|A man puts up a poster outside Leinster House in Dublin, to promote anti-property tax protest |
in Dublin city center
On most mornings over the past month in homes all over Ireland, there has been the barely audible sound of a letter or two plopping into the letterbox or down on the doormat.
Pestered as we all are by junk mail and bills of all kinds, particularly soaring energy bills, most of us don't exactly rush to pick up our post these days.
But for the past month it's been different. Because over the past four weeks the Revenue here have been sending out their property tax letters to every home in the country.
As we all know, there are only two things in life that cannot be escaped -- death and taxes. So it has been with a heavy heart and a sense of foreboding that we have all had our ears strained each morning for the faint sound of the mail arriving.
Then there is the quick flick through the junk mail, with eyes peeled for the letter with the telltale Revenue type in the corner.
The mail blizzard from the Revenue started on March 11 and by the end of the month, over one million letters had been sent out. By now, I would guess that most of the 1.6 million homes in the country have had their letters.
Last week it was my turn, and I did what everyone else has done, ripping open the envelope and scanning the letter quickly with fluttering heart and dry mouth to see what the amount I owe is.
Now I know that people in America and most other developed countries are well used to property tax. But it's all new to us here, or certainly to anyone under the age of around 60.
Back in 1977 the local property tax that we had here was abolished by the Fianna Fail government as an election gimmick, resulting in a famous landslide victory for them. And ever since then, the opposition to the reintroduction of any kind of property tax has been fierce.
To replace the revenue lost to county and town councils, which have to provide local services, the central government gave local authorities a grant every year. And that had to be paid for out of central revenue, from income taxes and sales taxes and so on.
So of course right from the very beginning the idea that property tax could be "vanished" into thin air was nonsense. Someone still had to pay for road maintenance and street lighting and sewage treatment and all the rest of the services that keep our local areas safe and civilized. We still paid, except that now it was in extra tax to central government.
We stuck with that system for the last 36 years for two reasons. Firstly, for most of the time, central government was able to pay the bill without jacking up taxes to levels that people could not pay. Secondly, politicians of all parties were too cowardly to propose the reintroduction of local property tax.
But it was never a good idea. It removed the link between local tax and local services and people got the idea that central revenue was a bottomless pit. And that always leads to inefficiencies and waste.
Over the years, local councils found new ways of raising revenue. Even though all our taxes had gone up, many of them began to charge for or privatize services that used to be free. For example, it now costs me €8.50 ($11) to get my normal size garbage bin emptied.
During the property boom, local councils also raked in millions by charging developers inflated charges for connecting new houses to local services like roads, street lighting, water and sewage.
But most of their funding -- hundreds of millions of euro -- still came from central funds. When the crash came a few years back, this was a big problem.
Central government revenue collapsed, as did the revenue from the development charges that local councils had been applying. The result was that central government could no longer afford to pay the massive grant to local councils, and local councils were unable to raise enough money to pay for services.
Two years ago when Ireland entered the bailout, the troika (the IMF-EU-ECB) officials took one look at the situation and said it was ridiculous, that we should have a local property tax like all other European countries. They made it a condition of giving Ireland the bailout money, writing it into the bailout program so that it specifically commits us to the introduction of a local property tax.
Viewed objectively, it all makes sense. Local councils must have the money to run essential local services. The national budget deficit has to be reduced, and removing the huge amount the government now transfers to local councils every year will make that easier.
But from the taxpayer’s point of view, it's not that simple. If we're all going to be paying local property tax now, can we have a reduction in the income tax we have to pay to central government through the Revenue? Can pigs fly?
No, the reality is that we're going to end up paying on the double, and that's why so many people here are so angry.
They feel, with a great deal of justification, that income taxes and sales taxes here are now so high that we are already paying enough.
There is also the fact that although there was no annual property tax here, it is incorrect to suggest that no tax was raised from property.
Every time a property was sold it attracted a huge amount of tax. As prices soared during the boom, so did the amount that the government was getting in property taxes.
On good size family houses the stamp duty (or sales tax) was six percent or even nine percent if the house sold for over €1 million.
So a lot of people who bought homes during the boom years paid a huge amount in sales tax (upwards of €25,000 was normal on a family size home). These people are not being given any credit for this and will now be hit with this annual property tax just like everyone else.
For buyers of new homes during the boom (many of which are now deep in negative equity) there is also the fact that adding together all the charges and taxes (including income tax from construction workers and sales taxes on materials) meant that around half of the cost of every new house was going to the Revenue in one form or another. Naturally these people also feel that imposing an annual property tax on them now is double taxation.
For people who bought property during the boom and are now in negative equity and who may be among the tens of thousands who are way behind in their mortgage payments, the idea of having to pay this new property tax seems not just impossible but grossly unfair.
But in spite of all the problems, the government (and our troika masters) is determined to drive forward with this new source of funding.
And because it's being administered not by local councils but by the Revenue, which has the power to look into personal banks accounts, etc. and ultimately apply draconian penalties or even jail people who don't pay, there will be no escape.
Even for people who are not in mortgage distress, it's hard to take. We already have a marginal rate of income tax of 52 percent, or 55 percent if you are self-employed like me.
On top of that we pay tax on almost everything, with heavy sales taxes, motor taxes, garbage payments and water charges starting at the end of next year.
About half the population pay very expensive private health insurance, so they are paying for their health care as well even though over 10 percent of their income tax pays for the public health service.
And although education is supposed to be free, all schools every year ask parents for contributions to help them make ends meet.
The property tax comes into effect on July 1, which means that this year people will only have to pay half what it will be in future years. Softening the blow in this way is part of the government's strategy.
The tax is payable on the current market value of all residential properties. It will levied at the rate of 0.18 percent for properties up to a market value of €1 million, and 0.25 percent on properties over €1 million (the higher rate applying only to the portion over the million mark).
That sounds simple enough but there are all kinds of practical difficulties. It's a self-assessment tax, so how do you value your house after the property crash when the housing market is at a standstill?
Unless you live in a development where there are lots of similar houses, some of which have sold recently, how are you supposed to know what your house is worth?
To help with the calculation, the letters from the Revenue include guidelines on how to value your property, but they are so general they are practically useless. You are also advised to consult property sale websites and local property agents in your area (who will charge you for a valuation!)
If you live out in a rural area or on a road where the houses are a mixture, it really is guesswork.
Who knows what a house is worth these days until you put it on the market and find a buyer?
There is no property ownership register in Ireland which also makes the task difficult, although there are electoral registers and of course the electricity and gas companies and phone companies have registers. Revenue has the power to access these databases, so avoiding the tax is going to be very difficult.
So far, most people here seem to be accepting the reality that they will have to pay, even if they are angry and depressed about it and can't afford the few hundred euro it will cost them. (A typical family home valued at €375,000 will owe property tax of €337 this year and €675 next year for a full year.)
That's a lot of money for many families to find, especially where someone may have lost a job or pay has been cut. A small number of defiant people have been declaring that they can't and won't pay.
But the Revenue will be able to extract the money from welfare payments or pay packets, if necessary so it may be taken before people can stop it vanishing.
If you are caught undervaluing your property (say when the true value is revealed when you sell it at some point in the future) the Revenue will hit you for the back tax and also with very heavy penalties which could double your bill. They say they will only do this if they believe you have deliberately undervalued the property.
One thing is sure -- it's going to be painful for everyone.