Which begs the question why are so many talking heads, and it looks like government parties and civil servants against it?
Angela
,
How on earth do you expect people who bought in the Dublin suburbs 30+ years when it was relatively cheap and are now retired on limited income to pay based on “site value”? According to your site value bands, these people will be paying the most. Property or site value does not give someone the resources to pay a huge property tax bill. Wake up to the real world.
Hi Angela,
Firstly, I’m not sure how a market value tax would be any different: those in the country’s most valuable homes would – and should – be hardest hit under any property tax system. Regardless of their day-to-day income, they are wealthy – it is not the fault of the rest of society if people have chosen to keep huge chunks of their wealth in one property.
Secondly, it seems you read through some but not all of the report, if you came to that conclusion. As explained in the report (I even drew attention to it in the blog post), it is more than possible, if society so chooses, to accommodate those who are property-wealthy but income-poor. For example, a couple on a small annual pension of €20,000 but living on a site worth €500,000 may not be able to pay a 2% site value tax (which would mean a tax of €10,000 a year). Instead, the property tax bill could be rolled up and deducted when the property is ultimately sold.
We should note, though, that if we do this, we impose a cost on the rest of society – the children of that retired couple, among others, have to live further out as a consequence. In many countries, there is limited exemption on ability to pay grounds precisely to ensure that family homes are enjoyed by families. We don’t have to copy other countries on this – but we need to be aware that whatever actions we take, they have consequences. It is not just enough to criticise one course of action if the other is worse.
Thanks for commenting,
Ronan.
Clare
,
Excellent, well-argued post. Feasta have also done some research in this area. I would love to see Ireland follow the example of a well-managed society like Denmark on this issue. Here’s hoping…
1. full value tax = discourage land utility
2. site value tax = encourage land utility
where land is the only finite resource in the equation.
why anyone would argue for the former is beyond belief.
Frank
,
Who looses from a site value tax vs full value tax.
-People who own derelict sites.
-If residential SVT is seen as the thin edge of the wedge for full SVT, then farmers and commercial landlords.
-If government agencies had to pay the commercial SVT, then central gov looses out to local.
I can’t think of anyone else, and I am stretching for the last two. So why all the opposition. Do land bankers have that much influence in our society?
[…] Ronan Lyons and Feasta has set out a very simple way in which a property tax could be introduced. Is it too late to believe that, two nil down as they are, the Governement might come back and score at least one goal for real public service reform. ← Three questions on an Irish debt deal […]
Cullen
,
Hi Ronan,
Great article, but I’m wondering how the property tax would be calculated for appartments with a site value tax system? Would the site value tax system mean that appartments pay a very small property tax in comparison to houses?
Hi Benny,
Suppose you have 100 apartments in a high density area sharing 2 acres, 1 acre of which is communal space, like green areas, car parking, sheds and so on. In the simplest case, where each apartment is equal size, each one of these apartments is adjudged to have a land footprint of 2% of an acre (so that the total is 2 acres, not one). Where sizes are not uniform, you would simply use Apartment A’s square meterage as a proportion of the total square meterage.
Apartments are likely to have a considerably smaller land footprint than houses. Against this, though, remember that apartments are typically built only where there is demand (under a healthy system, at any rate) so the system is set up to encourage density where land is most valuable.
Hope that helps,
Ronan.
Mark Doris
,
That’s a very good article and makes a lot of horse sense.
Now, how to get each TD in the Dáil to respond directly to its contents in a reasoned manner?
Bryan
,
Ronan,
My ‘problem’ is not so much with the ‘value based’ model but with it’s application which is non discriminatory – by which I mean that irrespective of the means or the circumstances of the property owner it is applied in the same way regardless. The affordability factor as in the ‘ability to pay’ doesn’t form any part of the analysis…that I find to be a critical omission in the overall discussion from the point of view of it’s ‘workability’ and given that the property being talked about is primarily where people – families and single home owners live. This relevant factor is ignored altogether.
But of course from a purely economic point of view a one size fits all model such as this is attractive due to it’s revenue generating potential and the apparent simplicity in implementing it…however…to take one example as per the earlier comments…
Pensioners will be badly hit as there’s no account taken of their income level (net of government taxes) situation. (I find it odd that typically people take an income of say €25k and regard it as what an individual actually gets whereas as a paye taxpayer with usc plus prsi plus tax deducted the net figure will be about 28% less than this ie €18k). Anyway, this will mean that if the market goes up as it will eventually, the tax goes up and of course the property tax could itself be increased. But the pensioner’s income may fall due to increased and new Government charges. This means that the pensioner who has to live somewhere, may find himself after living in the same house and area and built up local relationships and dependencies with neighbours over many decades may either have to trade down or sell and then rent. Is this right I wonder that the pensioner is forced to relocate most likely to where the services that he needs are not in place?. On the other hand should he feel guilty about trading down as by doing so (unwillingly) he’s avoiding the tax that he can’t afford to pay anyway?. All this is to do with the implications of the tax in the case of a vulnerable member of ‘society’ of which there are very many in Ireland.
Typically, a pensioner will have paid substantial taxes both indirect and direct over 40 plus years and regard himself as having ‘done his bit’. But that doesn’t seem to form part of the discussion. Shouldn’t he be spared all that’s involved in relocating perhaps to a new location miles away at that stage in life because of a tax on the family home that arises from factors over which he has no control ie a Government decision and property market movements?. Maybe the attitude is ‘ be that as it may the ‘greater (tax) good is best served by ignoring this aspect’.
To write as you do below that ‘those in the country’s most valuable homes…’should’ be hardest hit under any property tax system’ at first reading sounds ok especially to a socialist but when you think about it one needs to break that down.
If you are talking about places like Bono’s then fine – that without doubt is real wealth (but I don’t think that is what you mean)…he can afford to pay but if you are talking about your average standard three bed semi that happens to be more valuable in say Glenageary than in Grangegorman then that’s a different matter. The underlying but unmentioned assumption seems to be that the owner will always be able to pay whatever value the property has and whatever the charge is – the owner is always liable.
The circumstances of the household may be very different between locations such that the Grangegorman household may well be much better off financially but will pay less tax due to the lower value of the property whereas the reverse situation may apply in Glenageary. So the householder in Grangegorman can relax in the knowledge that he’ll always be able to pay whereas the householder in Glenageary is fretting because he is seen as being ‘wealthy’ and therefore may be forced to beg, steal or borrow to pay or else sell out and trade down or indeed rent. And of course the cost of servicing Glenageary with local services versus that in Grangegorman will be very different ie lower in suburban setting due to economies of scale than in rural setting hence costs for services will be higher but yet the tax burden (we’re told the tax is needed for local services) will be the reverse of this. Isn’t this counter to economic logic?.
If fairness/reality ‘population profile’ data rather than pure and simple revenue generation / economic objectives were to apply then provisions would be incorporated into the model to allow for these in the implementation phase. I would suggest that there is a need for inbuilt protection for those who are vulnerable…in the extreme people should not be forced to sell their houses to pay such a tax. People’s houses grow in value not because of ‘wealth’ they put into it’ but the ‘wealth’ arises due to external market drivers over which they have no control…and this is now seen as a legitimate basis for taxation! – this doesn’t seem, right to me as one doesn’t follow the other.
The other point is of course people buy what they need and can afford and take out a mortgage to do so over several decades using ‘wealth’ borrowed from the ‘financial institution’…apart from savings (made from already taxed income) used to secure the mortgage. It’s mainly borrowed ‘wealth’ that they put in to buy the house. What happens house prices subsequently is not something that they can control. Again movements in house prices do not correlate with peoples net income. A further point is that the ‘wealth’ in this context doesn’t generate an income in the same way as interest on savings – if it did then the taxing if it, would become more acceptable.
You write that “Regardless of their day-to-day income, they are wealthy – it is not the fault of the rest of society if people have chosen to keep huge chunks of their wealth in one property.” This bit concerns me.
The ‘wealth’ here is a house which is where they live – a basic family need for shelter – the most basic need for survival – and yes it has economic value – ‘wealth’. They do have to live somewhere. It is not the fault of humans that they need shelter and that the means of getting shelter is a house whose value may change over time. It’s almost as if you are saying that house owners should feel guilty about having a house (which will always have value), have an obligation to ‘society’ and the way to deal with this is to compensate ‘society’ by way of an ongoing tax charge regardless. Otherwise they should sell their house and rent and then they wouldn’t be a problem to ‘society’ or not buy in the first instance or perhaps sign up for a local authority house which shouldn’t please ‘society’. People in the main purchase property not so much to become ‘wealthy’ but to satisfy a basic human need…again it just turns out that a house has economic value and so constitutes ‘wealth’ in a somewhat narrow sense and so can be treated as taxable.
The suggestion that the property tax should be collectible by the Government on sale of the property wouldn’t meet the Government’s need for ‘now money’ and so wouldn’t be acceptable to the Government. Any imposed non discretionary tax should be both fair, reasonable and collectable. As well as this there should exist an appeal procedure for those simply unable to pay due to the scale of the charges. I don’t see the property tax legislation as passed by the Dail meeting these criteria.
At the end of the day it is of course the Government rather than ‘society’ that makes decisions in this matter.
The property tax in it’s present form is in my opinion a blunt instrument as the people scenarios one of which I’ve outlined above are ignored other than an offer in the form of a ‘deferral’ which itself carries a charge.
Were it not for the banking collapse the need for a property tax wouldn’t arise – isn’t it the ‘Troika’ who ordered that this tax be introduced as a condition for the bailout.
What is missing in this country and was always missing is good governamce and costs control. We don’t need to copy what happens in other countries…our culture is different to theirs.
Regards
Bryan
PS A FF politician described the property tax as political dynamite – FG and Labour will discover the truth of that statement in a few years time I daresay.
Frank ,
Which begs the question why are so many talking heads, and it looks like government parties and civil servants against it?
Angela ,
How on earth do you expect people who bought in the Dublin suburbs 30+ years when it was relatively cheap and are now retired on limited income to pay based on “site value”? According to your site value bands, these people will be paying the most. Property or site value does not give someone the resources to pay a huge property tax bill. Wake up to the real world.
Ronan Lyons ,
Hi Angela,
Firstly, I’m not sure how a market value tax would be any different: those in the country’s most valuable homes would – and should – be hardest hit under any property tax system. Regardless of their day-to-day income, they are wealthy – it is not the fault of the rest of society if people have chosen to keep huge chunks of their wealth in one property.
Secondly, it seems you read through some but not all of the report, if you came to that conclusion. As explained in the report (I even drew attention to it in the blog post), it is more than possible, if society so chooses, to accommodate those who are property-wealthy but income-poor. For example, a couple on a small annual pension of €20,000 but living on a site worth €500,000 may not be able to pay a 2% site value tax (which would mean a tax of €10,000 a year). Instead, the property tax bill could be rolled up and deducted when the property is ultimately sold.
We should note, though, that if we do this, we impose a cost on the rest of society – the children of that retired couple, among others, have to live further out as a consequence. In many countries, there is limited exemption on ability to pay grounds precisely to ensure that family homes are enjoyed by families. We don’t have to copy other countries on this – but we need to be aware that whatever actions we take, they have consequences. It is not just enough to criticise one course of action if the other is worse.
Thanks for commenting,
Ronan.
Clare ,
Excellent, well-argued post. Feasta have also done some research in this area. I would love to see Ireland follow the example of a well-managed society like Denmark on this issue. Here’s hoping…
owen ,
it’s so simple to see –
1. full value tax = discourage land utility
2. site value tax = encourage land utility
where land is the only finite resource in the equation.
why anyone would argue for the former is beyond belief.
Frank ,
Who looses from a site value tax vs full value tax.
-People who own derelict sites.
-If residential SVT is seen as the thin edge of the wedge for full SVT, then farmers and commercial landlords.
-If government agencies had to pay the commercial SVT, then central gov looses out to local.
I can’t think of anyone else, and I am stretching for the last two. So why all the opposition. Do land bankers have that much influence in our society?
The System 2 The Government 0 | Eamon Ryan ,
[…] Ronan Lyons and Feasta has set out a very simple way in which a property tax could be introduced. Is it too late to believe that, two nil down as they are, the Governement might come back and score at least one goal for real public service reform. ← Three questions on an Irish debt deal […]
Cullen ,
Hi Ronan,
Great article, but I’m wondering how the property tax would be calculated for appartments with a site value tax system? Would the site value tax system mean that appartments pay a very small property tax in comparison to houses?
Ronan Lyons ,
Hi Benny,
Suppose you have 100 apartments in a high density area sharing 2 acres, 1 acre of which is communal space, like green areas, car parking, sheds and so on. In the simplest case, where each apartment is equal size, each one of these apartments is adjudged to have a land footprint of 2% of an acre (so that the total is 2 acres, not one). Where sizes are not uniform, you would simply use Apartment A’s square meterage as a proportion of the total square meterage.
Apartments are likely to have a considerably smaller land footprint than houses. Against this, though, remember that apartments are typically built only where there is demand (under a healthy system, at any rate) so the system is set up to encourage density where land is most valuable.
Hope that helps,
Ronan.
Mark Doris ,
That’s a very good article and makes a lot of horse sense.
Now, how to get each TD in the Dáil to respond directly to its contents in a reasoned manner?
Bryan ,
Ronan,
My ‘problem’ is not so much with the ‘value based’ model but with it’s application which is non discriminatory – by which I mean that irrespective of the means or the circumstances of the property owner it is applied in the same way regardless. The affordability factor as in the ‘ability to pay’ doesn’t form any part of the analysis…that I find to be a critical omission in the overall discussion from the point of view of it’s ‘workability’ and given that the property being talked about is primarily where people – families and single home owners live. This relevant factor is ignored altogether.
But of course from a purely economic point of view a one size fits all model such as this is attractive due to it’s revenue generating potential and the apparent simplicity in implementing it…however…to take one example as per the earlier comments…
Pensioners will be badly hit as there’s no account taken of their income level (net of government taxes) situation. (I find it odd that typically people take an income of say €25k and regard it as what an individual actually gets whereas as a paye taxpayer with usc plus prsi plus tax deducted the net figure will be about 28% less than this ie €18k). Anyway, this will mean that if the market goes up as it will eventually, the tax goes up and of course the property tax could itself be increased. But the pensioner’s income may fall due to increased and new Government charges. This means that the pensioner who has to live somewhere, may find himself after living in the same house and area and built up local relationships and dependencies with neighbours over many decades may either have to trade down or sell and then rent. Is this right I wonder that the pensioner is forced to relocate most likely to where the services that he needs are not in place?. On the other hand should he feel guilty about trading down as by doing so (unwillingly) he’s avoiding the tax that he can’t afford to pay anyway?. All this is to do with the implications of the tax in the case of a vulnerable member of ‘society’ of which there are very many in Ireland.
Typically, a pensioner will have paid substantial taxes both indirect and direct over 40 plus years and regard himself as having ‘done his bit’. But that doesn’t seem to form part of the discussion. Shouldn’t he be spared all that’s involved in relocating perhaps to a new location miles away at that stage in life because of a tax on the family home that arises from factors over which he has no control ie a Government decision and property market movements?. Maybe the attitude is ‘ be that as it may the ‘greater (tax) good is best served by ignoring this aspect’.
To write as you do below that ‘those in the country’s most valuable homes…’should’ be hardest hit under any property tax system’ at first reading sounds ok especially to a socialist but when you think about it one needs to break that down.
If you are talking about places like Bono’s then fine – that without doubt is real wealth (but I don’t think that is what you mean)…he can afford to pay but if you are talking about your average standard three bed semi that happens to be more valuable in say Glenageary than in Grangegorman then that’s a different matter. The underlying but unmentioned assumption seems to be that the owner will always be able to pay whatever value the property has and whatever the charge is – the owner is always liable.
The circumstances of the household may be very different between locations such that the Grangegorman household may well be much better off financially but will pay less tax due to the lower value of the property whereas the reverse situation may apply in Glenageary. So the householder in Grangegorman can relax in the knowledge that he’ll always be able to pay whereas the householder in Glenageary is fretting because he is seen as being ‘wealthy’ and therefore may be forced to beg, steal or borrow to pay or else sell out and trade down or indeed rent. And of course the cost of servicing Glenageary with local services versus that in Grangegorman will be very different ie lower in suburban setting due to economies of scale than in rural setting hence costs for services will be higher but yet the tax burden (we’re told the tax is needed for local services) will be the reverse of this. Isn’t this counter to economic logic?.
If fairness/reality ‘population profile’ data rather than pure and simple revenue generation / economic objectives were to apply then provisions would be incorporated into the model to allow for these in the implementation phase. I would suggest that there is a need for inbuilt protection for those who are vulnerable…in the extreme people should not be forced to sell their houses to pay such a tax. People’s houses grow in value not because of ‘wealth’ they put into it’ but the ‘wealth’ arises due to external market drivers over which they have no control…and this is now seen as a legitimate basis for taxation! – this doesn’t seem, right to me as one doesn’t follow the other.
The other point is of course people buy what they need and can afford and take out a mortgage to do so over several decades using ‘wealth’ borrowed from the ‘financial institution’…apart from savings (made from already taxed income) used to secure the mortgage. It’s mainly borrowed ‘wealth’ that they put in to buy the house. What happens house prices subsequently is not something that they can control. Again movements in house prices do not correlate with peoples net income. A further point is that the ‘wealth’ in this context doesn’t generate an income in the same way as interest on savings – if it did then the taxing if it, would become more acceptable.
You write that “Regardless of their day-to-day income, they are wealthy – it is not the fault of the rest of society if people have chosen to keep huge chunks of their wealth in one property.” This bit concerns me.
The ‘wealth’ here is a house which is where they live – a basic family need for shelter – the most basic need for survival – and yes it has economic value – ‘wealth’. They do have to live somewhere. It is not the fault of humans that they need shelter and that the means of getting shelter is a house whose value may change over time. It’s almost as if you are saying that house owners should feel guilty about having a house (which will always have value), have an obligation to ‘society’ and the way to deal with this is to compensate ‘society’ by way of an ongoing tax charge regardless. Otherwise they should sell their house and rent and then they wouldn’t be a problem to ‘society’ or not buy in the first instance or perhaps sign up for a local authority house which shouldn’t please ‘society’. People in the main purchase property not so much to become ‘wealthy’ but to satisfy a basic human need…again it just turns out that a house has economic value and so constitutes ‘wealth’ in a somewhat narrow sense and so can be treated as taxable.
The suggestion that the property tax should be collectible by the Government on sale of the property wouldn’t meet the Government’s need for ‘now money’ and so wouldn’t be acceptable to the Government. Any imposed non discretionary tax should be both fair, reasonable and collectable. As well as this there should exist an appeal procedure for those simply unable to pay due to the scale of the charges. I don’t see the property tax legislation as passed by the Dail meeting these criteria.
At the end of the day it is of course the Government rather than ‘society’ that makes decisions in this matter.
The property tax in it’s present form is in my opinion a blunt instrument as the people scenarios one of which I’ve outlined above are ignored other than an offer in the form of a ‘deferral’ which itself carries a charge.
Were it not for the banking collapse the need for a property tax wouldn’t arise – isn’t it the ‘Troika’ who ordered that this tax be introduced as a condition for the bailout.
What is missing in this country and was always missing is good governamce and costs control. We don’t need to copy what happens in other countries…our culture is different to theirs.
Regards
Bryan
PS A FF politician described the property tax as political dynamite – FG and Labour will discover the truth of that statement in a few years time I daresay.