Last evening, I briefed my Government colleagues on the outcome of the review of the Local Property Tax I initiated in 2018, the report of which I have now published. I have also outlined the actions I am taking in relation to the LPT.
First, I am referring the Review Group report to the Budgetary Oversight Committee (BOC) for its consideration. This is in light of the report’s findings on the impact of residential property price movements on LPT liabilities under a number of scenarios.
Second, I am deferring the next valuation date for LPT liabilities from 1st November 2019 to 1st November 2020 by Order under the Finance (Local Property Tax) Act 2012.
Background
On foot of Dr Thornhill’s 2015 report, the then Minister for Finance, Michael Noonan, proposed to Government that the revaluation date for the LPT be postponed from 1st November 2016 to 1st November 2019.
This postponement meant that home owners continued to have their homes valued for LPT purposes on the basis of their 1st May 2013 declared valuation and so were not faced with significant increases in their LPT in 2017 and 2018 as a result of increased property values. LPT liabilities for 2019 are based on the 2013 declared valuations.
Current valuations do not reflect house price developments in recent years. Absent any change in the LPT legislation, the valuations of properties on 1st November 2019 will be the basis for calculating LPT liabilities in 2020 and beyond.
In that regard, the LPT review indicates that the impact of such a no policy change would mean, for example, that 27% of residential property owners would see an increase of between €100 and €200, 28% would experience increases between €200 and €300 and 30% would see higher increases.
I initiated a further review of the LPT in 2018 as I believed that it was important that the Government was able to make its position clear in relation to LPT so that households would be aware of plans for the tax well in advance of the November 2019 revaluation date and the associated 2020 and beyond LPT liabilities.
I further considered that it was essential that the principle that formed a central part of the terms of reference for the 2015 review of LPT, i.e. achieving relative stability in LPT payments of liable persons both over the short and longer terms, would inform the deliberations on this matter.
By ‘relative stability’ in LPT liabilities I mean that any increases should be modest and affordable and of course fair.
The review of the LPT has now been completed by the Department of Finance in conjunction with the Departments of the Taoiseach, Public Expenditure & Reform and Housing, Planning & Local Government and the Revenue Commissioners.
The LPT review also considered the outstanding recommendations of the 2015 Thornhill Review of LPT.
Findings / Recommendations of the current review of LPT
The review examined the impact of house price movements under a series of scenarios involving different rate and tax band structures.
However, against a background of significant but geographically uneven increases in residential property price levels I believe it is necessary to engage in further consultation to identify a scenario that would deliver on the condition I set that there should be relative stability for all taxpayers in their LPT liabilities and that any increases should be modest and affordable.
I am also conscious of the importance of maintaining simplicity in the operation of the LPT which was a major success factor in its successful introduction. Details of the scenarios and analysis are set out in the report and summarised in the attachment to my press release.
Briefly, five scenarios are set out in the report involving various adjustments in relation to rates, yield and the bands.
The review also considered other relevant issues including 100% retention of LPT yields by local authorities, continued flexibility on the local adjustment factor, and the need to ensure that adequate funding is available for local authorities.
I am conscious of the importance of maintaining simplicity in the operation of the LPT, which was considered one of the critical success factors in its introduction.
Having considered the matter, I have decided to defer the valuation date from 1st November 2019 to 1st November 2020. This should give sufficient time for the Budget Oversight Committee to consider the review report in the context of the Committee’s recommendations in its report of 21 March 2018.
Public expenditure issues were not within remit of the review group. However, a move to 100% retention by local authorities of their LPT yield (as recommended in the review) would involve a significant impact on the Exchequer, ranging from €99m to €121m.
The Departments of Public Expenditure and Reform and Housing, Planning and Local Government will work bilaterally to evaluate options designed to mitigate the impact on the Exchequer of the proposed 100% retention in the context of the Estimates process, while ensuring that all Local Authorities’ baseline funding requirements are met.
Securing the future of the LPT
The introduction of LPT addressed three long-standing and important challenges in Irish public policy:
- the broadening of the tax base to include residential properties;
- the provision of a stable funding base for local government, and
- the strengthening of democracy at a local level.
International experience has shown that property taxes are a secure and stable source of funding, compared with transaction-based taxes. As a measure which is a tax on assets, not employment, the LPT should not adversely affect growth and job creation.
I therefore think it is important to protect the LPT and secure its future to the greatest extent possible in the current circumstances.
Engagement with the Budgetary Oversight Committee
The review included a public consultation process and was also informed by the report of the Budgetary Oversight Committee on LPT of March 2018. This report indicated that the Committee was against proceeding with automatic revaluations in 2019 as provided for in current legislation, as this would result in significant increases in LPT liabilities.
The Committee also supports revaluation with an adjustment to rates nationally to maintain LPT yield or revaluation with an adjustment to rates locally to maintain LPT yield.
The BOC also recommended the cessation of exemptions in relation to new and unused properties on equity grounds and because it broadens the tax base.
The deferral of revaluation until November 2020 provides time and space for the Budgetary Oversight Committee to consider the report of the inter-departmental review and to provide its views to me.
In my engagement with the Committee I will seek to promote the policy objectives that should underpin any changes to the tax.
These are:
– Protection of the overall yield
– Relative stability in household liabilities with modest and affordable increases should they arise
– Integration of new properties into the LPT base
– Maintenance of the tax base with a small number of exemptions
– Upholding the progressivity of the tax.
It is my view that the reformed LPT should be based on a model of band widening combined with LPT rate changes. I support retention of the option for Local Authorities to reduce the LPT rate for their area through use of the Local Adjustment Factor. I will also engage with the Budget Oversight Committee on the issues of management fees.
The deferral will provide space within which I will try to build a consensus as to the future direction of the LPT based on the response of the Committee and further work which I have asked my Department to undertake.
My Department will continue to work on this area which would include for example taking the opportunity to look at the relationship between property tax levels and house price inflation.
Thank you.