There’s a lot of talk going on about property tax and how it could/will/might be introduced in a fair/equitable way.   One possible scenario is to base it on a property valuation.  But, who values the property?  Does the government really want to pay for every home in the country to be valued?   How much is that going to cost them?  Are they going to make us pay for our valuations?  Is that fair?   What about using price paid?  That’s not so fair either, a property bought twenty years ago, inflation adjusted, still won’t come near the prices paid in 2007 for example, despite the fact that the house bought twenty years ago might be a lot more valuable.

The other way to do it is to base it purely on square footage and apply the same property tax rate across the board.  I think this is sort of fair.  Wealthier people tend to live in larger houses.  A house over a certain threshold in terms of square footage can be where different rates kick in.  A one bedroom apartment with 35 square meters of space in Dublin might have cost more than a 100 square meter house somewhere down the country.  The person who lives in Dublin should not necessarily have to pay more tax. They are already living somewhere where life is more expensive.  Why heap more tax on?   But then, you also have to consider the variation in housing stock.  Should a 100 square meter property in Dublin (like an apartment with management fees) be taxed as much as a 100 square meter house with a garden and no management fees in Dublin?   There are certain tangible benefits to owning your own garden.  It allows you scope to extend.  It allows you to grow veg.  So, taxing the person in the house at the same rate as the person in the apartment isn’t so fair either, because they already pay management fees and have no benefits such as a two or three car driveway and garden. Quite often an apartment dweller paid a price for their car parking space as well as the price of their four walls.   Will gardens and driveways be included in the square meter measurement for tax purposes?

Which brings me back to value.  Basing property tax on value would have one added benefit, any potential purchaser is going to want to know what the property taxes payable will be, so they will have to know the valuation placed on the property by the Revenue.   This would change the face of the property market forever.  The  property market will become a place where the value of property becomes the responsibility of a government agency not interested in making profit, rather than profit hungry estate agents.  Estate agents are ruthless.   At the height of the property boom, they did all they could to get as high a price as possible for any given property to boost their commission.  Now that they have fallen on hard times, they are systematically driving down prices in a ruthless fashion to get properties off their books.    Even where the vendor might not actually need to sell, they encourage them to.  With as low a price tag as possible.    A system where property tax is based on a valuation that is openly accessible could lead to a property market where speculative bubbles become a thing of the past.   Especially if a new valuation is conducted based on the price paid each time a property changes hands.  No one is going to want to pay a huge premium for the property they are purchasing, because they will have a large tax bill payable annually on the basis of this price paid.  Prices might become stagnant.   It’s an interesting concept.

Then there is the question surrounding stamp duty already paid.  Should someone who forked out twenty, thirty, forty, fifty thousand euro (or more) in stamp duty have to pay property tax?  Surely they should be allowed to offset property tax due against stamp duty paid until such time as they cancel each other out.  The other factor in property tax is can you really ignore those renting a property?  What are people renting properties going to be asked to pay?  If you do not make the tax payable irrespective of whether you rent or own, you will drive people who cannot afford property tax out of the market.  They may be driven to putting their homes up for sale to get themselves out of the net.  More supply of property will drive sales prices down and increase demand in the rental market.

The fear I have about any possible introduction in property tax is what will happen if you cannot afford to pay it.  How much is it going to cost the government to chase debt on property tax?  Will the courts be clogged up with property tax debtors?   Will they be sent to jail if they don’t pay?   How will their ability to pay be determined? Property tax should be affordable when subtracted from take home pay.  No one should be forced to dip into their savings to pay property tax.   What a dilemma.  We know our income tax is going to be increased.  Couple income tax increases with property tax means that the Government will end up squeezing people in a very painful way when interest rates start to rise again.  Such a squeeze could absolutely cripple economic activity, driving down VAT returns.  A vicious circle.   I think if I were the Government, I might think twice about introducing property tax in the current economic climate.  With 10% unemployment and so many people who paid peak prices for their homes already under huge financial pressure, it’s a mine field. One that the average Joe Soap may not survive.