Donohoe faces the perils of property tax

THE property tax is going to prove troublesome for government into the future, no matter what party is in power. Being tied to the price of houses, it is only likely to go up and up and up.

In other jurisdictions which have had this kind of tax a lot longer than we have, property tax can sometimes exceed the cost of an average mortgage.

At present, the property tax liability is being kept artificially low by the fact we have not had a national valuation since the tax was first introduced in 2013. Property prices were due to be reviewed in 2016, but that got postponed, and now property prices are 80pc higher than they were in 2013.

But the evil day is at hand and the next revaluation is set to begin. What then will the Government do? Increase the tax by 80pc or maybe even more?

That seems a little unrealistic for Fine Gael or Fianna Fáil to contemplate. Paschal Donohoe, the Finance Minister, has something up his sleeve for when he has the Budget out of the way, that will attempt to deal with the situation in the short term.

The present property tax rate is 0.18pc on houses up to €1m, and 0.25pc on houses worth more than that.

The minister is proposing to decrease the base rate, though whether this would apply only to the lower-priced properties is not clear.

Some commentators have urged a decrease in the threshold for the upper rate to “smooth out” disparities between rural and urban tax payers. But this is a natural disparity reflecting the presence of buses and trams and cinemas and theatres and shopping malls and many other amenities in cities and towns but not found down the country.

The Independent Alliance in Government has another proposal. Its members have called for all pensioners to be excluded from liability for property tax.

It is a laudable recognition that this tax does not abate when people retire and their earning power disappears. It follows them to the grave.

The problem with this is that the term “pensioner” covers a lot of ground, from those living on the non-contributory State pension, to those with multi-million euro pension pots. So pensioners would have to be means-tested to qualify for any property tax relief.

The cause of those pensioners on the higher rate of property tax is not helped by the latest figures from the Comptroller and Auditor General which show that in 2015, of the 334 people with net assets of more than €50m, 83 of them declared taxable income of less than the average industrial wage (€36,500).

And while just 10 of these “high net worth” individuals were responsible for paying 85pc of the income tax total – including, no doubt, Ryanair boss Michael O’Leary – it is clear that a mechanism is needed to bring many of those errant taxpayers to book. Increasing the 0.25pc property tax rate is one possible contribution.

Then there are the other “high net worth” individuals – the ones who get away free from making any contribution to the running of their country. They are the ones who choose to become tax exiles by basing themselves abroad.

All the money they save by not paying tax here means they can fly in and out of the country at will. And we generously allow them to be based here for 183 days a year – just over six months.

That doesn’t sound like much of an exile, more like a series of extended foreign holidays, with little danger of home sickness. Maybe it would encourage a few of these “high net worth” individuals to return home and make their contribution if we cut the length of time they can spend here by, say, 50pc.

To date the property tax has been an administrative success with a compliance rate of 97pc, compared, for example, with the late lamented water charges which would have been lucky to hit the mid-forties. But then the property tax is collected by the Revenue.

And those hit by the property tax are property owners. They’re the ones who mainly vote Fine Gael or Fianna Fáil. And they are the ones who are less likely to take to the streets.

When the water charges campaign was at its height, it was led by those who represented largely people who paid little tax or even no tax. They made the argument that water had always been financed out of central funds (it had, but so inadequately that the charges really were needed).

What they were actually saying was: “We don’t pay tax, and we don’t want to pay tax, so take it out of the pockets of those who do pay tax and leave us alone.” That was their argument and they won.

That left a lot of middle-class taxpayers resentful. However, they sucked it up. And with the property tax they have been sucking it up.

But it has created a divide. Not the divide between urban and rural house owners, but between the property-owning taxpayer and those who are positioned above and below (that’s where the “squeezed middle” moniker comes from) and seem to be permanently immune from taxation.

With that in mind, what politician will be brave enough to test the limit of the patience of the Irish homeowner?

Of the 334 people with net assets of more than €50m, 83 declared taxable income of less than €36,500