Crash lessons lost if we don’t reform property tax – Irish Independent

 

THINK back to the darkest days of the crash. If there was any silver lining on the black cloud over the country, it was the opportunity for reform; the chance – with the Troika there to crack the whip – to start again. To do things properly.

The vested interests would be tackled. The madness of benchmarking, of giveaway budgets, of half the country paying no tax, of soaring house prices, of ‘one for everyone in the audience’ spatial strategies, would all end.

For a time, we were actually serious about change. But as the economy turned around, and the Troika departed, memories of what caused the mess faded.

Political pragmatism replaced necessity. Slowly, but surely, the momentum for reform stalled and those introduced started to be unwound.

This Friday marks the anniversary of the night the ill-fated bank guarantee plan was hatched.

There’s no question, nine years on, we are in a far, far better place than any of us dared hope during the awful months and years that followed. There is much to be grateful for. Those who oversaw, and endured, that painful correction from 2008 to 2014 deserve considerable credit.

The economy is undoubtedly booming. Yet if we dig deeper, there are reasons for concern; for believing the lessons of the crash have been forgotten and that things could again go horribly wrong down the line.

Vested interests are largely unbowed. For all the talk of change, the legal profession emerged largely unscathed from the crash. The public-sector groups still hold massive sway – consider how the Government caved in to the gardaí on pay and the teachers’ unions on Junior Cert reform last year.

We haven’t had the crazy budgetary giveaways of yesteryear – the money hasn’t been there for it – but something close to the old ‘when I have it, I spend it’ philosophy has returned.

Soaring house prices are back with a vengeance. Among the measures to address that have been a ‘help-to-buy’ scheme – with uncanny echoes of the old, utterly discredited, first-time buyer grant – and a proposal from the main opposition party for a VAT cut for builders.

Promises of a broad-based tax system, meanwhile, have entirely evaporated. Water charges have been and gone. Essential efforts to bring more workers into the tax net via the USC have been largely reversed. Somehow, in a country where a worker hits the top rate of tax at just €34,000, most of the tax debate is centred around rolling back, or even abolishing, the largely progressive USC.

We do still have the property tax – one of the very few surviving reforms we can genuinely say could only have been introduced during the economic meltdown.

Nobody likes paying tax, but the logic of a levy on property – as virtually every country in Europe implements – has been obvious for decades.

The Local Property Tax (LPT) that was introduced at the behest of the Troika wasn’t perfect. But it brings in €0.5bn a year – insulated from the ups and downs of the economic cycle and reducing the dependency on the two main revenue earners, income tax and Vat.

It is also, although the suggestion horrifies many including those on the so-called left, a tax on wealth. Any early wobbles about public acceptance of the tax were quickly put to bed when the Government called in the Revenue Commissioners. That quickly softened the cough of the ‘no way, we won’t pay’ brigade.

But make no mistake, the future viability of the property tax hangs in the balance.

Whether it survives in any meaningful form depends entirely on what the Government does next. Back in 2016, Fine Gael kicked the can down the road by delaying the revaluation date for the property tax to November 2019.

That was a mistake. And with house prices soaring since the house valuations were first done in 2013, there is an understandable fear fresh valuations will herald massive across-the-board increases in property tax for everyone.

Taoiseach Leo Varadkar sought to calm such fears, saying he didn’t envisage any sudden hike in property tax. That’s fair enough. There would be no justification for such a hike. But how he goes about ensuring it doesn’t happen is crucial.

The easy and popular/populist approach would be to stick with existing property valuations. It would be simple and there would be no increase for anybody.

It would also be wrong and sound the death-knell for the LPT.

Freezing valuations would mean that somebody buying a house in say 2023 would farcically have to pay the LPT based on what the house was worth a decade earlier.

The longer the valuations are frozen at 2013 levels, the more impossible it will become to introduce a new set.

It would only be a matter of time before the entire LPT system was brought into disrepute and open to legal challenge – as happened in 1984 when the Supreme Court found rates on agricultural land to be unconstitutional.

If the Government is serious about protecting the Local Property Tax, it must press ahead with the new valuations. It can adjust downwards the 0.18pc rate at which the tax is levied to ensure minimal, if any, pain for households.

There is even the option of varying the rate in each local authority to ensure the tax burden isn’t unfairly centred on certain parts of the country.

The difference between the two approaches may seem irrelevant. The net outcome for the taxpayer will be virtually the same. But the approach taken will go to the heart of whether we’re still serious about learning the lessons of the crash.

Does the Government do the right thing and protect a key source of revenue for the exchequer or does it take the easy/cynical option and, in the process, fatally undermine possibly the last reform standing from the fall-out of the economic ruin of a decade ago?

Which will it be, Taoiseach?

If the Government is serious about protecting the Local Property Tax, it must press ahead with the new valuations

Shane Coleman presents Newstalk Breakfast, weekdays from 7am.

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