Seán Fleming (Laois-Offaly, Fianna Fail)
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To ask the Minister for Finance if he will defer the introduction of the local property tax and amend it to include an ability to pay clause; and if he will make a statement on the matter. [15456/13]

Michael Noonan (Limerick City, Fine Gael)
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I do not propose to defer the introduction of the Local Property Tax (LPT). The introduction of a value based property tax is part of our obligation under the EU/IMF programme. Actions for the ninth Troika review, which was to be completed by the end of the 2012, included the introduction of a value based property tax for 2013.

These measures are deemed necessary in order to reduce further the deficit in the public finances and so as to ensure continued adherence to fiscal targets set as part of the EU/IMF Programme. While the Government has some scope within the Programme to use alternative methods to achieve Programme targets, the yield anticipated from the Local Property Tax could only have been achieved by other measures which would have significantly reduced overall expenditure on vital public services or increased taxation on incomes and spending. This Government did not want to add to the already necessary cuts in public expenditure or to place additional costs on job creation.

It should be noted that the arguments in favour of a property tax go beyond our obligations under the EU/IMF programme. The introduction of a property tax is part of a broader approach to the taxation of property. The aim is to replace some of the revenue from transaction based taxes, which have proven to be an unstable source of Government revenue, with an annual recurring property tax, which international experience has shown to be a stable source of funding.

The taxation of property through a recurring annual tax is less economically distortionary than the imposition of tax on either income or capital. This is supported by economic literature and recent OECD analysis. The OECD has highlighted that annual taxes on land and buildings have a relatively small adverse impact on economic performance.

As the Deputy is aware the Finance (Local Property Tax) Act 2012 (as amended by the Finance (Local Property Tax) (Amendment) Act 2013) was enacted into law, following its signature by the President on 26 December 2012 with the first liability date being the 1 May 2013. As I have previously outlined to this House, in designing the local property tax the Inter-Departmental Expert Group chaired by Dr Don Thornhill (the “Thornhill Group”) had due regard to issues such as ability to pay and considered the provision of waivers or deferrals for households unable to pay the tax or where a payment requirement would cause hardship. For individuals on low incomes, the Finance (Local Property Tax) Act 2012 provides for the possibility of deferring the charge to LPT in certain 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 will be €15,000 for a single person and €25,000 for a couple, whether married persons, civil partners or cohabitants. A person may claim a deferral if their income will not, “as can reasonably be foreseen at the liability date” exceed these thresholds in that year.

An increased income threshold applies in the case of properties occupied as a sole or main residence and subject to a mortgage. In such cases, the gross income thresholds may be increased by 80% of the mortgage interest payments. A deferral option in qualifying cases in this regard will apply until the end of 2017 and will assist individuals currently in mortgage distress.

A deferral of up to 50% of the LPT liability will be 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/cohabitants. A deferral of 50% of the LPT will also be available where gross income does not exceed the above thresholds (€25,000 single, €35,000 couple) 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 type of deferral will also be available until 31 December 2017.

Where a liable person no longer satisfies the necessary conditions, amounts deferred prior to the date on which eligibility ceased may continue to be deferred. Interest of c. 4% per annum will apply to any amounts deferred. The deferred amount, including interest, will attach to the property and will have to be paid before the property is sold or transferred.

The thresholds were based on the recommendations of the Thornhill Group. The Government accepted the income thresholds for a full deferral and adapted the income thresholds for a partial deferral so that they are €10,000 rather than €5,000 above the thresholds for a full deferral. To determine whether deferral applies for 2013, a person is required to estimate on 1 May 2013 what his or her total gross income for 2013 will be. Gross income from all sources consists of total income before any deductions, allowances or reliefs that may be taken off for income tax purposes and includes income that is exempt from income tax and income from the Department of Social Protection but excludes Child Benefit.

I appreciate that some property owners may find themselves unable to pay Local Property Tax but do not qualify for a deferral under the existing legislation. For this reason, the Finance (Local Property Tax) (Amendment) Act 2013 provides that a person who has entered into an insolvency arrangement under the Personal Insolvency Act 2012 may apply for deferral of the LPT that is due during the period for which the insolvency arrangement is in effect. The 2013 Act also provides that a person who suffers both an unexpected and unavoidable significant financial loss or expense, as a result of which he or she is unable to pay their LPT without causing financial hardship, may apply for full or partial deferral. Claims for this type of deferral will require full disclosure of the person’s financial circumstances, supporting documentation and any other information required by Revenue and following an examination of the information provided, Revenue will determine whether deferral should be granted. The detail of how this type of deferral will operate and the criteria that will be used to determine eligibility will be set out in guidelines due to be published by the Revenue Commissioners shortly.

Details of the deferral arrangements are available on Revenue’s website www.revenue.ie, where the Commissioners have recently published a useful Guide to Local Property Tax.