Property tax could raise €1.1bn

A PROPERTY tax would be most easily introduced if it was based on floor area, but such a tax would be unfair on lower income groups, according to a study by researchers at the Economic and Social Research Institute (ESRI).

Economist Richard Tol told an ESRI conference yesterday that the best way to implement property taxes “in the relatively short term” would be to base it on an “assessed value” of the properties, rather than the market value, which would be difficult to measure in the current market.

This assessed value could be based on floor area, the number of rooms, the number of bedrooms, locality, the type of property and the property’s age, he said.

Using each of these factors as the basis for assessing the property value would result in around 20-25 per cent of people being either under or over-taxed.

“That’s a substantial fraction of people who are wrongly taxed. On the other hand, it’s only 20-25 per cent we get wrong,” Mr Tol said.

A study by Mr Tol and co-authors Karen Mayor and Seán Lyons states that while the most pragmatic basis for a property tax would be floor area crossed with location (by county), this would not necessarily be the fairest way of assessing the value.

Overvaluations of properties would be “more severe for poorer people”, Mr Tol said.

“It’s clearly not perfect, but perhaps it’s the only thing we can do.”

The number of rooms was a more accurate predictor of a property’s value, but basing a tax on it would lead to people “knocking down walls”, he said.

The method chosen would have to be “observable and indisputable” to avoid numerous and lengthy legal battles on the amount of tax due, he warned.

Floor area could be measured “from the outside” by people without specialist expertise, Mr Tol added. He suggested that compensatory measures could be introduced for lower income groups to make the tax less unfair.

Based on a property tax of 0.4 per cent, the owners of a house valued at €200,000 would face an annual bill of €800, while someone with a house worth €400,000 would pay €1,600.

A property tax at a rate of 0.4 per cent of the property value could raise “substantial revenue” of €1.1 billion, the ESRI’s Tim Callan told the conference.

In a study co-written by Claire Keane and John Walsh and published earlier this year, Mr Callan suggests that income exemption limits could be applied to mitigate the effect of the tax on lower-income groups.

If an income exemption limit of €12,000 was introduced, the amount collected would fall to €973 million, while at an income exemption limit of €15,000, the tax would have the capacity to generate €906 million.

“This is the kind of approach used in Northern Ireland and some other countries,” Mr Callan said. He also dismissed the idea that a property tax would be “a Dublin tax”, noting that while the share of the tax generated, at about 50 per cent, would be bigger than Dublin’s share of the population (36 per cent), it would not be too far off Dublin residents’ share of total income, which is about 44 per cent.