Unless property values are re-assessed and taxes applied as appropriate, the LPT will wither and die. A slight alteration would be to fairly assess the property value, and levy the tax on say 75% of that value, which is what in effect happens in many other countries.
Erm or just levy it on 100% of the property value but at a slightly lower rate. Don’t complicate things unnecessarily
Even better would be a site value tax, but of course it’ll never happen here…
Conversely the LPT will be weakened considerably if more tinkering is attempted.
And supposedly left wing voices will be the loudest in the clamour for a return to fully regressive taxation.
As long as Draghi keeps widening income inequality with QE (ramping asset prices making homes un-affordable, while killing CPI via ZIRP/NIRP thus suppressing wages), the Left will continue to grow (as it is doing even in the US with Bernie, the UK with Corbyn and of course Europe, where it is booming).
It is a worldwide trend (from other global QEs) and seems to be only strengthening.
Young people have gotten a very bad deal from QE, and are being turned into George Orwell’s “Boxer the Horse”, to take on crazy debts again (or rent for life to hedge funds, who will themselves take on the crazy central bank funded debts), to ensure the baby-boomer generation can be bought out of their overpriced assets ?
The Left in Ireland have been consistently vocal on the need for higher wealth taxes. I think this is pretty un-ambigous ? The easiest form of wealth taxes are property taxes (Ireland has the property taxation process set-up from the Trokia’s program).
… And Ireland has some of the lowest % property taxes on high-end +2m homes in Europe (if not the lowest, ex. UK).
… And Ireland has the largest per cap consumer debt rate in Europe (why the ECB insists on having a mortgage cap).
Thus, I think higher property taxes on high-end +2m homes in Ireland, is a strong likelihood on current trajectory ?
What kills all Irish tax policies is the exemptions, “Oh do you have a one legged parrot ? sorry yeah you won’t have to pay anything”
Irish Water never acknowledged the One Legged Parrot problem and tried to charge everyone. LPT’s refusal to link to property price increases is classic One Legged Parrot. Although its a sort of wealth tax really, but forgets about the lending against the asset.
Up to a point. There will be more taxation for sure, it won’t be an easy win with just increased taxes on +1m or +2m homes. To implement that would take a much more effective left wing in Irish politics. Our left wing populist politicians would find themselves unable to pass any such law. The owners of multi-million properties have proven to be well able to mobilise public support for their cause against any semblance of logic.
Property taxes, like paying for water are the norm in a country like this but our politicians/electorate are unable to implement them. It might be that they will come in with the return of the IMF and the complete loss of our remaining sovereignty. When that happens it won’t just be the case that the wealthy pay off our bills, the tax burden will be significantly higher on all property owners.
2% of 2 million is 40,000. Are you seriously suggesting that annual property taxes of 40,000 (or 90,000 of income at the marginal rate) should apply in Ireland?
There are lots of reasons to get rid of the entity that is Irish Water without getting rid of the idea of charging for a service. But replacing a charge paid by everyone who uses a service with a supertax levied on a small number of the population is just some form of social engineering.
Property taxes in the US are more complex than represented here. The rates of 1% to 1.5% that apply in some cases are charged on a notional value rather than an actual property value. Also, property taxes in the US are paid locally and support local services such as education and policing. So areas of high property taxes and high property values tend to have much better public schools and be exclusive. High property taxes pay for exclusivity. People choose to live in these areas because of the benefits they confer and when those benefits no longer apply they leave.
If the same system applied in Ireland, then taxes collected in Dublin 6 would pay for schools in Dublin 6 available only to children living in Dublin 6. Any school fees would be reduced or eliminated and exclusivity would be reinforced. The result would be a social and economic wall around Dublin 6, policed by local police paid for by these taxes.
People here have a very pick-and-mix approach to the US, taking elements they approve of such as apparently high property taxes (without understanding how they operate) and rejecting other elements.
In 2013, there were 9,952 high earners in Ireland with incomes of 275,000 and over.
See RVA04: Distribution of Income Tax and Universal Social Charge by Range of Gross Income, Marital Status, Year and Statistic cso.ie/px/pxeirestat/Statire … Language=0
This group earned a total of 5,123.45 billion and paid a total of 2,060.39 billion in income tax and USC making an effective rate of 40.2%. This exlcudes PRSI which will collected by a different Department. With PRSI, the effective tax rate is over 50%.
If all this group lived in houses with an average value of say 1.5 million and paid property taxes of 2%, the effective tax rate, again excluding PRSI, would be 46%. With PRSI it would be closed to 56%.
The consequences of such property taxes would be lower property prices and thus reduced tax income and economic flight. 60% of jobs in Ireland are provided by small, Irish companies owned by people in this group.
Somebody has to own the most expensive properties.
A 2% property tax would just mean that the most expensive houses would be occupied by those with the highest disposable incomes (regardless of what they declare), or rather those who have both high income and a preference for “consuming” expensive Irish property (as opposed to boats, cars, foreign property, lunches in Guildbauds or whatever).
i.e. the houses would just be occupied by a different sort of rich person, probably the sort that actually lives in and enjoys them rather than simply holding them as an asset.
If you’re concerned about extra taxes on the overburdened wealthy (the horror!) maybe the property taxes could be income-tax-deductable.
A 2% tax might actually drive down prices as well as it would be factored in when bidding so it’ll never happen here as anything that will reduce the price of accommodation must be resisted at all costs.
FF/FG’s multi-decade franchise is the reason why Ireland is (almost) unique in having almost no taxes on upper-end houses.
Even major US cities have property taxes way in excess of Ireland.
The Trokia considered it almost a “no-brainer” in Ireland (as well as water charges). However FG decided to discreetly kill progressive taxes on higher-end properties, to focus instead on a poll-tax (i.e. flat tax) structure for Irish water.
The myth that “capital will leave” does not apply to high-end property taxes (it does to other types).
Most of the major “Irish Rich” have all their assets outside of Ireland (and have had for a long time), and all have complicated residency situations and implicit agreements with the Irish revenue around what it is.
There are few “International Rich” here (Damon Hill, Jim Kerr etc.). They discovered that it rains a lot in Ireland (we haven’t seen Nico or Lewis in Killiney / Dalkey). They are living in the warm places where “Irish Rich” have their money.
The “Dot.Com CEOs” of the tax avoidance industry around Google, Facebook etc. are all on special packages that take local taxes into account. When you are saving several $bn per annum in taxes, it is a rounding error adjustment to compensate.
The people that normalized high-end property taxes of c. 1% p.a. will affect are the professionals - Barristers, Judges, Consultants, PWC / KPMG Partners etc. I don’t think there will be much of tear shed on the Left for them.
That is why I think that normalized high-end property taxes are a very strong possibility in Ireland.
(and why so much of SoCoDu voted for FG in the last election).
But your theory is that credit restrictions (not necessarily CB ones) are hitting the purchasing power of these people?
It’s interesting how leverage interacts with age-related housing consumption profiles driven by lifestyle factors.
Specifically, credit allows you to bring forward consumption. This means you can buy a big, expensive house when you need the space and location for kids and then spend a lifetime paying it off (for high earners this is a choice not a necessity, since their deposits would buy a roomy gaff in Finglas or wherever).
If high earners are starved of credit, their consumption is pushed back to later in life. This is normally the point when people are kicking the kids out and diverting income to tax-free, appreciating, income generating assets (e.g. executive pensions), not spending it on PPRs.
This possibly doesn’t bode well for the value of large, high-end suburban or extra-urban family homes.
That is not me ? I have not posted on the purchasing power of Irish domestic high-end, and have posted that I am not sure (unlike others) that mortgage rules influence on their house purchasing (as Irish banks don’t want to give +1m mortgages anyway) ?
But I agree with the rest of your point that normalised high-end property taxes would suppress consumption, and in the earlier years (when their earnings are lower ?), would have a greater impact of marginal consumption. However, you would probably see the high-end houses that they might buy also normalise even more (to your point) to adjust.
It was, but maybe I misread your post which I interpreted as “In the naughties Irish high earners were getting massive leverage off their incomes but now they’re only getting unleveraged loans secured against their assets”.
Ah, I see now Eschatologist.
Access + Level of credit drives all asset prices (it is amazing how many economists, and even self-serving central, banks dispute this, but there have been enough studies done on this to show the relationship definitively).
Irish affluent (and all others) were soaked in credit in the naughties (we are still the most indebted 1st world consumer, outside some tiny ones, and especially when calculated on the correct “per cap” basis, given how mis-leading our GDP/GNP is).
I don’t think the 2015 fall off in high-end Dublin housing is from Irish affluent (or from any change in their access to credit - as Irish bank’s haven’t been lending on high-end Dublin houses since the GFC). It is more from international affluent / ex. pats.
However, I do know (personally) of many many Irish affluent, living in deep (deep) negative equity, but surviving on the fact that their tracker mortgage is costing them almost nothing (why Irish banks are still so insolvent).
If a high-end 1-2% property tax was imposed on them however (i.e. they have to pay the same mortgage rate as a new first time 250k house buyer), that could tip things and result in forced sales of Dublin high-end.
That would have more serious effects than from reduced consumption.
Irish banks would then be forced to accept write-downs on their massive tracker books (there have been almost no foreclosures on Dublin high-end since the GFC), and that would be a real and immediate problem.
This is why the ECB have imposed the mortgage cap on Ireland (via the central bank). The ECB is back-stopping the Irish banks (who are still full of rotten loans) via their repo trade. They want Ireland “de-geared”, and if it means more renting (and foreign hedge funds do the gearing and become the landlords), so be it.
You can as long as interest rates are going down.
However, eventually this runs out of steam when we hit NIRP and eventually, the “bill” needs to be paid.
It was never a problem for 20 year old Joe to buy a 500k house of grandad Bill, as long as the value of the house would go up.
But as we know, asset prices are related directly to credit availability. And this is beginning to reverse.
Unless we enter twilight zone.
It would also effect property-wealthy but lowish income elderly people. A lot of the Irish ‘left’ is really more populist, and the adverse publicity of kicking pensioners out of the family home would be undesirable.
If you look at SF’s wealth tax proposal, say (or at least the version they had a couple of years ago), the family home was exempted, no matter how valuable it was.
I agree re site value tax, of course. But I also think there is a psychological thing here - people would prefer not to have to pay a tax based on the very latest house sale on their road, but on a lagging indicator of some sort. Or, it could be used as an incentive to declare the true value of one’s home; eg, you declare the full market value and get assessed on 75% of that (whereas if you are assessed as having underdeclared, you pay on the full amount).
I also agree though that further tinkering will endanger the LPT completely. But if indexation is not re-introduced quickly, it will become impossible to ever bring it back, and defeat the entire purpose of the tax.
We already have a state agency that values every commercial premises in the state, down to a unit level, in order to charge them rates. Why no do the same for residential properties?
Placing tax upon a persons home shows the degenerate nature of society.
Many societies do and have done this.
It’s still wrong.
There is no fundamental justification for taxing a home.
Tax services to the home if they are being used and required but not the building and curtilage of a home.
It should be fundamentally untaxable as should be love and happiness.
Because values change much more quickly than even the most efficient state can ever know. This works at the individual level (my garage burns down, you build an extension) as well as regular market moves - over the last ten years the mean monthly change in residential property prices in Ireland has been close to one percent a month.
If you want to do this efficiently you have a self assessment system, updated once a year. Low probability of audit but with punitive consequences if you’re caught fiddling.