Household Charge: Republic’s government faces into most difficult period of term, so far

I was in conversation with a news anchor from France 24 François Picard the other day, and he asked me what news I had from my part of the world… I said, plainly enough, the same story we get every summer for three months…

He replied in heart beat, ‘ah, the marching season‘…

However in the other part of the island things these days are much more epic and more serious… we have crisis in part because our politicians don’t what else to talk about in the public, they have crisis, because at the end of the day they have months to feed…

Noel Whelan notes just how difficult it is to make the transition from long term fiscal vulnerability to security in hellishly short order when it requires people to shell out money for things they currently get ‘for free’. He notes:

…the Government is left trying to introduce a property tax not as a tax reform measure but crudely as additional taxation. To implement the requirements of the bailout deal and to close the enduringly large gap in the public finances, the introduction of a property tax has become a question of fiscal necessity rather than one of economic or political preference.

In seeking to introduce a property tax, the Government still has to contend with inherent opposition to such a tax, arising from modern Ireland’s peculiar attachment to home ownership (and in the boom years, for many, an attachment to second-home ownership). The Government now, however, must also contend with, for many, an inability to pay more tax irrespective of what form it takes.

Of course the re-introduction (after more than 35 years of absence) of local taxation could also have a regenerative effect on democracy at county level as raising new revenues…

But, as ever, the Opposition is not only not playing ball, it is determined, as ever to make the best of the government’s discomfiture, with parties of the left inadvertently running to the aid of owners of the biggest properties.

The political difficulty is exaggerated by the existential economic reality (which tends to have the last word in Irish politics). Whelan again:

It is difficult to sell the concept of a tax based on property valuation at a time when there is no functioning property market. Property tax systems are supposed to be redistributive in that those with more asset wealth pay more.

Nowadays, however, those who appear to have the largest assets are, in fact, those most laden with property debt and those left with negative equity.

Added to that is the sense of injustice many who borrowed to pay large stamp duty bills when they bought their homes will now feel if they have to pay an annualised tax as well.

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  • All of which is irreproachably true.

    The blanket “property tax” impost is, quite likely, to be self-defeating; and could poison the water for a properly-functioning tax of real estate. Lest we forget, convincing and authoritative studies would suggest a well-formulated property tax is redistributive and mildly progressive.

    That point about local taxation providing a floor for functioning local government is also very relevant. What the ’76 FF manifesto (which ended local rates — and car tax, as I recall) achieved was:
    ¶ a “nationalising” of local government;
    ¶ an outrageously heavy load on anyone paying PAYE — so therefore a significant transfer of wealth from the urban professionals to the rural agriculturalists;
    ¶ which was further worsened by escalating consumer taxes;
    ¶ an uncanny prescience in doing all that at the time of the second oil shock;
    ¶ national debt rising to 150% of GDP;
    ¶ panic in the FF ranks, who then proceeded to defenestrate decent Jack Lynch and instal Charlie Haughey [say no more].

    Whelan makes another neat point with that crack about no functioning property market. But do we need that desideratum to value property? We do have some indicators through rental yields, both commercial and domestic. So, we can be assured that in D4 you’d be paying at least twice the monthly rent you’d lay out, square metre for square metre of cat-swinging space, in D8. Similarly there’s a differential between commercial rentals off Graffton Street versus Phibsborough. That comparison, at a time when owner-occupation was uncommon, was the original basis for “rateable value”.

    Go beyond even that and you may find your solution: by-pass property taxes (particularly in the crude — even ignorant — manner currently being imposed), ignore what’s on the plot, and go for land/site value tax [LVT]. And that would be truly redistributive, and ensure far more efficient land use.

  • Mister_Joe

    If the councils don’t raise taxes on property where do they get the money to provide local services? Do they get a block grant from the Government or does the central government directly provide local services?
    Here the local taxes are not used to redistribute wealth although the tax is sort of progressive since the house valuation is based on what the house would sell for. Since I can afford a property on the lake, I pay perhaps twice as much property tax as I would for an identical house one road inland.
    It’s all spent on local services including education (county council tax on top of the town tax).

  • Comrade Stalin

    Joe, there are difficulties. There are a lot of pensioners out there who bought their homes back when they were worth a fraction of what they are now. I’m thinking of places like the inner city in North Dublin eg around Drumcondra. In the 70s and 80s they could not give those houses away and they were affordable to regular people. During the height of the boom some of these properties went into seven figures.

  • Comrade Stalin

    It is, of course, worth adding that in NI and the rest of the UK we already pay property tax. The taxes in NI are considerably higher than those proposed in Ireland.

  • Mister_Joe

    Comrade,

    We have a similar problem here for many longliving folks in the large cities mainly, like Toronto and Vancouver. I can’t think of a ready made solution. People could sell and move, and sometimes have to, but that does seem grossly unfair if they have grown up and lived in an area all of their lives.

  • Comrade Stalin

    Joe, this has apparently not been the experience up here in NI, although I’m not sure why. People on low incomes can claim to have the tax (“rates”) paid by the state.

    Increasingly though I think we’re going to find more pensioners doing reverse mortgages. There are people retiring now who either failed to save adequately for retirement (not necessarily through their own fault), or who had their pensions in schemes which collapsed. I am not at all sympathetic to the idea that all of this equity should be left sitting there for someone’s inheritance.

    You mention a ready made solution. This tax proposal is part of the solution to a different problem. The different problem is the need to keep the low rate of corporation tax. When one revenue source is closed off others must be found. Of course, the biggest problem is the fact that the government nationalized all the bank debts and that this now has to be paid for.

  • Mister_Joe

    Comrade,

    Reverse mortgages are highly advertised here on TV. I think people should do it only as a very last resort. They seem to be a very poor deal.

  • Comrade Stalin

    But what else do you do if (like a lot of UK citizens) your pension was nicked by Murdoch or some other crowd who went under, or if you are suffering from the now-common problem where you retire with a nice pension pot and find that the annuity rates get you a mere pittance ?

  • Alias

    That was Maxwell, not Murdoch.

  • Mick Fealty

    Quite, and we are already drifting quite a way from the subject in hand…

  • Comrade Stalin

    Maxwell indeed, thanks for the correction. We need an editing feature.

    Mick, I don’t think we’re drifting too far, the issue of high net worth, low income citizens having to pay a property tax is rather germane here.

  • As I was saying elsewhere, if the Household Charge is a poor option (and I’m not disputing that), get a better one.

    For reasons near to my political heart and history, this is a topic I’ve been on the edge of since 1974. Margaret Thatcher, then Tory Environment Spokesperson, was induced (apparently less than willingly) to shill for the re-election campaign; and pledged an abolition of local rates at a public meeting in Hornchurch, Essex. That gained populist traction at the time; and may have contributed to the political weakness of Harold Wilson’s administration. It went into the 1979 Tory manifesto, and eventually generated the (let the guilty men be named!) Rothschild/Waldegrave/Baker Community Charge/Poll Tax in 1989 (for Scotland) and 1990 (for England & Wales) — the delay further indicates that Thatcher’s wasn’t quickly convinced. Of course, NI missed out on that delight.

    The result was the end of the Thatcher hegemony, the annihilation of Tory hopes in Scotland, and the panic-stricken attempt by Michael Heseltine to rescue something with the council Tax we know and loathe (though that, in itself, may have rescued John Major is the 1993 Election).

    The Council Tax went badly wrong because the bandings were and remain corrupt. Top-end property is distinctly undervalued. The top band is “rated” as just three times that of the lowest. Since, in bourgeois London, even in the base-date of 1991, most modest middle-class homes were included in the top three bands. Billionaire’s Row, therefore, pays just half as much again as Redfellow Hovel.

    Governments seem to think putting the system to rights would be unpopular. Eric Pickles, in September 2010, was telling us that revaluation would bear hardest on lower incomes — that would be so only if the tapering of bands was kept unfeasibly tight. Now, that same Eric Pickles is telling local authorities to reduce council tax benefits for the really poorest. Amazing!

    Forgive me for reciting that history. I’d suggest it’s all an awful warning.

    Of course the issue of high net worth, low income citizens having to pay a property tax is rather germane here. Short of — or alongside — having local income tax (which is, yes, an option), property can and should be seen as a taxable asset. In present circumstances we must broaden the tax base — fairly.

    Introducing decent allowances to off-set the charge for the truly deserving is an essential — but it should not totally ignore maximising site value. I’d also be wondering whether putting some financial pressure on those net worth, low income citizens wouldn’t amount to a social “good” were it to improve the “churn” in property and ensuring that the quality of the housing-stock doesn’t continue to deteriorate.

  • Barnshee

    Sadly (or otherwise) property in the form of bricks and mortar is hard to hide. It thus makes it relatively easy to use as a basis for taxation.
    The issues with such taxation are those that apply to all taxation -fundamentally that the greedy bastards are never satisfied. This applies in spades to the parasites in Local Authorities who never tire of spending other peoples money

  • Blissett

    It appears the property tax would be collected by revenue. Therefore, any talk of such finances reinvigorating local government is irrelevent, they will still be on the end of the Governments apron strings.

  • There are ways and means of moderating the effect of a property tax on retirees and negative equity holders. Ronan Lyons has gone into it in great detail on his blog. And if the revenue raised by the property tax goes into the coffers of local government, then the details of which agency handles the cash are largely irrelevant. So long as local government can be overruled at will by national government it will continue to play second fiddle.

  • Greenflag

    @ Comrade Stalin ,

    ‘But what else do you do if (like a lot of UK citizens) your pension was nicked by Murdoch or some other crowd who went under, or if you are suffering from the now-common problem where you retire with a nice pension pot and find that the annuity rates get you a mere pittance ?’

    You are just another ‘victim ‘ of the 2007/2008 financial meltdown or to be more precise a victim of the efforts made to date to restore financial confidence in the system .

    And those efforts have been almost next to useless .

    Re the Republic’s pressing need for tax revenue to pay back the international bond holders for their ‘gambling ‘debts incurred in the Republic -it’s just another manifestation of financial problems and deficits found all across the western world .From Harrisburg the now most bankrupt municipality and state capital of Pennsylvania to the next Greece i.e California to Spain to the never ending ‘gyrations ‘ of EU leaders as they dance about in ever diminishing circles re what to do with the little ‘piggies now that some of the larger ‘piggies ‘ are also in trouble .

    Timing could not be worse for the current Irish offshore office of the ECB/IMF international franchise . And yes there should be a property tax and it should be graduated based on market value and income but in current circumstances it’ll be a botched job.

    Malcolm Redfellows sound advice and ministrations above notwithstanding the squeeze for ‘revenue ‘will prove more pressing than the requirement to ensure long term fairness in the system.

    Once upon a time the excuse could have been made in Ireland that giving local governments too many financial powers would increase the risk of them being ‘conned ‘ by outside ,devious financiers proferring easy finance on easy terms and they would also be more open to local factional corruption -(And yes it did happen in the early Free State days ) .But now with the spectacle of entire governments across the western world being scammed , lied to, and gouged by their own banks and the latter not being admonished in the least for their blatant thievery but in fact being rewarded for same -then it’s hardly or should hardly be surprising that a majority of the much put upon Irish taxpayers should be reluctant re this new poll tax .

    Re Mister Joe’s and Comrade Stalins’ raising of the ‘reverse mortgage ‘ as an answer to the plight of ‘gouged ‘pensioners eking out an existence on low rates of interest on annuities this is and I would go further here than MJ who calls the reverse mortgage a poor deal -I would call it just another scam . Its an ‘ideal ‘opportunity for large financial institutions to benefit from any ‘appreciation ‘ home owners may have accumulated over 20 to 30 years of buying their own home by buying the home back from owners at a 30% to 40% of current market value .

    Its just the same as low interest rates -another sophisticated method of gouging out any savings that the middle class may have built up over a generation of ‘buying ‘ their own home (the American dream -the Englishman’s castle if not Redfellow’s hovel 😉 etc etc ) .

    Lets not forget that the ‘monies ‘ now being proferred by these large financial corporations for reverse mortgage financing have been ‘gouged ‘out of the disappeared pension funds , pension investments and the like over the past decade or so.

    In brief the moneymen have returned to the financial corpse of the ‘middle class ‘ for another round of necrofinanceophilia 🙁

    Caveat emptors once again:(

  • Greenflag

    ‘The political difficulty is exaggerated by the existential economic reality (which tends to have the last word in Irish politics).’

    And just like Northern Ireland there is the existential political reality of there being a mute and powerless opposition.

    Irish Labour Party Ministers enjoy their Ministerial priviliges too much for any major upset to this coalition to be countenanced.