An American’s perspective on Ireland’s new property tax



“As a State, we are living so far beyond our means that the Government borrows €1.3 billion a month for public pay, pensions and vital services. The only way this money can be raised is through the IMF-EU bailout agreement. A condition of the agreement requires the introduction of a property charge, something that has been known for three years.”

So began a recent Irish Times editorial on the origins of the new property tax that Ireland’s 1.7 million households are now responsible for. In 2012, the first year of the new tax, all households, regardless of size or geographic location, must pay a flat fee of €100. While a flat fee is arguably a regressive tax, those living in local authority (i.e., public) housing and those on low incomes will be exempted from having to pay it.

On the basis (among a number of other justifications) that the flat €100 fee is a regressive form of taxation, several left-wing TDs (members of Irish parliament) have formed a campaign urging home owners not to pay the tax. The TDs have stated that they are prepared to do the same and to accept the consequences. While they have a point about the regressive nature of the tax, it would seem that they overlook the reality that Malta is the only other European Union nation that does not impose a property tax. There is also the irony that inheres in a group of socialists opposing a tax on property owners.
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American home owners, especially those from affluent cities and towns with low commercial tax bases, are all too accustomed to paying high property taxes and would be delighted to see an €100 annual bill arrive on their doorstep. Yet this new tax must be considered in light of the ever-increasing tax burden Irish people face, the tortured history of similar attempts to tax Irish homes and, crucially, the provision of services at local level in Ireland.

Moreover, this is an interim measure that will likely give way in future to a property tax that will average around €1,000 a year, according to the Economic and Social Research Institute, a prominent Irish think tank. The government has indicated that a “progressive and fairer” property tax could be brought in as early as 2013.

As for the existing tax burden, notwithstanding the oft-repeated refrain that Ireland is a low-tax economy, most Americans would find the tax rates on income (41% on all earnings in excess of €32,800), goods and services (23% value added tax) and on various things like plastic bags at shops and supermarkets (€.22 a bag) confiscatory. While the income tax is quite progressive in the way it is applied and rightly demands a greater contribution of those who can afford it, a VAT of 23% and a €.22 charge for a plastic bag undeniably impact Irish people of little means. More tax measures – the property tax is just one of several that are to be introduced – will inflict pain on everyone.

And although this property tax is a new initiative, it is not the first time that an Irish government has sought to tax home owners. These taxes never really worked out. A tax on rental income was done away with in the late 1960s. A tax on farms was phased out just one year after it was implemented. And a self-assessed tax on residential property that was impossible to enforce proved to be something of a fiasco and was abolished in 1997 after fourteen years of failing to mandate participation and generate revenue.

There has been a great deal of speculation about why these taxes have never been fully accepted by Irish people. Those who point to this country’s history probably have a good point. The right to own land, and to do so without undue interference of any kind by the government, is something deeply rooted in the Irish psyche for obvious historical reasons. This may explain the equal reticence of the people to pay taxes on their homes and of the government to push the envelope on it.

But these are different times. Given the demands of the European Union and the International Monetary Fund, the government has no choice other than to ask for a contribution from homeowners to pay for local services. And it is in the provision of local services, as Irish Times columnist Fintan O’Toole writes, where the problem lies.

“[W]hy do people in other developed countries not object to paying property taxes? Because they have real local governments to which the money goes. They see what the money’s being used for and they have some confidence in their own ability to have a say in the way it’s spent. That’s the payoff – a sense that the money you’re handing over is being used in your own community for the things you and your neighbours really value.”

American home owners expect a fair return on their payment of property taxes. They expect good schools, nice playgrounds for their children, roads they can virtually always drive and walk along and more. Here in Ireland, taxpayers receive a level of local service that does not measure up to what American property taxpayers, including those who live in unfortunately less well-served, low income areas, can typically expect to receive.

Anyone in Ireland who has seen her child go to school in a prefabricated building, play a soccer match on a horribly conditioned, litter strewn pitch or who has tried to drive or merely to walk after a very minor accumulation of snow can attest to this reality. And anecdotes about road works being performed at rush hour in cities and towns throughout the country abound.

In the absence of a property tax, this is the level of local service Irish people have come to expect. Asking for a €100 contribution to help pay the salaries of the hard working, under resourced men and women who do their best to provide local services is not too much in present circumstances. Again though, as a framework for a property tax is developed – there will be a lot of wrangling about it over the coming twelve months and, hopefully, a fair, equitable compromise will be reached – this figure will be sure to rise exponentially.

When it does, Irish people will naturally demand a far greater return on their investment. This will require a much higher spend on local services. Fintan O’Toole writes that a meagre 6% of all tax revenue is currently spent at local level. If, however, local services don’t improve after the implementation of a property tax likely to average €1,000 or more in future, there won’t just be a small coalition of left-wing TDs advocating that Irish home owners refuse to pay it.

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