‘Wat’er rip off! Yet another downside of market value based property tax

Not linking a property tax to the cost of running a local authority means we will have no idea of exactly what we are paying for. When it comes to how local government is funded it works (in simple terms) as follows, you have their costs, from that you take away ‘goods & services’ – this is income the local authority generates. Then you reduce it by the pension levy (local government workers fund this), and after that you traditionally had the local government fund and grants.

The local government fund is made up of car tax for the most part, and until recently it was a key component of funding, it was partially replaced by the household charge and the last portion of funding is made up of commercial rates.

The Dublin City expenditure position is below, note that a sizeable portion of it is spent on water, almost 16% – which is a significant cost.

An issue with a national market value oriented tax as opposed to one that based on recovering costs of local authorities is that it will turn into a transfer mechanism to subsidize less valuable places. The point with water is that when you start to meter it you strip this cost out, and there has been no mention of how a tax might come down as costs are recouped, it would come as no surprise to find in the future that the property tax doesn’t reduce, rather you just have a water bill piled on top of it.

If you took a look at expenditure per household (we’re taking it as total expenditure less commercial rates), the amount spent per household is the first column. The LGF is the second, the third is the expenditure per house when divided into the LGF.

As we probably won’t be taxing unfinished properties the fourth column gives an insight into what the actual liability per house would be if you used a cost recovery model.

In some respects it shows that we have to subsidize parts of the country that are uneconomical to run, or perhaps it’s a call to merge local authorities to obtain better efficiencies. What it doesn’t do is point towards a market value tax being the way to do it.

Market values ignore the costs incurred, and it won’t encourage costly local authorities to save money or do a better job if they are getting subsidized. That isn’t to say that a cost recovery model is an ideal answer, but it also shouldn’t be discounted because to have any credibility on what we are being asked to pay for there should be some kind of connection rather than an overt disconnect.

Comments

  1. Two points.

    First, wasn’t there a pre-existing system for services charges for new builds that people building houses were obliged to pay, and that varied according to the size of the building and the location? That – as far as I know – was more aligned to costs. And it was very clearly, of course, a very substantial property tax that got away with it because the payment tended to get buried in 100% mortgages.

    Second, do you know how market value is proposed to be calculated? Is it self-assessed?

  2. @Anthony, yes there is a charge levied by local authorities, it’s referred to as ‘contributions’, and it is based on square meter-age but has (normally) different subsections, there is a base price then an add-on if you plan to use mains sewage and another if you plan to use mains water. There are many different ways that tax is embedded. You have VAT, Stamp Duty on the final product, Part V contributions, connection fees etc. A massive portion of a property transaction is tax.

    This means a house purchase is far more expensive than needs be, it would be far better to have an annual tax that isn’t as pro-cyclical as the former mentioned revenue raisers.

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