Louise McBride, in a recent article in the Irish Independent, outlines many of the commonly held views about why ‘Ireland is different’ when it comes to a property tax. “It may work in practically every other developed country in the world”, this line of reasoning goes, “but in Ireland it will be next to impossible.” ‘Next to impossible’, by the way, is a direct quote from a taxation accountant in the article. McBride argues that it could take up to five years to bring in a property tax here. Nonsense!
My suggestion to the Government – and to the Commission on Taxation, if they’re not already well ahead of me on this – is that Ireland introduce an annual 1% residential property tax on all households. I’m not a taxation expert, let alone a property taxation expert, but the idea that we shouldn’t even try to stabilise Ireland’s tax revenues by plugging the €10bn hole in property tax receipts seems all wrong to me. A 1% annual property tax could raise in the region of €4bn a year, and would be a stable replacement for unstable transactions-based stamp duties, so this is definitely worth exploring.
Below are some of the issues that people brought up and my thoughts on each. Any further thoughts and questions are as always welcome.
1. “I’ve already paid stamp duty, so I would be double-taxed.” Well, there are those who argue that stamp duty was a tax on sellers during the boom years, not a tax on buyers as it would have gone to the seller if it hadn’t gone to the government. But I’m prepared to accept the argument in principle and would suggest ‘grandfathering’ it in by calculating everyone’s property tax liability from 2001 on, and counting as a tax credit any stamp duty paid from 2001 above and beyond what a 1% tax bill would have cost.
2. “Legislative changes would be needed.” It’s a national economic emergency – this can be done.
3. “Compiling a database of each home in the country this would take 18 months.” The Department of Communications was supposed to be compiling this database anyway for the new system of postcodes that’s coming in. Perhaps that’s behind schedule. If so, recently, the ESB stepped up to the plate, announcing huge investments and job creation over the coming years. They can step up to the plate again – ESB Networks can provide the government with a list of all homes in the country. An Post could do the same. (If a home doesn’t have electricity and is not receiving any post, it’s safe to say it probably wasn’t going to be paying too much in tax anyway.) This should then be paired with Census 2006 data, so that the attributes of each property is known.
4. “Valuing homes could take anything up to 3/4 years.” The Indo article assumes that there will be self-assessment and properties would be allocated to particular bands (e.g. €500k-€750k), with each band having a set fee. Why create this incentive for people to undervalue their homes? Why not instead use the real data that the Government has at its disposal to value every home in the country using statistically and mathematically sound methods? The Government almost by definition has access, through the Revenue Commissioners, to all the latest transactions, i.e. real prices. OK, some might say, but these days there’s very little being transacted, so how could we possibly tell the price of every property in the country from such a small sample? If you trust me, all I need to say here is that econometrically this is easy – establish the national average price and the ratio of a particular property to the national average.
If you don’t trust me, read on. There are a range of options, which the Valuation Office if it were smart would mix and match to make sure they are double and triple checking their results. Firstly, a cumulative regression could be run each quarter, with additional variables included for the latest period. This means that the wealth of observations from previous periods are not being thrown out. This helps establish relative prices. Very simply put, knowing that the average semi-d sells consistently for on average 80% the price of a detached house which is in all other respects the same means that we don’t need to worry if semi-d’s don’t show up this month around. In fact, controlling for all measurable attributes allows you to identify solely the time-based change in prices – and not changes in prices due to different properties coming on to the market.
Secondly, use other sources out there. Over the past five years, for example, the daft.ie database has grown to hundreds of thousands of properties, each listing a range of attributes from specific location to number of bathrooms. Granted these are only asking prices, but firstly some people are suggesting self-valuation anyway, hence this is no worse, while secondly, if Revenue Commissioners data can establish national average price, databases such as daft.ie’s can establish an individual property’s value relative to that average. Using hedonic price regressions, they can reveal the relative value of, say, the exact same house in New Ross and Gorey, or Limerick city terraced versus semi-d or Stillorgan 4-bed semi-d’s with 2 bathrooms instead of one.
What would be even better would be engaging in open-source collaborative modelling of Irish property prices. By making the model that the Government is using to track property prices available for experts to analyse, it can be improved.
5. “This would essentially be an urban tax.” This isn’t a principled objection, this is just an objection by urban-dwellers – who not coincidentally are also the country’s wealthiest property owners. This is like saying “An income tax would essentially be a tax on people who earn more.” The gap between urban and rural will not nearly be as large on average as some people think. The chart below shows the average tax that would be paid now, taking current asking prices less 10%. As you can see, the vast majority of people would be paying tax of between €2,000 and €3,000. Only one in 20 households, those in South county Dublin, could have to expect to pay significantly more on average and even their bill is less than €400 per month.
6. “This tax would be difficult to collect.” I would suggest giving taxpayers as many means of payment as possible, such as online or direct debit. If the government really wanted this tax to be brought in smoothly, it should integrate it on a monthly basis with income tax. Deducting an extra €100 a month from someone’s paypacket is a much easier way than waiting for the end of the year and hoping they have it saved up.
There are lots of legitimate concerns that people have about a property tax, for example the effect it might have on urban sprawl – which requires solid county development plans – or the effect it might have on wealth-rich, income-poor households, particularly the elderly. These are debates worth having. On the latter, I’m not saying it will be easy, but there seems to be an unhealthy attitude in Ireland that whatever wealth we squirrel away in our property should never be touched. Wealth for its own sake is pointless.
The line of argument that we couldn’t even do it if we wanted, however, is a waste of valuable time. It frustrates me to think that people see problems, not solutions. They think of valuing almost 2 million households as a process that will take 2 million visits, evaluations and reports. IBM talks a lot about building a ‘smarter planet’ – using the trillions of interconnected sensors, chips and devices out there and the data they generate to bring about intelligent decision-making. Cities and countries seeing these possibilities are now doing what was previously thought impossible – real-time road user charging, carbon pricing or water quality measurement.
Meanwhile Ireland is worrying about whether it can value wealth. Of course we can bring in a property tax. We should stop worrying about the whether and start thinking about the how.