WHO DOESN’T LOVE a good property tax?

In favour, we have: economists. Tax collectors. A very, very small number of politicians.

On the opposition we have: basically everyone else.

Property tax is probably one of the most universally disliked taxes in the country. It’s not hard to see why. Some 66% of people own their own home. They obviously don’t want to pay more than they have to in order to maintain it.

So that’s two-thirds of the population against it straight away. But it’s also one of the few taxes which has minimal popular support politically.

Introduced in 2013, the government has since been at pains to ensure that the tax does not increase in line with the value of a property – basically, the opposite of what is meant to happen.

The latest in this tale is the government confirming earlier this month that property tax payments will once again remain virtually unchanged this year.

There will be some small tinkering, which is expected to raise the tax due by between €5 and €25 a year for the vast majority of homeowners.

The upshot is that property tax rates have now been virtually frozen for 12 years, despite property prices doubling in that time.

This prompts a question – what is the point of Ireland’s property tax?

Ok, so that’s a slightly obvious question. The point is the same as any other tax – to raise money.

The property tax raises about €500 million a year.

But the twist with Ireland’s property tax is in the name – it’s a ‘Local Property Tax’, with the money to be ring-fenced to fund local authorities.

The charge was introduced in 2013 when Ireland was coming out of the worst of the financial crisis.

The good folk in the IMF led the push for introducing the charge, as part of the effort for Ireland to put itself on a better financial footing.

The logic for the tax is laid out pretty clearly in a few different papers by IMF economists.

Property taxes are “widely regarded as an efficient and equitable means of raising revenue”.

They do this by ‘broadening’ the tax base, meaning that the government is not reliant on only a few sources of income to fund public services.

The arguments in favour

The dangers of this can clearly be seen right now in Ireland, as corporate tax is single-handedly keeping the country’s accounts in the black. If just a few US companies move around their operations, Ireland could suddenly be in a very difficult place financially.

Measures such as property tax are supposed to mitigate against this. Property tax is viewed (by economists) as being a good measure for a few reasons: 

• It tends to impact the better-off. In Ireland for example, homeowners own 97% of the country’s wealth, versus just 3% for renters.
• It’s reliable and stable – the number of properties and their value generally doesn’t fall in a given year.
• It’s hard to avoid. While multinational companies can move assets around between countries to lower their corporate tax bill, for example, a property is easy to identify, track and doesn’t move.

The same IMF paper also neatly lays out the general economist vs public view on the measure.

“Economists tend to strongly favor increased reliance on property taxes owing to their attractive economic properties.

“[But] there is widespread popular and hence political resistance to their increased use, stemming in part from their transparency and relatively limited scope for tax avoidance and evasion.”

This view proved to be borne out in reality when Ireland’s property tax was introduced in 2013 by the Fine Gael-led government under Taoiseach Enda Kenny.

Ireland’s politicians’ unusual stance on property tax

There were multiple public demonstrations, and Opposition figures were quick to point out how Kenny had personally spoken against the charge in the past.

This shows that even politicians responsible for implementing the charge rarely like it themselves. If it wasn’t for the fact that Ireland was broke after the financial crash and needed any way to raise some income, it likely never would have been introduced at all.

But if the crash gave politicians the political cover needed to introduce the charge initially, Ireland’s recovering economy since has made property tax increases impossible for them to stomach.

Because a recovering economy meant recovering property prices. Higher house prices should mean higher property prices. But Irish politicians have consistently gone out of their way to avoid this.

The level of property tax payments was originally meant to be reviewed every three years, so the first one up should have been in 2016. This was delayed to 2019. Which was then delayed to 2020. And then 2021.

The eventual change in 2021 was done in such a way that very few people ended up paying much more, as the government again feared a backlash from voters.

It’s understandable why this was a concern. It’s a tax people hate. Politics back and forth also doesn’t help. The whole point of the charge is that it will provide better local services.

But councillors consistently in areas such as Dublin vote to lower property taxes by as much as they can. This sends a message to voters that the money is better off in their own pockets than given to councillors to make improvements to their areas.

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There are some arguments from councillors in areas such as Dublin city that funds actually aren’t being allocated locally.

But that isn’t why most politicians oppose property tax – they do so because it’s unpopular, and most say that there is an immoral aspect to charging people for properties they have already paid for.

This argument could be expected from the likes of conservative parties such as Fine Gael, which traditionally favour lower taxes on wealth.

But property taxes are also opposed by those on the left, such as People Before Profit, who argue that the charge does not help out enough locally and doesn’t function well as a wealth tax.

The overwhelming political opposition to property tax is all the more curious when you look at other tax increases, such as PRSI.

Increases in this charge will eventually likely see average workers pay an extra €300 a year, and yet there is barely a peep from opposition figures about it.

This is also despite the fact that it will hit younger and relatively lower paid workers more, unlike property tax, which impacts the better off.

Will the property tax ever change? 

So what does the future hold for Ireland’s property tax?

Despite house prices continuing to rise sharply, it seems unlikely the charge will ever be increased in line with it.

The government has continuously delayed any increase – the next revaluation isn’t due until 2029, conveniently after the next general election.

And when they do come, the increases are so minor as to barely be noticed by many of those impacted.

The government’s move fits in with a pattern of bringing forward measures which will be popular with homeowners.

These include mortgage interest relief, even though the idea is widely panned by economists.

And raising the inheritance tax threshold so people won’t have to pay it due to rising property values, even though almost no one pays it anyway as things stand.

But in Ireland, understandably, the family home comes first. Everything else, including most government policies, follows from that.