Property taxes: formal changes not expected until next October’s budget

Revisions in the property tax including a two-year freeze and a decoupling from house prices are unlikely to be formally announced until next year’s budget.

The principles of keeping the charge at 2013 levels until the end of 2018, and linking future increases to inflation by means of the Consumer Price Index, have been broadly agreed at the highest levels of Government. But well-placed sources have said the actual change will not occur until the budget in October.

The sources said what began as a household charge is now a tax, and as such the correct way of handling that is in the budget. As happened with the revisions in water charges, it is likely the Government will spell the broad parameters of what it intends to do ahead of Minister for Finance Michael Noonan outlining the specific changes in the Budget.

The change, first reported in The Irish Times, met with a mixed welcome. Fianna Fáil Dublin city councillor Jim O'Callaghan described it as "panicked and unworkable".

He called for a change to a site value tax, that is, tax levied on the site rather than on the property standing on it. He said it would reduce the tax payable.

Perverse incentive

“The current regime has created a perverse incentive. Owners who allow their property deteriorate will be rewarded with lower property tax bills than their neighbours who maintain or improve their homes,” he said.

Green Party finance spokesman Mark Dearey welcomed the possible move to a site valuation tax, saying it would address the huge imbalance that would occur when the current property tax rates are readjusted upwards.

"It is good to see the Government is finally reassessing its rushed move to impose a property tax solely on the market value of homes," said Mr Dearey.

Brian Keegan of Chartered Accountants Ireland suggested that the entire nature of the tax might change with the decoupling of the link to property prices.

“If valuations for property tax purposes cease to be linked to property values, but to a price index such as the CPI instead, then property tax ceases to be a property tax. It becomes just another levy,” he said.

Government sources said that the tax has been designed with three-year reviews to ensure predictability, and to prevent shocks, for taxpayers. The changes announced well ahead of the next review, scheduled for November 2016, would reflect that approach, they said.

Interim solution

The view within Government is that linking property tax to CPI is seen as an interim solution. It is understood there are some differences of opinion between

Fine Gael

and

Labour

on the longer-term solution. Labour is said to favour a site-value tax which would ensure an avoidance of the fluctuation when the tax is pegged solely to property prices. On the Fine Gael side there is more enthusiasm, however, to devolve the administration of the tax away from central Government to local government. A hybrid solution may be ultimately agreed, combining CPI with a site value assessment.

The broad principle of the two-tier approach was informally agreed by both Coalition partners earlier this autumn. The matter was initially broached during the discussions in July between Taoiseach Enda Kenny and new Tánaiste Joan Burton on the Government’s revised priorities for the remainder of its term in office.

Some Ministers were surprised it was not included by Mr Noonan in the budget, but his thinking may have been to separate the issue of the tax from that of water charges, which will also be frozen until 2018.