds three new bodies to the list from whom information may be requested to verify eligibility for an exemption being claimed by a liable person. The Pyrite Resolution Board may be asked to provide information on properties accepted into its remediation scheme. The Personal Injuries Assessment Board and the Courts Service of Ireland may be asked for information on awards made to certain incapacitated individuals.
Overall, this Bill primarily seeks to achieve three objectives. First, it seeks to postpone the revaluation date until 1 November 2019. Second, it seeks to lessen the burden of proof required for an exemption for properties affected by pyrite and reduce the bureaucracy, difficulty and expenses some people have incurred in trying to avail of that. Third, it seeks to relax the conditions for people with disabilities with respect to the properties they require to live in or that they require to adapt to live in. I hope the Bill will receive broad support from Members on all sides of the House.
I thank the Minister for outlining the provisions of the Bill. I am particularly disappointed the House has only been given one and a half hours to debate all Stages of this Bill. We have tabled amendments to it, as has Sinn Féin, to improve it but we will probably will not have the time to consider them. I sincerely regret taking all Stages of this Bill today as there is a good deal in it. I and my party agree with the main thrust of it with regard to the suspension of the revaluation date. We have called for that for some time and that is to be welcomed.
In the six minutes allocated to me, I wish to point to areas in respect of which an incoming Government would have to further change the legislation because it does not go far enough. The premise of the local property tax with respect to the way it is structured is that it is valuation based. We consider that model is incorrect because it mitigates against mainly urban dwellers. It should have been either a site value tax or based on the square footage of the house. The owners of two-bedroomed or three-bedroomed houses in Dublin are paying multiples with respect to the property tax paid by the owners of five-bedroomed or six-bedroomed houses elsewhere. That is not a fair way to levy the tax.
A glaring omission in the Bill is the lack of inclusion of an ability to pay clause. The Minister is only allowing people to defer payment and, for that facility, they will be charged 4% per annum compound interest. I have met many people, as I am sure the Minister of State has, who are what is termed asset rich but cash poor. Many of them are elderly and live in large family homes and many of those people in my area of north Dublin are living on the State pension. Those people are not been granted an exemption, all they are being offered is a deferral, for which facility they will be charged a penal interest rate of 4%. That should have been changed. I have tabled amendments, which we will probably not get to debate, that would deal with that aspect. Will the Minister of State take that point on board? The inclusion of an ability to pay clause would assist a person who is out of work or a person who is in mortgage arrears. The issue of mortgage arrears situation is not dealt with in the Bill.On behalf of my party, I have tabled an amendment that would deal with people in mortgage arrears. If they cannot pay a mortgage, it is absolutely ridiculous that they would be expected to pay the local property tax. That should not be the case.
I welcome the broad thrust of what the Minister of State said regarding the pyrite exemption. The biggest issue is the scheme itself because to get an exemption, one must be accepted into the scheme. Fewer than 400 homes have been accepted into the scheme but thousands of houses are affected. The scheme is cumbersome. I met officials from the Housing Agency and the Pyrite Resolution Board, PRB, two weeks ago in Leinster House. The pyrite exemption should be administered on a self-assessment basis. It is a self-assessed tax and people should be able to say they have pyrite in their properties. The problem with the definition is the reference to significant levels of pyrite damage. Leaving aside the damage, a house with a significant level of pyrite is valueless. It has no value, whether the damage is evident in cracks and so on.
I welcomed the establishment of the PRB at the time but a house has to be in category 2 to be accepted into the scheme, which means it must have significant levels of damage. This means only 400 homes are in the scheme. However, thousands of homes are in category 1, which means they have a high level of pyrite, which has not shown yet to be at a significant level. Those people's homes are valueless and they should not have to pay the LPT. The proposed extension should include them. If this was done on a self-assessment basis, Revenue officials would be able to conduct spot checks, like they do with everything else, to ensure people are being honest.
The problem with this is the Minister of State will look to the PRB to share details with him and it will point to 400 cases. That is not how this was meant to work. I recently discussed this with officials from the Housing Agency and the PRB in the Custom House. The definition should refer to significant levels of pyrite, not significant damage, because these houses will need to be fixed anyway. I ask the Minister of State to examine this. My party has made a commitment to introduce a full exemption for homes with significant levels of pyrite that may not have presented with damage at this stage. They cannot be sold because they are valueless. One cannot sell a house that has pyrite whether it has significant cracking or not.
I drafted the Management Fees (Local Property Tax) Relief Bill 2015. I have tabled an amendment, which we will not get to because of the brief time the Government has seen fit to allocate for this legislation, that would deal with the cases of people who pay management fees and property tax. There should be a partial exemption for management fees.
Apartment and home owners across the country pay €1,600 or €1,800, or €2,000 and more in management fees but they do not derive direct services from the local authority. They pay for their light and insurance and they pay into sinking funds for their estates. My Bill was defeated in the other House and, therefore, could not be introduced here because it was a cost on the Exchequer.
My amendment in this regard would provide for a partial exemption on a principal private residence only. The exemption would be equal to one third of the management fee or €300, or one third of the LPT. The maximum relief, therefore, would be €300. That is sensible and fully costed. The Minister of State's officials can check this but the cost would be approximately €15 million.
Many people living in apartments and homes on managed estates feel they are being hit on the double and they are correct. There is no provision in the legislation to deal with that. I hope we get to my amendment but it is unlikely. In addition, the interest rate on a deferral at 4% is too high.
I will support the Bill on the basis that it freezes the revaluation date but it is sorely lacking in other detail that could have made a difference for those who cannot afford to pay the LPT, those whose homes are valueless and those who live on managed estates and who are effectively being taxed on the double and paying a tax for services that they do not derive. I thank the Minister of State for introducing the legislation. It is a pity the House only has an hour and a half to debate all Stages.
We have spent a great deal of time debating how the LPT could be improved but we have gotten nowhere with this legislation bar the freezing of the revaluation. Fianna Fáil has made specific commitments on the issues I have outlined, which will form part of our manifesto to improve the tax. We will support the Bill but the Government could have done much better with the exemptions.
I welcome the Minister of State to the House. One has to look positively on the Bill and the provisions outlined by him. The LPT reliefs for houses damaged and undermined by pyrite and for houses in which people with disabilities reside are a humane, honest and up-front way of dealing with these issues. One must also welcome the certainty that there will be no increase in the LPT before November 2019. All households will welcome that. I also welcome the exemption for all new properties purchased between 2013 and 2016.
Could the LPT be abused by insurance companies? Hypothetically, people could value their homes between €90,000 and €150,000 but when it comes to insuring the house, it will cost the same if the value is between €150,000 and €250,000. That is the way bands are applied for home insurance. If somebody had the misfortune to have his or her home destroyed, could the insurance company say, "You had your home insured with us for €250,000, yet it was only valued at €150,000 for the purposes of the LPT"? Is there room to address this issue in the legislation? I am fearful of insurance companies exploiting this scenario.
There was a ruling last week when this came up. The Committee on Procedure and Privileges will decide. I do not want to make an issue about this at Christmas but in fairness to other Members, this happened last week and Senator White was ruled out of order when she tried to share with another Senator.
Let us get on with it. Of course it is good that the Government is freezing the LPT but it is a disgrace that it is there in the first place. If Sinn Féin keeps to what it has said and if it includes in its election manifesto abolition of the property tax and water charges, it will do pretty well. It will do a hell of a lot better than people imagine because there is an appetite for the abolition of these taxes given they are grossly unfair.We are always hearing about people's right to a home and all the rest of it but it is not much use if they are blistered with taxation when they get into such homes. I have no problem paying for services. I pay bin taxes and water charges but we are now paying for everything. We are paying for water and bin collection, which used to be provided by the councils, and we are paying for the roads through motor tax. In other words, we are paying for everything. This is not acknowledged and we are paying again through the property tax.
I am a proud Laois man, as was James Fintan Lalor who supported the three Fs of fair rent, fixity of tenure and free sale. I wonder what he would think of this tax on people. It is not even a rational tax because it is subject to the arbitrary fluctuations of the market. How fair is that? It is not fair at all because it does not relate to ability to pay or the initial cost and, most perniciously of all, it takes into account improvements that people make. It is an example of rack-renting on the part of the Government. If one dares to improve one's house, the value goes up and one is fined for it by the Government. It is a disgusting and appalling situation.
The Minister of State said the local property tax was introduced in 2012 to provide a stable funding base for the local authority sector. Can he tell me whether, in any year since 2012, the majority of revenue generated has gone to local authorities?
The Minister of State is shaking his head. In any event, it does not all go to the council.
The Minister of State said "it delivered significant structural reform through broadening the base for taxation in a manner that does not directly impact on employment, and thus contributed to meeting immediate financial requirements of the EU-IMF programme in place". Now, we are getting to it. We are paying the gambling debts of the German and French banks by fining the Irish people for daring to own a home. It is utterly disgusting.
The Minister of State has said several times that it does not impact directly on employment.
One might as well say it does not impact directly on the weather. It is like saying we are grateful that the sun will come out and shine when it feels like it, that the weather can piss rain on us when it feels like it but that it is not affected by the local property tax. It is not but why should it be? It impacts on house owners. What about people - I declare an interest - like me? Luckily, I can afford to pay these taxes for the time being but when I retire with the very reduced pension I get from this place I may not be about to do so. That is thanks to the cowardice of the Government in giving in and letting the Civil Service off with all their increments, allowances and every other bloody thing but stripping everything away from us here. We are less than the majority of middle-ranking civil servants. That is what the Government thinks of us. Civil servants, having managed to stream all their allowances into their income and preserve their increments, are now, according to The Sunday Business Post, determined to get away from us and sever the link completely because we are so stupid and mealy-mouthed about being paid a decent wage. There will soon be a situation where only wealthy people or people of independent means will be able to come into this place.
It will be longer if the Acting Chairman keeps pushing his oar in. The Minister of State said the proposed postponement means that homeowners will not be faced with significant increases in their LPT in 2017. That is all bloody fine if the die in 2017 but what happens after that? Believe me, there will be a massive jump.
I think I was interrupted when I declared an interest. I have an 18th century house which I got for £25,000. It was valued at €3 million during the boom. I did nothing except restore it yet I will be charged on a €3 million valuation. In other words, I am being punished for doing what we are urged to do by restoring the heritage. There are no exemptions or grants. The Minister for Finance agreed the living city initiative but what happened? Some little twerp in the Civil Service excluded all the 18th century houses.
I welcome the Minister of State and I also welcome the legislation before us. If I were Senator Norris, I would not be that confident in Sinn Féin. I have a sneaking suspicion that if those in Sinn Féin saw the size of the Senator's house, they might decide it was being under-utilised and take it from him, far from giving him-----
Come the revolution. Come the revolution, indeed. As the Minister of State has already said, there are three aspects of the Bill that are welcome. It is important to state that incomes will not rise in accordance with property values between November 2016 and November 2019, particularly in the Dublin region. It is important to acknowledge that if we did not adjust property valuations, we would be significantly increasing taxation on people. Therefore, it is important to welcome this Bill.
Like Senator Darragh O'Brien, I very much welcome the allowances being given for buildings that suffer from pyrite damage. I agree with the Senator that we are not going far enough in that respect. In estates suffering from pyrite damage, people will not be able to sell their properties which are, in effect, valueless. When we look at valuations, that must be taken into account.
On the adaptation grants, the allowances being made are most welcome. We live in an aging society in which people are living longer and we want them to live at home. When people make adjustments to their properties to allow that to happen, they should be rewarded instead of penalised for doing so. People have been living in fear of property tax. It is important that we give them some solace about what we, as a Government, intend to do. While this legislation may not be perfect, I welcome it and would very much welcome a broader discussion on the issue of the Thornhill report and on whether we should be using, as Senator Darragh O'Brien said, a site valuation tax or a tax based on square footage. It is an important debate to have.
I very much welcome the broadening of the tax base. Numerous reports have called for a broadening of the Irish tax base for a considerable period of time. Like many others, I have protested over the years against a tax system which is based far too much on income and transaction tax and which does not place half enough emphasis on asset values. We talk about the three Fs but the fact is that Ireland is one of the few sophisticated economies in the world that did not have a property tax until very recently. We are all aware of certain individuals who could give Cinderella a run for her money in terms of their ability to disappear at midnight. They do not have a tax code applied to them because they do not exceed 190 days residence here yet their children go to the same schools as my children, they drive on the same roads and some of them were born in the same hospitals as my children. It is just not good enough. We need to have a tax system that takes this into account appropriately.
Ultimately, one of the problems with the system we put in place is that it is neither fish nor fowl - it is not a property tax or a local services tax. I am in favour of the fact that 85% of the tax is spent in the local area.For example, I very much agree that apartment owners, who constitute a very considerable number of people who live in the Dublin region, do not have the fact that they pay very high management costs taken into account when their property tax is assessed. It is very important to consider that housing is more expensive in the Dublin region. People who live in the region must pay more for their homes and use more of their disposable incomes to put a roof over their heads. There is nothing about the local property tax system which takes this into account.
It is very important to bear in mind that many people living in negative equity in urban areas - houses in Galway are particularly expensive - are paying property tax based on a gross value of properties in respect of which they may have substantial debts. Such issues must be addressed. There should be a taxation system which takes into account the net value. I have no difficulty with people being taxed on the disposal of an asset and paying on the basis of any gain they make. I have a significant problem with people paying what is really a tax on their income based on what, for them, is not a value but which, in some cases, is actually a loss. However, we are not here today to discuss that issue.
I wish to refer to a final issue. The tax is based on the curtilage of up to one acre. If somebody is running a business, such as a farm or a market garden, that is fine. However, there are many people who live in counties surrounding Dublin and who trot out their ponies on their additional four acres of land. No charge is levied on that amenity value.
I thank Senator Darragh O'Brien for that point of information. As somebody who lives in Dublin, who is very well aware of the costs involved and who deals with housing-related matters all the time, I am of the view that our tax must be fair. When amenity value is not subjected to tax, then it is not a fair system. There is a need to have an appraisal of this tax. I believe it must be amended. Valuations should be fair and take into account the realities of the lives that people in this country live.
The imposition of the property tax was a political decision by this Government to break its pre-election promises. It was not written in stone by the European Union and International Monetary Fund. The local property tax has not been about the provision of improved local services, particularly as approximately 30% of the revenue collected in 2014 was diverted to Irish Water.
Fianna Fáil supports the main provision of the Bill, which is the postponement of the implementation of the revaluation date for the local property tax to November 2019. We have been calling for this since 2014 and the Government previously voted down Fianna Fáil amendments that would have dealt with the issue before now. Failure to amend the valuation date would have resulted in massively increased local property tax bills.
There are still many problems in the operation of the local property tax, including a need to address the issue of ability to pay. Fianna Fáil is committed to a review of the property tax which will take account of this. We are also committed to providing relief for homeowners who pay management fees to fund many services ordinarily provided by the local council. The Government has dragged its heels on exempting homeowners affected by pyrite from the local property tax.
The Bill does not address this issue of double taxation on apartment owners who pay management fees and local property tax. A typical two-bedroom apartment in Dublin will attract management fees of €1,200 to €1,400 per annum, which may be equivalent to an additional month's mortgage. Apartment owners and residents of other managed complexes provide many services, ranging from lighting to maintenance of road surfaces, footpaths and green spaces through the annual management fee. These services are ordinarily provided by local councils in housing estates but apartment owners must pay the same level of local property tax. A credit should be provided against the local property tax for up to a third of the liability or €300, whichever is lower, in cases where the apartment owner has paid their management fees in full.
I draw the attention of the Minister of the State to the inability to pay of those on squeezed household incomes. There are still many problems relating to the operation of a local property tax, including a need to address the issue of ability to pay. As I stated earlier, Fianna Fáil is committed to a review of the property tax which will take account of this. I wish put on the record the text of our proposed Committee Stage amendment tabled in the name of Senator Darragh O'Brien.
The amendment states:
Where a liable person is obliged to pay an annual management fee in respect of a relevant residential property and said management fee is paid in full, then such person shall be exempt from having to pay part of his or her local property tax in a relevant year, the amount of that part being any of the following:(a) equal to one third of the management fee;
(b) €300; or
(c) equal to one third of the local property tax;whichever amount is lower.".".
I welcome the Minister of State and I have listened very carefully to what he said. I also checked the Department website and realised the amount of work put into this by Dr. Don Thornhill. He is somebody who has served the State well and even many years after that, he is willing to give time to it. I mentioned another man yesterday, Dr. T.K. Whitaker, to whom I spoke last night and who is 99 today. I rang Dr. Whitaker to congratulate him and tell him that legislation which contemplates his 1985 recommendation in respect of a project relating to prisons passed Second Stage yesterday. That is a reminder of the people who serve the State well, even after their retirement.
I disagree with Senator Norris in this instance because I approve of this good Bill. I am particularly happy to see that the Government has delayed any review of property taxes until 2019. There are one or two issues nevertheless. Official figures recently indicated that more than 2,000 homeowners applied for an exemption from the local property tax based on the fact that their homes are affected by pyrite. Fewer than 80 people were successful in obtaining the exemption, which I do not understand. That is a success rate of only 5%. It is estimated that up to 20,000 houses could be damaged by this substance, as Senator Darragh O'Brien noted. I note the Minister for Finance indicated that many people were not granted the exemption as they did not "provide the required level of supporting documentation". Why is the onus on the homeowner to prove something? I am not sure if that principle makes sense. In particular, I do not understand why a homeowner must declare the value of the home in order to calculate the local property tax, and this figure is accepted by the Revenue Commissioners. If an exemption is requested, the homeowner is not believed and he or she must prove his or her case. This seems like something of a dichotomy because people whose homes are affected by pyrite may also be required to obtain an engineer's report, which could be extremely costly. The Minister of State touched on some exemptions but it is not fair to allow people to declare the value of their homes so that the information can be used by the Revenue Commissioners. At the same time, however, they are not believed when they state that their homes have been affected by pyrite. I would love to get a comment from the Minister of State on that matter.
What happens when a house is uninhabitable and people are seeking an exemption from the local property tax? It is relatively common that an older person may die and his or her house is left to go rack and ruin. The person who owns the house might ask for an exemption because there might be no electricity or water connection as a result of the fact that nobody has been living in it for several years. However, the Revenue Commissioners would not believe this information. People may be obliged to provide documentary evidence to support this declaration, such an engineer's certificate or photographs. At the same time, the Revenue Commissioners have confirmed that it is not possible for them to provide a prescriptive list of criteria that would need to be met for a property to be deemed unsuitable for use as a dwelling. In effect, the Revenue Commissioners make the property owner come up with all the information but will not even give the list of elements they would consider to render a house uninhabited. It is unfair as it does not look after the customer, who is the taxpayer.
With both of these cases - where a house has pyrite or is inhabitable - the Revenue should accept the homeowner's case and not presume that the customer is being deceitful.The onus should be placed on Revenue. It if doubts a homeowner, it should send inspectors to ask questions. It is collecting masses of money through this new tax. It is estimated more than €1 billion will have been collected by the end of the year. I do not understand why Revenue allows a person to value his or her home and believes that figure for the most part but will not believe a person if he or she seeks an exemption. I would be interested in hearing the Minister of State's thoughts on that procedure.
The Minister of State is welcome. I like the Bill and what it aims to do, but there are some questions that need to be answered.
I welcome the Minister of State. I see that some of the amendments we have tabled have been ruled out of order, while there are others we will probably not reach. This is obviously not a tax with which we agree. While we do not oppose the Bill because there are some elements that are important in the granting of relief in pyrite remediation and for people with disabilities, we are opposed to the underlying principle which the legislation seeks to amend as it concerns property tax.
We are withdrawing some of our amendments, particularly those in which we oppose sections of the Bill. These amendments were originally to be submitted together to remove chunks of the Bill to repeal the local property tax in its entirely. Therefore, we will not be pushing them. However, we will be discussing other amendments, if we reach that Stage of the Bill.
Davy has predicted that by 2019 the average house price will have risen by €68,000, which means that the average family could be paying €180 extra per year in local property tax. People are not stupid and realise this change is coming down the line. One of the dangers identified in the Thornhill report on the local property tax was that the longer revaluations were left, the harder it would be to make them as the bigger the jump would be. It also pointed to the possibility of legal challenges similar to that in the 1980s to the agricultural rates system.
Sinn Féin believes the local property tax model is broken and unfair and has always stated this. Given the rushed nature of this legislation and the limited time we have to discuss it, we will not have time to reach the amendments tabled or to discuss the rationale behind what we attempted to do. When reading up on the legislation, I noted that it was stated in one national newspaper that the local property tax was on life support and that the next Government would have to make a quick decision on whether to revive it or kill it off. The effect of accepting our amendments as a group would be the abolition of the local property tax. That is my party's commitment, if elected to government. We tabled legislation which was rejected, but it is very much a firm promise by which we stand.
As mentioned, the Thornhill report contained warnings about the existing exemptions and suggested they be abolished and that a new valuation method be developed to stop the local property tax from losing legitimacy, or, as I said, facing a legal challenge. Dr. Don Thornhill said that unless the tax was put on a fair basis, it would either wither away or face legal challenges. He suggested a new way of setting the tax based on the funding needs of local authorities. What is the Minister of State's view of this? He said in a speech on the report that the recommendations made in the Thornhill report would be considered by the incoming Government. What does he envisage for the local property tax post-2019? What is Fine Gael's view and what are its plans post-election, should it be in government? In the context of the Thornhill report's recommendations, what would the Minister of State like to see being done? Will he take on board elements of the report? Will Fine Gael abandon the tax, which is what we believe should be done?
As other Senators mentioned, the Bill contains new measures to remedy the pyrite exemption scheme. Only 5% of applicants have been successful and the Department has admitted that the scheme is flawed and that it costs more to complete the necessary paperwork than the exemption is worth. I do not believe we will have time to properly scrutinise the changes, but I hope they mean that families affected will received what was promised to them.
I am disappointed that the opportunity was not used to make a move to introduce a similar exemption scheme for those affected by the mica block issue in County Donegal or for the residents of Longboat Quay and Riverwalk Court who find their homes practically valueless through no fault of their own. It is not acceptable that we are leaving it to the residents to declare themselves exempt. They need a clear signal that any such declaration will be met with a very positive response from Revenue. I understand there has been some progress made, but a total exemption, rather than a partial exemption by charging them at the lowest band rate, is warranted.
As I said, we will support the Bill, or, rather, that we will not oppose it. While it has some important element, we oppose the local property tax. It is our commitment that, if elected, we will abolish it.
I welcome the Minister of State. Pyrite was a problem in Canada, as well as in Ireland. We gave some papers to the then Minister, Mr. Hogan, when he was dealing with the issue. What happened was that builders there sued the quarries that h ad supplied them with the defective materials to build houses. That is how the money was recouped. I do not know how the State became involved in dealing with what was a failure in the construction industry. Let us examine this issue in order that, next time round, if people supply faulty building materials to builders, it will be a matter between the builders and quarry companies. That is how the problem was handled in Canada.
I support the freeze the Minister has provided for. However, we have to be careful, particularly given the way it is being presented in some places. Ireland was not a collection of tax dodgers until 2008; in fact, we were running the country with a surplus and the debt-to-GDP ratio was 25%. However, we needed to beware what was happening in banking which led us to the problems encountered. The Government wants to broaden the tax base. My favourites in broadening the tax base would be having a low rate of corporate taxation, with no deductions and no allowances, in order to tackle inversion and all such things. For very rich people, that is how the personal tax system works also. Let us put out of business the tax lawyers and accountants and let us have a rate of tax that would be paid by everybody, as happens in the case of those in the PAYE system.
Would I choose to tax property to the extent some advocate? The answer is no for the simple reason that in our lifetimes we have seen house prices go from two and a half times to 12 times people's incomes at their peak. They are probably back to about six times their incomes now. Senator Aideen Hayden is one of the experts in the House on these matters and knows that that figure is very high by OECD standards. The Government is choosing part of the tax base that will drive people into serious income difficulties because property prices are rising so rapidly. That suits the Department of Finance, of course, but we speak on behalf of citizens, not on behalf of those whose job it is to collect revenues.
Development levies were supposed to be set aside, but they have not been. An annual payment was supposed to replace development levies, which income source was supposed to be insecure, yet they seem to be as large as ever. No credit was given to those who had paid their property taxes in a lump sum at the point of purchase when we were designing the local property tax which is not that closely related to people's incomes. If somebody wins the lotto and decides to buy a house in a neighbourhood, none of the other people living in it will have won the lotto, but the purchase price paid could set the market price which would not reflect the incomes of others.
The local property tax also does not reflect the incomes of people when they retire. People buy a house in which to live. The fixation we have with assets in Ireland, including seeing asset price as part of the tax base, is misplaced. That the local property tax is not related to income, to the fact that people get old, that others buy houses in a neighbourhood at inflated prices or that bankers could go crazy again, as they did in the past, means it has no strong relation with ability to pay.
I support the Minister of State in catering for people with disabilities. This is most important and he has my support in that regard. The freeze is also good.
With regard to the pyrite exemption, let us look at the other route. Why should taxpayers bail out quarries and builders? For what is house insurance supposed to be? Why does the private sector not take the risk?
There should not be too many property taxes because of the in-built deficiencies. The local property tax receive a great accolade from the wing in the Department of Finance that loves collecting taxes and which has been very successful at it, as we have seen in recent years. However, it has to be related to ability to pay and that relationship is somewhat tenuous at present.
I welcome the Minister of State.The broad thrust of the Bill is welcome. I understand the valuation is being deferred to 2019. It is admirable that the Minister for Finance, Deputy Noonan, reached out to Dr. Thornhill. I know of some of his previous work in the public service and he is a formidable public servant. I also welcome the fact the Minister of State is seeking waivers for people with disabilities and houses affected by pyrite. I echo Senator Darragh O’Brien’s points about pyrite.
What is a definition of a disability? Will this include blindness or people with intellectual disabilities? They may not have a claim because they may have been born that way but they should. Homes made valueless by natural disasters, such as flooding, should be exempt. I hope the Minister of State will take that on board. In Craughwell, some people’s homes have been wiped out. The same happened in Claregalway and Carnmore in 2009 but the Office of Public Works, OPW, has done work since and they were fine. I do not know who was sitting on the job but in certain areas, work was not done. It is appalling to think property tax and water bills are being sent to those homes, which are uninhabitable. It would be very wise if the Minister of State asked the councils to identify affected homes and if a letter of comfort was sent to them stating that they are exempt until they are habitable again. It is a minuscule amount given the horrors they face.
I tabled a Commencement Matter for the Minister for the Environment, Community and Local Government and the Minister for Finance, which the Minister for the Environment, Community and Local Government took, looking for a credit for any family paying management charges against their property tax. This is a big issue. For example, in Lackagh, Turloughmore, families are paying €600 a year in management charges and maybe €250 in property tax. They agreed to pay the property tax on the basis that local services, such as grass cutting and lighting, etc., would be provided but nothing has changed. They do not see any value and believe they are getting nothing for paying their property tax. They feel duped. Families in the Merlin Park area are paying up to €2,000 a year in management charges. They have no case against the management company, which must provide the services. They thought the local authority would provide the services once the property tax kicked in and that they would get some credit. However, the Government has stripped councils dry and they are in very bad shape. I have seen the income for councils, which has steadily decreased since 2008. The amount they get from the property tax barely keeps them ticking over. Everyone feels duped. The councils are in terrible shape and cannot meet their needs. The home owner is, to some extent, blaming the council but it all goes back to the Departments of the Environment, Community and Local Government and Finance. This will be a serious election issue. I asked for a credit on a sliding scale against the property tax for anybody paying both management charges and property tax. The Minister gave a very cheeky response to the Commencement Matter saying no credit would be given. I was disappointed and the Minister of State should reconsider that.
To some extent, the Minister of State could justify having a local property tax and water tax during an emergency. According to the Minister for Public Expenditure and Reform, Deputy Howlin, the emergency is partly over and yet when the new universal social charge, USC, rates come into effect, the people at the top rate will pay 49.5% in tax. This is a very high tax economy with little to show for it. It could be justified during the emergency when we were in bad financial shape. The economy is said to be growing, although I am not completely convinced we are out of the emergency but the Minister of State must get his story right. He cannot have it every way. I would like him to respond to the questions about the credit for people paying management charges and councils paying property tax on rented properties and to indicate whether they pay on vacant properties because the long turnaround is not good enough.
I thank all the Senators who contributed to the debate. It is clear that the Minister for Finance’s decision to allow the next Government the space, and to seek the mandate from the people, to make any necessary amendments or tweaks to the policy of local property tax, LPT, is prudent. My view and that of the Minister and the Government is that LPT is an important form of taxation and revenue. It provides a stable source of funding. Most people, except Sinn Féin, broadly accept that, with views on some amendments and tweaks. We will have the opportunity to debate that during the election campaign.
I join with Senators in thanking Dr. Thornhill for his work. I thank Senator Quinn for sharing the information that it is Dr. T. K. Whitaker’s 99th birthday today. I send him my best wishes. It is lovely to have an opportunity to pay tribute to two very fine public servants.
The introduction of the LPT tax 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 tax in respect of approximately 1.9 million properties. The first valuation date was 1 May 2013 and the valuations declared on that date have defined the liabilities for 2013-16. The next valuation date was due on 1 November 2016 and it was envisaged that would set the rates for 2017-19. This Bill, in its simplest form, will defer that valuation from 2016 to 2019. This postponement means in real terms that home owners will not be faced with significant increases in their LPT in 2017 as a result of increased property values and will provide space for the debate that Senator Hayden alluded to in terms of her own views on how she would like to see the tax evolve over time. The LPT is producing a stable revenue yield for local authorities, although the rates are modest by international comparisons. The charging structure of LPT is progressive, as the basic rate of 0.18% applies up to property values of €1 million, with the higher rate of 0.25% applying on the portion of value above the €1 million threshold. The introduction of a property tax is part of a broader approach to taxation of property which aims to replace some of the revenue raised from transaction-based tax.
Senator Norris, who wanted to trivialise the issue of income tax, by talking about the weather, misses the point entirely. There is copious documentation and there are international studies he can read which describe that when work is taxed and governments continue to heap tax on income, it affects employment. The Senator can read them and come back to me with his views.
He may be back. From 1 January 2015, local authorities have had the discretion to vary the local property tax rate by plus or minus 15%. Several authorities have exercised this option and between its inception and the end of 2015, the LPT is expected to have contributed more than €1 billion to the funding of local authorities. I note, however, that some will apply a smaller, or no, rate reduction in 2016. This is an example of local authorities being empowered to make decisions about their communities, deciding whether the national rate is good enough or whether it should be put up by 15% because they want to improve local facilities, such as providing new pavements or a playground, or whether they should give households a break and reduce the rate by 15%. Local authorities have made different decisions. That is the purpose of empowering local government to make those decisions. It is a local tax. In regard to compliance rates, Dr. Thornhill's recent review indicates that the compliance rates for the local property tax in the years 2013, 2014 and 2015 are estimated to be more than 95% and the number of compliant properties are estimated to be at 1.87 million, 1.87 million and 1.86 million for 2013, 2014 and 2015, respectively. This level of compliance reflects positively on the strategic and operational management of the local property tax and demonstrates public confidence in our Revenue Commissioners and, indeed, the effectiveness of the Revenue Commissioners in doing the job they are entrusted to do by the State.
For individuals on low incomes, the local property tax legislation provides for the possibility of deferring the charge in some cases. To qualify for a deferral, the residential property must be occupied as a sole or main residence. The income thresholds for a full deferral are €15,000 for a single person and €25,000 for a couple who are married persons, civil partners or cohabitants. An increased income threshold applies in the cases of properties occupied as a sole or main residence that is subject to a mortgage. In such cases, the gross income thresholds may be increased by 80% of the mortgage interest payment. A deferral option in qualifying cases in this regard will apply until the end of 2017 and will assist individuals currently in mortgage distress. Furthermore, a deferral of up to 50% of the local property tax liability is possible where the gross income of the liable person does not exceed €25,000 for a single person or €35,000 for married persons, civil partners or cohabitants. A deferral of 50% of the local property tax liability is also available where gross income does not exceed the above thresholds, as increased by 80% of the gross mortgage interest payments that a liable person expects to make by the end of the year for which the gross income is being estimated. This mortgage linked partial deferral will also be available until 31 December 2017.
I will now try to deal with some of the issues raised. I do not want to get into all of the flooding issues now but Senator Healy Eames raised an important issue in regard to Galway. The Dunkellin flood relief scheme is a priority scheme, for which funding is in place. We are waiting for An Bord Pleanála to make a decision in regard to planning. I do not want to say anything that will interfere in that process but I hope the decision is made as quickly as possible so that we can get on with that work because I know how much the people of Craughwell are suffering and have suffered in the past. I take the point the Senator made in that regard.
On the issue of disability, this is a self-assessment tax. Disability, as defined in the Disability Act 2005 in regard to a person, means a substantial restriction in the capacity of the person to carry on a profession, business or occupation in the State or to participate in social or cultural life in the State by reason of an enduring, physical, sensory, mental health or intellectual impairment. In regard to a deaf or blind person, I cannot be overly prescriptive on this, as it is self-assessment. However, it is about whether the home needs to be adapted and whether that has added value or whether the person needs to live in a particular type of house to meet his or her disability needs. However, what this legislation is doing is lessening that burden and easing those restrictions on people so that they do not have to jump through as many bureaucratic hoops. If the Senator has specific cases to pursue with me, she should feel free to do so.
In response to Senator Norris, all of the LPT raised goes to the councils. At least 80% of the amount raised in a local authority area goes to that council area and the rest is distributed to other local authority areas. In other words, the wealthier councils support the less wealthy. This decision was taken when the Act was introduced. Senator Quinn made a point regarding derelict houses. I am advised that the LPT is a self-assessment tax and it is, therefore, up to the home owner to decide that the house is uninhabitable. Revenue must have the authority for ensuring compliance or anybody could say his or her house is uninhabitable. Common sense must prevail. Revenue has the opportunity to check the veracity of such assessments if it considers there is a need to do so. It is up to Revenue to make that decision. Situations vary and must be considered on a case by case basis.
Senator Reilly asked for my view on the Thornhill report in regard to local property tax. We will outline that in detail for her in our manifesto and during the election campaign. However, I can inform her that we will not be making any false promises to abolish property taxes. We believe property tax is a stable form of income. I also believe this Bill addresses a number of concerns in regard to pyrite, the assessment date and disability. However, there is a need for a debate on the future of this tax, what form it should take and how it will deal with rising property prices post-2019.
Senator Barrett made a point he feels strongly about in regard to inversions and international taxation. The OECD BEPS process provides an opportunity for us. Country by country reporting will enable the Revenue Commissioners to have information available to them, not just on what a multinational company pays in this country but also in every other country in the process. That will give our tax authority a level of insight and overview that neither it nor other authorities have had up to this point.
I have tried to cover most of the points raised. There are some points on which we disagree and we may get to them on the next Stage of the Bill.