Local Property Tax Review: Discussion

I welcome the Minister for Finance and Public Expenditure and Reform, Deputy Donohoe. He is accompanied by Mr. John Hogan, assistant secretary at the Department of Finance, Mr. Keith Walsh, principal officer and chief economist at the Revenue Commissioners, Ms Anne-Marie Walshe, principal officer at the Department of Finance, and Mr. John McCarthy, chief economist, economic policy division at the Department of Finance. The purpose of this session is to discuss the review of local property tax and the report of the international group.

I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.

I thank the Minister for attending and invite him to make his opening statement.

I thank the Chairman for the invitation to engage with the committee on the topic of the local property tax, LPT, which was the subject of a recent review. I referred the report to the committee for its consideration in light of the its findings in respect of the impact of residential property price movements on LPT liabilities under a number of scenarios. As the committee is aware, I have deferred the next valuation date for LPT liabilities from 1 November 2019 to 1 November 2020 by order under the Finance (Local Property Tax) Act 2012 with a view to providing time and space within which to engage with the committee and hear its views on the appropriate way forward for the LPT.

In 2015, Dr. Don Thornhill conducted a review of the LPT and made recommendations regarding, in particular, any impacts on LPT liabilities due to property price developments. On foot of Dr. Thornhill's report, the then Minister, Deputy Noonan, proposed to the Government that the revaluation date for the LPT would be postponed from 1 November 2016 to 1 November 2019. The postponement meant that homeowners continued to have their homes valued for LPT purposes on the basis of their 1 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. Absent any change in the LPT legislation, the valuation of properties on 1 November 2019 would have been 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 €101 and €200, 28% would experience increases between €201 and €300 and 30% would see higher increases.

I initiated a further review of the LPT in 2018, as I considered it was important that the Government was able to make its position clear regarding LPT so that households would be aware of plans for the tax well in advance of the November 2019 revaluation date and the associated LPT liabilities for 2020 and beyond. I also considered that it was essential that the principle that formed a central part of the terms of reference for the 2015 review of LPT, that is, 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 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 am of the view that 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. The review group found that the key challenge in its analysis is the significant variation of property price increases geographically, which introduced significant complexity to the task of attaining moderate and affordable adjustments to the tax in an even manner across the country.

I am also conscious of the importance of maintaining simplicity in the operation of the LPT, which was a major success factor in its introduction. Details of the scenario analyses are set out in the report. For the purposes of the review, the review group targeted a broad yield of €500 million, a modest increase on the 2018 yield of €482 million and recent years, and on that basis the group considered five different approaches to the calculation of LPT liabilities. The first was a central rate. The second was targeting individual local authority yields equal to the expected 2018 yield without the local adjustment factor. The third was differing rates for each valuation band. The fourth was increasing the valuation band thresholds. I note the review group finding that all of the scenarios involve "winners", that is taxpayers who would see their LPT liability reduced, and "losers", whose liabilities would increase. Moreover, the increases and decreases would be different in each scenario.

The review 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. The introduction of LPT addressed three challenges: broadening of the tax base; the provision of a stable funding base; 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 consider that the LPT has the potential to play a more significant part in the overall taxation system. It is important, therefore, that the future of the tax be secured so as to maintain the possibility of enhancing and enlarging its contribution as a proportion of overall tax revenues and, over time, looking at the possibility of it approaching a European norm. At just 0.6% of national income, the LPT yield is low when compared to rates of 2.8% in France and over 3% in the United Kingdom.

The review included a public consultation process. It indicated that the committee was against proceeding with automatic revaluations in 2019 as provided for in current legislation, as they would result in significant increases. I note that the committee 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 committee also recommended the cessation of exemptions for new and unused properties on equity grounds and because it would broaden the tax base. The deferral of revaluation until November 2020 provides time and space for the committee to consider the report on the interdepartmental review and provide its views for me. I hope this session will facilitate that exchange of views.

In my engagement with the committee I am seeking to promote the policy objectives that I consider should underpin any change to the tax. They are protection of the overall yield; modest and affordable increases, if they occur, in LPT liabilities; integration of new properties into the LPT base; maintenance of the tax base with a small number of exemptions; and upholding the progressivity of the tax. I have stated my view publicly that reform of the LPT needs to be based on a model of band widening combined with rate changes. It is, however, challenging to come up with a model where no one faces an increase in their LPT liability. I support retention of the option for local authorities to reduce the LPT rate in their area and have indicated my willingness to engage with the committee on the issue of taxpayers whose property is located in a managed estate on which the owner of the property is liable to the payment of management fees. In order to bring this matter forward, we will need legislation to be enacted by March 2020. Amendments to the LPT legislation are separate from the Finance Bill process as they involve local rather than national taxation. Therefore, it will be necessary for me to be in a position to present a scheme of a Bill in January next year.

I know that there are diverse views among committee members on the LPT, including the view that it should be abolished. Nevertheless, I hope we can have a constructive engagement and work towards achieving consensus on the future direction of the LPT, as I firmly believe there is latent potential for the tax to play a positive role in the overall taxation system. In view of the timeline I have outlined, I would appreciate receiving the considered views of the committee before the end of the current session. I thank committee members.

I thank the Minister. Deputy Michael McGrath was first to indicate.

I welcome the Minister and his officials and thank him for his opening statement. I ask him to clarify what he is asking the committee to do. As he indicated, there are diverse views on the matter. We only have to look around the room to realise there will not be consensus on it. We may possibly have a majority view but perhaps not. What is the Minister expecting of the committee? In its report published in March 2018, which he cited, the committee stated it expected the Minister to come back to it prior to the budget last October. That did not prove possible, presumably because the report was not ready. What is the Minister expecting to receive from the committee by mid-July?

My key point in my consideration of this issue is that when I looked at the different options I would have considered, the committee independently reached the same view on them, namely, that we either maintain a national rate or that we allow local authorities to deliver the same yield by county but that they have the ability to vary the rate. It became obvious to me that while it was possible to maintain the total yield from the LPT and for it to remain unchanged, it was challenging to provide for every single individual property owner to be in a position where his or her bill would be unchanged.

The exceptional geographical diversity here means an unchanged national yield of the LPT is not the same as an unchanged liability for everyone who is currently paying it. That is because of the differing rates of increase in property values across the country. I have furnished to the committee the detail of the different options it considered and which I also considered independently of the committee. If the committee is in a position to form a view on any of the five scenarios I have put forward, this would be helpful for me in what I will need to do later in the year. I am conscious that I need to assemble a majority within this committee to support changes that we will have to enact early next year.

On the timeline, the Minister referred to early 2020, assuming we are all still here at that stage. There are certain exemptions that are due to expire in October. The Minister has said in parliamentary replies that they will be extended on an administrative basis pending the legislation.

That is correct. My objective would be to maintain it on a "no policy change" basis until we get to the point at which legislation will be needed to renew this tax in its entirety.

I understand in the region of 60,000 properties are in the main category of newly acquired properties. Will their first liability be in 2020 or 2021?

It will be in 2021.

I will ask the Minister to clarify something for me in respect of scenario 2. This is where the LPT yield for each local authority is to be kept more or less the same. An analysis is then done on home valuations in the area. The rate for that local authority can be adjusted based on those revised valuations to ensure that the yield for the local authority remains pretty much consistent with what it was. According to the interdepartmental report, some 80% of properties in that scenario will see an increase from just above zero to over €200. I am struggling to understand how that is the case given that in each local authority area, there will be new properties coming into the mix where the exemption will have lapsed. That will mean extra revenue. The local authority is having a target of collecting the same amount as it did under the old regime. How can it be that some 80% of properties in that local authority area will be facing an increase? Is it to do with the treatment of the local adjustment factor?

No. To deal with the first part of the Deputy's question, as we bring existing households into the LPT net, which we will need to do, the revenue these properties will contribute initially will be a relatively small part of the new LPT yield. In respect of why there is such a variation, even in scenario 2 as the Deputy has identified, there are two reasons. The first is that there has been such geographical variation by county. We have seen very different rates of price changes by county across the country. Even within counties, we have seen very uneven rates of price increases. This is the key point. The uneven degree of price inflation by county and within counties has made it very difficult to come up with a model in which we can ensure there is nobody who does not face a change. In the debate on LPT that has been ongoing on the back of this Oireachtas committee report, and perhaps in my own comments on the matter, perhaps that point should be made clearer before going down the path of bringing legislation into the House on it.

I hear what the Minister is saying. It is really a restatement of what he said earlier.

I am struggling to understand how specific councils will bring in the same overall amount as they did under the old regime, before the revaluation. There will be additional properties in the net, but the overall yield will be the same. How is it that 80% of properties will actually give a larger yield?

It is because of the price variation within each local authority area.

That does not explain it.

I am happy to supply the model underlying the figures to the committee.

Is it that 20% of properties are reducing sufficiently in value that they compensate for the other 80%?

Yes, it is because of how uneven the price development is. We have based all our calculations on the figures we collected from the Revenue Commissioners. This is the yield those data deliver. As the discussion develops, I can ask my officials to come in and comment on the numbers. What I have set out is what our model of property prices across the country has yielded.

Will the Minister revert to the committee with an explanation on that point?

To clarify, we, as a committee, were hoping to have such a briefing with the Minister's officials but we were unable to progress it. I acknowledge that and look forward to a chance to re-engage with them. I invite Deputy Boyd Barrett to put his questions to the Minister.

People Before Profit, among others, has always opposed the property tax. Given the review that is under way and the fact that, at some point, the Minister will have to make decisions on all these matters, will he consider abolishing the LPT at this time? When it was introduced, the Government said it would provide more funding for local services. It has not done so. We were told it would help to dampen the type of property madness we saw prior to 2008. It clearly has not achieved that objective. In addition, it has proved in its operation not to be fair in the way the Government suggested it would be. Increases in the tax have been deferred several times and the Minister does not know quite what to do in that regard. We are left with a situation where the Government is having to look at all sorts of convolutions to reconfigure it. Is not all of this proof that the tax was fundamentally flawed from the beginning and was always going to be unfair?

The basic problem is that the payment was linked to property prices, something over which householders have absolutely no control, and which have, in the intervening period, gone out of control. It represents an additional payment for something people have paid for already and, moreover, ability to pay - that is, the income coming into the household - is not taken into account at all. All these chickens have come home to roost and the Minister is left in the dilemma of what to do. Without being too political about it, it is surely fair for those of us who opposed the tax from the beginning to say that this dilemma is good reason to reconsider its whole merit. Our view is that it is a fundamentally flawed tax. The Minister must finally deal with the problems arising out of the linkage between the tax and property values, which are going through the roof. If we go ahead with the tax as originally envisaged, those increased property prices will see huge increases in payments due. Even after any changes the Minister might introduce, the problem of the linkage with property values remains at the heart of the issue. Will the Minister now consider that the problem is, in fact, the property market? Will he take on board the other matters we have been highlighting all along?

Rather than put an unfair tax on the family home, will he review things like wealth taxes, particularly in the context of the enormous wealth generated by those who are speculating on property? A reconfigured property tax might be redirected away from ordinary homeowners towards those who are profiteering from the property sector, driving it out of control and doing immense damage at several levels to society, including to the people who are trying to put an affordable roof over their head. At this point, the mess in the property market amounts to a macroeconomic threat.

I take a different view. A tax code should have the ability to tax assets appropriately. The LPT has got the balance right between having a broad definition of what wealth is and being able to tax it in a progressive way. The more valuable one's home, the higher one's payment. I would have hoped to see that principle of progressivity supported by the Deputy. Ireland is one of the few countries in the world that, prior to the introduction of the LPT, had no property-related form of tax. We see from what has happened with property taxes elsewhere that the first point of revaluation is the most challenging because it normally comes after a period of property price growth, which is what we are facing.

On the question of how we tax people who might be profiting from property development, that was the basis of our decision to increase stamp duty on commercial property. Measures like this go some way to ensuring that those who might profit from commercial development, in particular, make a larger contribution to the delivery of public services.

The Minister stated earlier that some of the problems he is facing in reworking the LPT are to do with the unevenness of property prices, price increases and so on. How can he say that in one breath and then state that it is fair to levy a tax based on the value of somebody's property when there is no consistency or fairness as to how those prices have, as in most cases, increased? How can he make those statements at the same time when, clearly, the value of his or her property bears no relation to the actions of the householder?

I do not agree that my position on this introduces a tension, but I accept that it introduces a difficulty in terms of how we go about the revaluation process. It is a difficulty we must overcome because ensuring that the first revaluation of the LPT is successful offers the opportunity for the tax to make more of a contribution to the delivery of public services into the future. If that happens, it will mean local authorities are able to fund themselves better and have more resources. It will also help to avoid the types of pressures we may face on other forms of tax collection. Rather than a tension, I see a difficulty which I recognised in the decision I made on deferral.

I thank the Minister and his officials for their engagement with the committee on this matter. Coming from a background in local government, my perspective is that while nobody particularly likes additional taxes, the public generally was accepting of the property tax on the basis that it would be spent locally. The Minister referred earlier to democracy at local level. Accountability at local level is even more important in terms of people seeing where the property tax is being spent. As a local public representative, I was left in no doubt that people wanted transparency in this regard. Some of them, of course, expected the money to be spent outside their front doors.

I am not talking about that. I am talking about seeing the money that is collected and that we get value for money at local authority level. That is one of the major engagements that needs to be undertaken, with accountability from the local authorities about exactly where and what the property tax is spent on.

Why is it not possible when a property gets planning permission, and a commencement or completion notice, for the property tax to be collected automatically when the person starts to build the property? We have figures for the number of houses where income could have been generated from 2013 to now had that system been in place. Does the Minister contemplate putting that type of system in place for future builds so that there is equity, and the person who owns the property pays for it?

One in eight houses in the country is vacant. Would the Minister consider where a property is left vacant for a period, for example over 12 months, that an additional property tax would be applied to encourage them back into the market?

Many people put their payment on the long finger. Is there an incentive for somebody who can afford to clear it to do so without incurring massive penalties on the deferred payment?

The reason it is not possible to extend the LPT now to new homes that are being built, in the absence of a revaluation for all, is that we would have to tax properties that have just been built on the basis of the 2013 valuation. Then we would be in the situation of taxing one property that existed in 2013 on that valuation and of finding a way to infer the taxable value of a new property to be built that is consistent with 2013 market pricing. The challenge of doing that and doing it fairly is immense. While I accept and want to, and will, change the fact that some properties do not pay the tax at all, we were not able to come up with a system that would allow us to infer the 2013 value of a property built since 2013.

I would be cautious about changing the weighting of the tax if a property is unoccupied because of the experience I had before this committee where I produced a report on unoccupied properties and discussed whether we would bring in a form of tax on them to encourage greater occupation. The two lessons that came out of that report are, first, that the number of unoccupied properties is much lower than people might expect and, second, those properties may be unoccupied for various reasons, for example, because a person is ill or receiving care. We need to take care about whether we tax it, not that the Deputy is suggesting doing that.

The incentive for people to pay now rather than pay more at a later date is there because the more they clear of the amount that is due the less they will pay in the future because they will be reducing their interest payments.

I have heard the Minister use the word "we" more often than usual in his responses today. He usually says "I".

I meant this "we" over here, for the purpose of clarification. I was not extending it any further. Perhaps this illustrates the difficulty.

That is reassuring because in the last few paragraphs he has said a lot about what "we" need to do. This is the budgetary oversight committee, not the budgetary formulation committee. That is the Minister's job. From a budgetary oversight perspective I notice that when it comes to difficult decisions, whether the carbon tax or petrol and diesel equalisation and the LPT, the Minister has failed to make a decision. He seems, however, to have nailed his colours to the mast from a general perspective. That is why I wonder about the "we" in the later part of his contribution. He says LPT has the potential to play a more significant part in our overall tax system. He has indicated a policy stance on that. The more significant part is I presume that he wants the yield to be bigger. To develop that stance further he has gestured to France where the property tax represents 2.8% of gross domestic product, GDP, and to the UK where it represents over 3% of GDP, whereas in Ireland it is at 0.6%. Why put that in unless he is indicating where he would like to see this go? That would represent very significant increases for property owners.

In response to the Deputy's points about my not making decisions, for those he has pointed to that I have not made, I would point to the ones I have made, principally the value added tax, VAT, in the hospitality and services sector, the change in the betting levy and the stamp duty on commercial property. He is correct to say that there are some changes I have not made but there are others that I have made, each of which met resistance from some in the House and certainly from those affected by them, and they still do. Experience has taught me that if we are to make further changes, particularly in the area of carbon taxation we need to build up a degree of consensus for doing it as I have done for the other changes I have made.

On the point about the long-term view I would like to see LPT yield more than it does at the moment but the caveat which has influenced what I have not done on LPT revaluation is that any changes must be modest and affordable and I would like to get to a position where the change which I propose to the committee – the Deputy is right that it is my responsibility to propose changes – is one that does not bring change for many, that for some is a change by a single band and for others is related to the value of their property. The greatest increase in yield will come from the number of new homes that come into the LPT net. That is how we will see it grow but we have a long way to go to see enough new homes becoming available to get to the percentage tax yield I referred to a moment ago.

Would the Minister see the yield rising to a similar percentage of GDP as in France or the UK?

I do not see that happening in the short or medium term.

That would be five or six times the current percentage.

Yes. My key consideration in all of this, which is why I made the decision that I did, is that if anybody faces an increase it should be modest and affordable.

That does not tally with what the Minister said, namely that he would like to see the tax pay a more significant role. He did not say a more modestly significant role, which is an oxymoron. He spoke about enlarging its contribution as a proportion of the overall tax yield.

I have explained that I see that coming about as a result of new homes coming into the local property tax, LPT, base as they are built.

I thank the Minister. I made this point the last time we spoke about this. People who in some cases have been exempt for five or six years will be living side by side with people who have been paying local property tax and paying for local services. Was there not even an opportunity to address that? Do the Minister's officials have an average figure for what the exemption of 60,000 to 70,000 houses costs the Exchequer annually under existing rates?

We considered it but we did not find a way of doing it that would be fair to all. It goes back to the point I made to Deputy Breathnach. In order to have a taxable liability we need a way of pricing the asset. We would then face the challenge of trying to assign a market value at 2013 levels to properties that have just been built. We were not able to come up with a way of doing that which would be fair and would withstand challenge. The yield we are forgoing as a result of that is currently between €25 million and €27 million.

There is some sympathy on both sides of the House for the idea of allowing small landlords to claim some property tax back in order to make their yield on their properties a little bit more attractive. How would the Minister see that applying to the cuckoo funds who are currently buying properties or the developers who are applying to build massive amounts of build-to-rent properties? How would he square that circle? Has he taken a view of that?

The person who pays the LPT is the property owner. The Deputy does not need me to tell him that. I would be careful about introducing LPT relief for landlords for precisely the reason he has identified. It is very difficult to make a tax policy measure available on the basis of scale, so that a landlord below a certain size can have it and one above that size cannot. This is one of the reasons I have not introduced several tax measures I was asked to introduce for the rental sector. There is no robust way of making tax policy available only to providers below a certain size. It is not possible to do that, so I would be very surprised if we could find a way of adjusting LPT to account for owners who rent properties.

The single biggest complaint about the local property tax I hear in my constituency in Mayo is that people feel it is a local tax and expect to see local services from it, but they have not seen any difference in local services since it came into being. The Minister faces a very difficult task in making this an equitable tax so that citizens see a return for what they pay. I agree with Deputy McGrath's assessment; it does not really make sense for local authorities to take in the same amount if there is going to be an increase in LPT for 80% of taxpayers and only 20% will see a reduction. I would like to see the methodology behind that. It does not seem to make much sense.

Consider the example of somebody in County Mayo who has a three-bed semi-detached property valued at €130,000 or even less. He or she should be paying considerably less property tax than somebody living in a very affluent part of Dublin like Killiney or Howth, where the level of public services is very different. In rural parts of Ireland there are really no transport services. Far fewer services are available. We must address the feeling among citizens that they do not get anything back for the LPT, that it just goes into the State coffers and is spent on things like overruns on the national children's hospital or the national broadband plan. Citizens have not seen any tangible difference in the provision of local services since the LPT was introduced. I would like to hear the MInister's views on this. Some local authorities are extremely cash-strapped, if I can use that term. They run on deficits and struggle to provide basic services. Other local authorities have additional moneys and can provide lots of local services. The variation between the services local authorities can provide and the resources available to them is so wide. The Minister would need to address that issue to get support for changes to the LPT.

I take the Deputy's point. We need to look at how to strengthen the link between the local property tax somebody pays and the local services he or she receives. That is a fair point. To make the Deputy aware I will refer to how the LPT is currently allocated. Of the approximately €500 million raised each year, approximately €400 million is recycled back to local authorities to provide services. Some €100 million is retained centrally. I would like to find a way to ensure that more of the tax raised within a particular area stays within that area. The flip side of that is the need to ensure other local authorities do not lose out as a result. We have to ensure that a local authority that currently receives funds from elsewhere is not penalised as a result of that policy decision. In parallel with bringing in the legislation we must make progress in dealing with that.

The Deputy made a point about the contrast between a property in Mayo and a property in a very affluent part of Dublin. As the Deputy knows, it is likely though not certain that the owner of the property in Mayo will pay less LPT because of the lower property value. This debate cuts into the heart of issues I will have to deal with when I present the legislation to the House. Because property prices have grown at different levels in different parts of the country, any reform will have distributional consequences. Some people will benefit and others will not. My overall point is that made by Deputies Chambers and Breathnach. As part of changing this I would like to build the link between what property owners pay and what is retained and spent in their areas. We can do that. We will have to do it for some local authorities in order to ensure a successful revaluation.

I want to be clear that someone who has seen a significant rise in the value of his or her property in an affluent part of the country may not have access to liquid cash to pay extra bills. He or she may be in a very difficult situation. Ability to pay has to be a factor regardless of the fact that some people happen to have seen a massive increase in their property values. The Minister notes that 20% of local property tax is centralised. Is this something the Government should reconsider? It is not very genuine to call it a local property tax if 20% goes back to the Central Fund to be spent wherever the Government decides.

In a local authority such as Mayo, elected members do not really have the ability to vary the LPT 15% up or down because if there is a gap left - if they vary it downwards - that gap will not be filled by central Government. A local authority with extra resources that is doing very well, is in surplus and has extra funds is better able to give back to its citizens. Such a local authority can vary its LPT and see no negative impact on the provision of services but in a less wealthy area of the country such as parts of rural Ireland, there is no ability to vary the LPT because a hole will be left in the local authority's finances. These are probably the same local authorities that are already cash strapped. I have seen nothing in what is proposed by the Minister that seeks to address that significant imbalance across the regions, particularly in parts of rural Ireland where the provision of services is far less than people would receive in other parts of the country. The message I get back loud and clear is that the LPT is not a fair tax, that it does not stay local and that people have not seen an improvement in their local services. The Government will consistently get push back until those issues are addressed.

The Deputy argued that we need to give consideration to ability to pay in terms of the future LPT. I can understand the attraction of that point and why the Deputy feels that way. Legislating for that and changing the LPT to do that would have massive consequences in terms of what this tax would look like in the future and the revenue it could raise. This is one of the issues we need to be careful about as we look at changing the revaluation and the legislation we need to make that happen.

Regarding the Deputy's second point about the effect on local authorities that cut their LPT rate, what the Deputy said is correct. If they cut the rate and there is a gap in revenues as a result, that gap is not filled. Conversely, were we to decide that we would fill that gap, we could perversely create an incentive for the rate to be reduced even further. That is why I believe there is merit in ensuring that in the future, if local authorities decide to cut their LPT rate, they can only do so if they feel they have the resources in place to ensure that it is affordable for them.

However, overall, the point made by the Deputy regarding the connection between paying a tax locally and seeing a local service improve is a fair one. I issued a press statement on the day because it was only touched on in this report because the report looked at how we raise the tax as opposed to how we spend it. That is something on which we need to make progress. To get a sense of the figures against that, we retain around €100 million per year in this tax so making progress towards that objective of what is paid locally being used to pay for a local service without penalising another local authority elsewhere does have significant financial consequences. Over time, we will be able to do a better job on it than we are doing at the moment.

Are we sticking to the LPT or can we range wider?

There is very little-----

There is very little time. I will focus on the LPT. Could the Minister clarify why there would be an increase for 80% of householders? There will be an increase in cost even though the amount of money is supposed to remain the same. Could the Minister give us some insight into that because if we look at scenario one, which shows that 20% of householders would get a reduction and 80% would get an increase, we can also see that every local authority outside Dublin would have a reduction in the amount of LPT collected. In that scenario, is the Minister committing to making up the deficit for those local authorities if he decides to go with option one?

The reason there would be some who would lose out is because of the movement of property values inside the local authority area. Perhaps the next step would be for my officials to come before the committee and take members through the detail of the model that has yielded that insight. They were due to appear before the committee beforehand but that was not possible for scheduling reasons because I was before the committee.

Regarding the question of whether I would commit to making up yield that would be lost were we to go ahead with a particular yield, that is not a commitment I could give now. What I want to do is ensure that overall, the yield we have at the moment is protected and maintained. The way to increase it in the future is bringing new homes into the net.

It is important when we look at scenario one because it is not really spelled out anywhere in the report. Every single county outside Dublin loses out. Dublin benefits by 23%. About €40 million will be stripped away from councils outside Dublin, which means services will have to be cut unless the Exchequer is willing to fill that hole. So option one creates a major problem for local authority budgets, which are already constrained. I agree with Deputy Chambers. There is significant frustration that a local authority tax was introduced and that on one hand, a local authority was given the powers to raise this tax and on the other, Exchequer funding of equal amounts was taken from the same local authorities. This would represent a very bad scenario for every single local authority outside Dublin county yet this is under active consideration with no commitment to filling that gap.

I have not yet said which one of these scenarios we should go for. If I say that I want to maintain the relative yield of the current LPT, the other side of that coin is the reason why I want to do it. If the yield goes down, I know there will be revenue lost in local authorities that will then become an issue for me because the Department of Housing, Planning and Local Government will want that money to be found in other ways. My view of what we will need to do involves protecting the overall yield for people who are paying. At this point, the way in which we will do it will be by a combination of band widening and rate adjustment nationally. I believe that by doing that, we will maintain the yield nationally and by maintaining the yield nationally, we will minimise and, hopefully, eliminate the possibility of any local authority losing revenue.

I welcome the Minister putting his view on the table. The Minister knows my view on the LPT. I believe it should be a completely different form where all assets are included. Notwithstanding that, we are dealing with this review. So the Minister's position is that he would choose none of the five options that have been presented by the review group. He would choose a variance of a number of those options.

I think that with some work, a combination of scenarios four and five offer a potential way forward on this issue.

It is very difficult because we have a review with five different scenarios showing exactly what every local authority would win or lose. Deputy McGrath asked what the Minister wants from this committee. It is getting more bizarre as we speak because if option one is not on the table, that is a different scenario. Let me go the policy-----

Just to be clear, from a process point of view, I will come back before this committee and the Oireachtas later on this year - hopefully, assuming we are all here doing our work - making a recommendation about what to do. If anything, this committee has indicated that there is far more complexity surrounding this issue than might have been apparent initially. The idea that one might be able to maintain yield but individual taxpayers would be unaffected is very difficult to deliver. I am conscious that Deputy McGrath is leaving.

I am in front of the committee and know that other matters have been raised today about me and the performance of my Department. I take my relationship with the committee seriously. While I know that in this round of questions the Chairman has focused on the local property tax if members want to raise other matters with me, it is understandable that they will do so. As I say this, I know that I will be causing difficulties elsewhere because there is an event this evening to which I have committed, but I take my accountability to the committee seriously and if members want to raise other matters with me, I am in their hands.

I did indicate to members that in prioritising this area there would be some latitude if they wanted to ask the Minister about matters discussed in our first session also.

Let me make a final point about the local property tax before getting into the Irish Fiscal Advisory Council's report. Before the Minister makes any determination on his options, these models should be provided for the committee in order that we would know who the winners and losers were, who would benefit and lose from a local authority's point of view. It is also important that the Minister outline what his position is on the retention of 100% of the proceeds and getting rid of the equalisation fund. Is he 100% committed to making sure the figure of 20% of the equalisation fund which is shared with local authorities in more rural and disadvantaged areas will be maintained in the context of Exchequer expenditure?

On the report of the Irish Fiscal Advisory Council, it was highly critical of the budgetary stance taken. There is a table, with which I am sure the Minister is familiar, which shows the mid-term projections which the council has stated for the second time in a row are unrealistic and not credible. It has again questioned the fact that the Government is not budgeting for the likes of the Christmas bonus. It has also pointed to health budget overruns, an issue the committee has discussed. There are indications that we will again see significant overruns.

Probably one of the biggest points that sticks out is that the Department and the Minister have not recognised the impact of our dependence on corporation tax in the previous document released by the Department. It shows that the impact is not as high but that the risk is high. The Irish Fiscal Advisory Council has questioned this. Given that the level of concentration is now more severe, at 48% of all tax revenue, according to the TEN Group of Companies, the fact that it is surging and that the Irish Fiscal Advisory Council is stating up to €3 billion to €6 billion may not be available in the medium term, is it time to look at the advice of the council on medium-term expenditure and give credible figures to the committee, the Oireachtas and the public? Is it time to look at having a policy on surges and increases in corporation tax?

The Minister may also be aware of the Irish Fiscal Advisory Council's questioning of the design of the rainy day fund which at this point is counter-cyclical but which is not counter-cyclical in a downturn because it runs contrary to fiscal rules to use it for social protection payments or investment in health or education supports and so on because it is limited in the ways it can be used?

I will deal with the four points made by the Deputy. First, he asked if I would publish a schedule to allow committee members, the Oireachtas and the public to see the distributional consequences and what I proposed to do. I will do so.

Second, on my commitment to ensuring no local authority would lose out as a result of any change, that is my policy objective. I want to ensure that if we are able to move to a model in which some local authorities can keep revenue they raise within their own jurisdiction or parameters, no other local authority will lose out because, as the Deputy knows as he understands how it works, at present through the equalisation fund many local authorities receive floats, the importance of same I realise. I make the point that, given that the Deputy has said he wants to abolish the LPT in its entirety, it would create a massive revenue loss-----

-----for those local authorities, as opposed to anything I am suggesting.

I mentioned direct Exchequer funding.

That gap in revenue would have to be filled in some other way.

Through having a proper asset tax.

With respect, the Deputy cannot point at me and ask how I would deal with a revenue loss, given that he is looking to abolish the tax that generates the revenue in the first place.

I will respond to the Irish Fiscal Advisory Council's comments on medium-term expenditure by citing the example of public pay. If we were to outline now what we believe increases in public pay will be in 2021, 2022 and 2023, it would have a fundamental effect on those figures by the time we got to agree them with leaders of the trade unions, with whom we negotiate those increases. If I were to indicate now what social welfare packages will be in 2022 or 2023, that would have a big effect on the policy decision made by the Minister for Employment Affairs and Social Protection on the day. Where I differ with the Irish Fiscal Advisory Council's analysis is that I believe that if we were to go down the path of current expenditure modelling, it would, by and large, eliminate policy discretion for the Government of the day in respect of where funding would be allocated between different Departments. We should relinquish that discretion with care.

On the Deputy's point on corporation tax, other documents published by my Department have acknowledged that the concentration risk definitely applies to corporation tax in that a smaller number of companies are paying a large share of that total tax head at the moment. It was for this reason that we increased VAT in the hospitality services, which the Deputy's party opposed. That measure was introduced to begin to broaden the tax base. This was also the reason we calculated our tax figures for this year on the basis of collecting a lower level of corporation tax than we collected last year. While there is a vulnerability which could develop in the future, what institutions such as the Irish Fiscal Advisory Council would argue, and I agree with them, is that we need to broaden the tax base. The Deputy was against all the ways we proposed to broaden the tax base.

That is not true.

It is true. Sinn Féin wants to abolish the local property tax. It was against water charges and voted against the VAT increase and the increase in the levy on the betting sector. That is Sinn Féin's track record. It was against those proposals and its only idea for raising revenue was to increase taxation on intellectual property in corporation tax policy. That is the very thing the Irish Fiscal Advisory Council is warning against.

No, it is the very thing Seamus Coffey has been consistently arguing for and the Minister knows he is wrong on that. Mr. Coffey has been critical of the fact the Minister has given an exemption on intellectual property rights. The Minister will also remember that I argued for an increase in VAT, albeit in a two-step manner. I made that argument one year before the Minister introduced the increase. I also argued for an increase in the betting tax but not in the way the Minister wanted.

There is always a reason to vote against these measures and the Deputy has taken it at every opportunity.

That is not true.

I reiterate that if members do not use all of their time in the first round, they will have an opportunity to reply to the Minister's comments in the second round.

The Minister should correct the record on the Irish Fiscal Advisory Council's position on intellectual property rights because he knows he is wrong in that regard.

I apologise for leaving the meeting earlier for another engagement. I have a question on the detail in the information sheets on exemptions and deferrals. I want to understand the position in this regard. Some 49,000 claims for exemption were made in 2018. According to the briefing sheet on the review of the local property tax report, 11,700 requests were made for exemption for homes purchased in 2013. Is that figure correct?

The Deputy is citing a briefing document supplied by the committee as opposed to the Minister or his officials who will not have seen it.

The document states that 49,000 claims for exemptions were made in 2018. What categories of people can avail of exemptions? We understand that deferrals are available to people who are on or below a particular income threshold. How many exemptions were made in each of the years since 2013 and for what reasons? Will the Minister address that broadly?

Those categories are charitable bodies; charitable bodies or public bodies providing special needs accommodation; registered nursing homes; properties that have been vacated because of long-term mental or physical infirmity; the residence of a severely incapacitated person; properties that are fully chargeable to commercial rates; unfinished housing estates; properties where there has been significant pyrite damage; certain properties purchased between 1 January 2013 and 31 December 2013; and the trading stock of builders that was unsold on 1 May or sold between 1 January and 31 October 2019.

That is fine. Other than exemptions granted for health, medical and other particular circumstances, how many houses, purchased or built, are currently the subject of exemptions?

The total number of exemptions is 48,728.

The fact that many people who bought their houses some time ago are exempt is a considerable cause of disaffection with the local property tax. It is a point often raised with me. We have all seen the rising property prices in Dublin so let us take as an example a new property, perhaps a penthouse apartment, bought in the International Financial Services Centre, IFSC, four or five years ago for between €700,000 and €1 million. Is it correct that that apartment is exempt from property tax? This is an example of the local legends I am talking about and the point I want to understand.

The answer is "Yes". At the moment, the tax applies to properties that were levied when we last made changes to this tax. If a property like the one described by Deputy Burton is exempt, so too is a property that was purchased by somebody for €100,000 or €150,000. Those people do not pay the local property tax either.

I am aware of that.

I want to finish the point because this cuts both ways. As Deputy Burton is aware, far more properties have been bought at values below the price of penthouse apartments in the IFSC.

I am talking about the exceptions that people know about. A new house might have been built on the edge of Dundalk. It might be a lovely five bedroom house and much more valuable than houses in Anne Street or elsewhere in Dundalk. One property could be valued at €600,000 or €700,000 whereas another property could be worth closer to €200,000 or €250,000. The people in the property valued at €250,000 are paying the property tax because they have been in the house for a long time. The people in the new or newly purchased property, however, are not paying the tax. I am making a point about the fairness of taxation. The Minister cannot argue that this situation should continue indefinitely. I understand a case involving a new build where a fresh mortgage has been taken on. In that case, an exemption for two years might be justified perhaps as the people concerned set themselves up. It is really hard, however, for people to understand this growing band of exemptions. I suggest strongly a change that could be instituted immediately but that would not interfere with the tax base. This might be a token change, but I suggest applying even the minimum rate of property tax to those properties. That would not be overly complex. The current situation is wrong.

I will address Deputy Burton's point briefly. I am not suggesting that exemptions continue indefinitely. We have to change this situation. As I stated to Deputy Breathnach earlier, I accept the inequity of one property being subject to the property tax while another is not. An equal inequity in the eyes of some, however, would be charging one person on the basis of 2019 property values and another on the basis of property values in 2013. My view is that we should deal with all of this in one go.

When the next re-evaluation happens, everybody from then on should pay the local property tax on the basis of market valuation at that same point in time.

This is a sore point with many people throughout the country. People cannot understand this situation. It speaks of a blatant unfairness. A central rule of taxation is that it must be levied as fairly as possible. Taxation must affect people in equal circumstances equally. My other question-----

Deputy Burton is out of time but she has a few seconds to ask that question.

What is the situation regarding the ongoing drama with the appointment of the Governor of the Central Bank? Has the appointment been suspended or stalled? The Minister for Finance has been silent on this matter. It is very important who runs the Central Bank. Can we know what is happening?

I am sorry but that is completely outside our area today.

The Minister indicated that he would accept other questions.

I did indeed. The incoming Governor of the Central Bank has now been appointed. He was appointed when the Government made its recommendation to the President and the President then acted on that recommendation. The Government's recommendation was made on the back of my recommendation which itself followed an independent and thorough process that yielded a single name at its conclusion. That was Mr. Makhlouf. I am not going to comment on an inquiry under way in another jurisdiction. I do not believe it would be appropriate. That inquiry is under way and the authorities in New Zealand have outlined what that process is and the date by which it is aimed to be finished.

Can the Minister give us an indication of that finish date?

I am sorry but Deputy Burton is out of time.

This is an important point.

In the way-----

This is the Committee on Budgetary Oversight. We listened to the representatives from the IFAC earlier.

I am sorry Deputy Burton-----

There are few people more important in the Irish system than the Governor of the Central Bank of Ireland.

I will let the Minister in briefly to finish and then I will explain again how this questioning works.

The New Zealand authorities have indicated that they are aiming to have this inquiry finished by the end of June. That is, however, a matter for them.

I want to make it absolutely clear to all Deputies that they will have an opportunity to come back in again after we have completed a round of questioning. All they have to do is wait and then they can come back in and follow up with the Minister as much as they like. I call Deputy Cowen.

Regarding the Irish Fiscal Advisory Council, thankfully we have that forum available to us to independently and critically analyse the performance of the Government and the economy. Since the last soft landing, if we want to call it that, we have had the introduction of EU fiscal rules and departmental expenditure ceilings. They are not complementary to the present scenario. We have consistently exceeded departmental ceilings. The IFAC referred to the breach of the fiscal rules last year and, potentially, again this year.

That is quite damning and critical and focuses on a few key areas. We have spoken briefly about the first one, corporation tax receipts, and the Minister has given his response. I take the point made by the Minister. He has allowed for reduced receipts this time around. That, however, is not to say that the Minister will not use those receipts to bail out Departments, as he has done consistently in the past. The volatility remains consistent. What further analysis has been carried out by the Minister and his Department to measure that volatility and to allow a judgment to be made on when it will cease to be such a safety net for the economy?

The other issue mentioned was the impact of Brexit and the credibility of the forecasts made by the Minister's Department. Much depends on the Government assuming that there will be a soft or an arranged Brexit. It would appear now that it might be quite the opposite. That might have a major detrimental impact on the economy, its performance and other related aspects of the economy thereafter. It is unfortunate that element has not been factored into the forecasts. That may be why the representatives from the IFAC stated that some of the forecasts are not realistic, not credible and not responsible.

I will move on to another point I raised with the representatives of Irish Fiscal Advisory Council, IFAC, concerning the national development plan. We have overruns in two areas of it already. One is with the national children's hospital where in excess of another €350 million has to be provided for in the next three to four years and we have no information yet as to from where that will come. Also, in excess of €1.5 billion has to be provided for the national development plan up to 2027 and another €400 million has to be provided between 2019 and 2023. That is the guts of €3 billion that the Minister has said will come from future revenues. The representatives of IFAC have said, and I agree with them, that is not necessarily credible. It is unrealistic, it is not fair and it is not being straight with the electorate. The Minister said it will not result in any other projects being forgone, that there will be no effect on any other single project in the national development plan across the areas of health, housing, education and so forth. I contend the money to pay for this has to come from higher taxes, new borrowings, current expenditure, cuts or projects forgone in the national development plan. Those are the four options available to the Minister but he has said "No" to those. However, they and I have said it is not credible to say that is the case. How does the Minister respond to that?

Regarding the different points the Deputy made, first, he alleged I have breached the fiscal rules in the-----

I do not, they do.

No, I think the Deputy said I had breached the fiscal rules.

Each budget I have introduced has been assessed by the European Commission as being compliant with our fiscal rules. I remember being where the Deputy is seated and being assured that rules were being met. I have to do better than that even though the rules are being met. To be clear, the European Commission has assessed the performance of the budgets I have introduced vis-à-vis the fiscal rules of the European Union and has said that I have complied with them.

On the matter of my breaching expenditure ceilings, more accurately it would be the case that expenditure ceilings, mostly in case of one or two Departments, have been breached and that is mainly centred around issues in the health area. To say we have breached these ceilings for all Departments-----

I did not say that. I said several.

No. The Deputy said that I had breached Government ceilings on a number of occasions. I am just stating what I have done.

Third, to address the point regarding Brexit, in the stability programme update, SPU, we called out what would be the effect on our economy of a hard Brexit taking place. That was published in April. It is highlighted in a box in the SPU. However, the Deputy's point is important in that we must acknowledge that circumstances are changing before our eyes at the moment. What may have been the case earlier in the year is now changing before us. When I get to prepare the summer economic statement, I intend to continue to outline the different scenarios we might have to deal with later in the year when it becomes clearer to us what the form of Brexit will be. While the SPU acknowledges the Brexit risk I will be spelling that out in more detail when I get to prepare the summer economic statement.

On IFAC's views on Project Ireland 2040 and the national development plan, I believe it will be possible over a number of budgets to meet the higher commitments we will have for broadband and the national children’s hospital but I would make the point that the national children’s hospital, in particular, has additional costs that need to be paid for across the next three years and then we will have paid for the hospital and it will be in place.

With cuts of €116 million per annum.

I will need to acknowledge and outline on budget day the ways in which that will be paid for, and I will do that.

Therefore, it will not come from future revenues, as the Minister said previously.

I have always said there are a number of different ways in which it can be paid for. The future tax revenues we will collect are an obvious way in which it can be paid for but there are other choices that we can make as well. I have always said that.

Including forgoing some of the projects listed in the national development plan.

I have not done that to date.

The Minister refuted previously that he would go down that road at all.

My view is that we will be able to maintain other projects we have in the national development plan. When we made the decision earlier this year to pay the additional costs from the national children’s hospital without changing the capital ceilings earlier, I was told this would result in a variety of project cancellations. That has not happened. If earlier in the year I had increased the capital ceiling for the Department for the Government overall to pay for the additional costs of the national children’s hospital, I would now be facing a charge from the Irish Fiscal Advisory Council, IFAC, and no doubt from the Deputy, that we were increasing the total Government capital ceiling to chase the cost of a project. That is a precedent set-----

Exactly and that is why it is important the Minister lays out now what will be cut to the tune of €116 million per annum over the next three years to pay for the national children’s hospital overrun. It is equally important he does not confine himself to future revenue to pay for the overrun associated with the national broadband plan because it is massively excessive and will have an impact on some projects if it is to paid for in another form and that is within the envelope he has for the national development plan.

As I said, I have demonstrated this year our ability to deliver the funding that is needed for the national children’s hospital without making changes elsewhere. As I approach budget day having outlined the resources available to us in the summer economic statement, I believe we will be able to continue with that approach. With respect to the national broadband plan, in particular, I have acknowledged it is a very costly project and I was before this committee in regard to it, but at some point those who are opposed to what we are doing will need to say how they would do it cheaper while delivering 100% coverage.

Absolutely and I have no problem whatsoever with that.

I thank Deputy Cowen. I call Deputy Eamon Ryan.

I apologise for being in and out of the meeting but I had to also attend a meeting of the Joint Committee on Communications, Climate Action and the Environment.

The IFAC briefing earlier was scary for those of us who have been here long enough. The stories the representatives told us of "I will spend it because I have it economics" and betting the future on stable tax revenues that might not be realised is familiar and scary if some of the international downside risks bring us into financial difficulties again. There is a similar sense currently with it comes to our treatment of land. It is quite retro. Developers have full page advertisements in newspapers telling us what is good for us in the form of development. Fine Gael is relying almost entirely on the market to solve our housing problems, which, clearly, is not working. It is giving everything to developers in terms of lower standards and so on and developers are storing land again and playing the housing issue for their own interests.

As part of the wider consideration of property tax, will the Minister consider reintroducing the tax that we introduced in government, which put an 80% tax on any rezoning profits that would accrue to a landowner who would benefit from that land being rezoned in any way? The previous Government pulled that measure arguing it never raised any revenues and therefore why would we have it. However, it is an important check against improper speculative gains from land hoarding. With the commencement of new development plans in the councils, it would be completely improper for any of the benefits of that to accrue to developers. It might put some manners on the developers if they were not to see it as a speculative asset that is worth hoarding.

Second, will the Minister give the Land Development Agency compulsory purchase order powers, or consider giving it stronger powers in that respect? We need to build up bands to achieve the objectives of the national planning framework, with which I agree. The national development plan abandoned it - it is totally unsustainable - but the regional planning framework was very good. It is desirable to bring life back to the centre.

For example, in Dublin city, the Land Development Agency might look at making compulsory purchase orders in respect of brownfield or industrial estate lands. It could be effective to develop such lands in conjunction with other State assets. Will the Land Development Agency be given powers to make compulsory purchase orders and, if so, will it be possible to ensure that this will not just result in massive benefits or profits for landowners? The latter should not necessarily benefit as a result of compulsory purchase orders being made, any profit should accrue to the State. Is the Minister considering giving the Land Development Agency powers in this regard?

I have views on domestic property tax, which we tend to focus on and then miss the bigger picture. Not taxing the capital asset of land that is hoarded by speculators and not released onto the market is the core problem when it comes to housing. Is the Minister examining the possibility of strengthening the State's ability to recoup benefits that accrue from developments like the metro through the use of site levies and other mechanisms? Is the Minister looking at this as a third mechanism to even up the score and ensure that we do not just end up with a developer-led system but, rather, but a property management system designed to uphold the public good?

In the context of the Deputy’s assessment of where we stand from IFAC's point of view, will he give consideration to changes we have made in broadening the tax base to deal with the very risk he identified? Over the past two budgets, the tax base has been broadened. This was done despite the fact the sectors of our economy affected by tax broadening did not want it. It happened precisely because I am trying to find ways of ensuring that, over time, we do not become excessively reliant on a particular tax head. The Deputy knows what they are and he knows what we have done with stamp duty on commercial property, with VAT and with the gambling sector, which was on a smaller level.

Giving additional powers to the Land Development Agency is a matter for the Minister for Housing, Planning and Local Government, Deputy Eoghan Murphy, although I am working with him on it. My view is that the Land Development Agency should have strong powers to use compulsory purchase orders because it is important for allowing it to build up a landbank which, of itself, is value for building homes on. It will also have an important indirect effect then on the pricing of other land adjacent to those landbanks.

I am not planning to introduce an additional zoning tax. The reason for this is that I am trying to increase the supply of zoned land. My concern is that if I was to make such a change, it could run against that objective. It is not the case that we are reliant on the market to deliver the objectives we have for housing. We need private developers to deliver private homes to those who want to buy them. However, between one and four and one and five of the homes built this year will be delivered through different mechanisms by the State for social and public use. That is mixed used. At this point, I am not considering introducing development levies on rezoning decisions. I am engaging with the Department of Housing, Planning and Local Government to ensure we are funding infrastructure in the right way while ensuring nobody is benefiting disproportionately from the delivery of a public good in their vicinity.

Let us take the example of agricultural land valued at €10,000 an acre. If a council or other public body makes the decision to rezone it for residential use, the value might increase to €400,000 an acre. Is the Minister agreeing that the profit of €390,000 profit an acre should go to the owner of the land? As Judge Kenny asked when the matter came before the courts 40 years ago, why does the landowner deserve all that profit from a decision relating to the public good? If this is to encourage, as the Minister stated, the supply of zoned land, have we not seen the folly of those ways over the past 50 years and the corruption to which they give rise?

The Deputy is out of time. I have given him extra leeway but I must let the Minister back in.

My understanding is that in normal circumstances the landowner would pay capital gains tax.

At what percentage rate?

The landowner will pay capital gains tax.

Yes, but at a low percentage rate.

It is low in terms of a percentage of the total value of the property but the landowner is paying capital gains tax. The trade-off is that I want to ensure that more land upon which we can build more homes will be made available. I am trying to get the balance right. I am not making this policy choice because of a desire to protect private gain, I am doing it to try to ensure that we will be in a situation where there will be more zoned land. Does the Deputy accept that if we were to introduce the measure he is proposing, we would reduce the incentives for making land available for the building of homes?

I would be using a lot of those compulsory purchase orders. In any event, zoning decisions are made by local authorities and not, as was the case in the past, on the basis of land interests.

That has a big policy consequence as well. In essence, the Deputy is accepting my assumption that if we were to introduce such a tax measure, it would reduce the ability to make land available for additional homes. The Deputy’s answer to that question is that he would acquire it by means of compulsory purchase orders. That would have significant consequences for landowners. We can get the balance right in terms of encouraging the supply of more land in the future for the zoning of more land on which to build homes without needing to rely on the Deputy’s proposal.

The meeting is supposed to conclude in three minutes' time. However, I had indicated earlier to Deputy Lisa Chambers that she could come back in with a question.

I thank the Chairman for his indulgence and I appreciate having the opportunity to ask a question beyond the local property tax.

The IFAC report on the potential impact of a no-deal Brexit, which is more possible now than before, makes for quite sobering reading. The Minister is correct that the position is changing by the hour. Seamus Coffey and his team were present for the earlier part of the meeting. Their report indicates that a significant fiscal adjustment will be required, along with significant spending cuts or tax increases to stop Ireland’s debt ratio from spiralling in the event of hard Brexit. I asked Mr. Coffey what level of adjustment would be required in such an event. His response was it would be a €4 billion adjustment in one year and that it could be broadened out to €5 billion over a three-year period. Has the Minister done any planning in respect of how he might cope with such a significant adjustment to the public finances in the space of 12 months? Has the Department done anything to address the impact of the fluctuations in the value of sterling? Even today, the exchange rate is nearly 90 p to €1 and this is already having an impact on businesses. There was an assumption that it might fall back to 85 p to €1.

The secretariat provided a table, based on the IFAC report, on the baseline scenario for the budget balance compared with the ESRI and the Central Bank projections. The latter two vary. The Central Bank forecasts for a hard Brexit are far more miserable but the ESRI forecast is just as distressing.

It shows that in the event of a hard Brexit, instead of having a surplus of 0.6% of GNI we could be looking at a deficit of -4.7%, according to the Central Bank or -0.2.3%, according to the ESRI. If we track forward to 2022 and 2023, it is the same level of forecasting in that we had hoped for a surplus in those years, on the baseline scenario, but we are looking at a deficit now of at best -0.4% and, at worst, -2.8%. The Minister identified 2022 and 2023 as the years in which the most significant spending on the national broadband plan will be required. If there is a hard Brexit, it would make that level of spending for that particular capital investment almost impossible. I would like to hear the Minister's views on that.

In the context of the Deputy's point on the short and medium-term effects of Brexit on the national finances, I published an estimate of that earlier in the year and indicated that the effect would be significant. I also indicated that it would mean that the surpluses we have begun to run - and which would have run at a higher pace in the future - would be affected considerably and that the national finances would move back into deficit. I will outline our views on what this will mean in the context of our ability to make choices in the future because I want everybody to be aware of that. As to how we would then need to think about parts of the economy that require support, the position regarding Brexit is changing and we need to be aware of that in the context of what it might mean for us later in the year as the various debates in the British political system take place. If we get into a hard-Brexit scenario, it will mean that the Government will need to put in place supports for different parts of the economy and then pay for these.

On the Deputy's question about the national broadband plan, it would not be appropriate for me to comment on that because I am only at the point where I will be outlining resources that may or may not be available. I will say two things to the Deputy that will be up for debate throughout the year: first, if we do get into a hard-Brexit scenario, the parts of our country that could be most affected are also those that would rely most on broadband connectivity in the future; and, second, for those who believe that there is a cheaper or different way to do this, they will have to outline what that is at some point because I went through that process for the best part of a year in terms of trying to identify such a way. At this stage, all we are doing is beginning to identify what would be the different resource consequences of what we would need to deal with within a hard Brexit.

I know we are over time but I ask the Minister to bear with me as I have a couple of questions I want to ask him about the LPT. One of them relates to the committee's work on LPT. There is widespread discussion about the yield and a constant discussion about property prices increasing. What work has been done in terms of the yield and in looking at the scenarios relating to a property price crash and the protection of the yield from the LPT? In looking at a funding model for local government, how would we deal with that if there were a recurrence of what happened between 2008 and 2010? I do not know an analysis has been done in this regard but it would certainly be important in the context of the committee's work.

The Minister made reference to a willingness to look at the situation relating to managed estates and management fees. He also made a comment on the general principle of preserving the LPT and not providing exemptions, derogations or offsets. I speak on the basis of my experience as a public representative in Dublin.

Many people in Dublin pay a lot of property tax. There is a notion that the snow can be cleared or the footpaths repaired only once and that various things are done by a council at one particular point. Many people who live in non-managed estate areas also pay a lot of property tax. What is the Minister's thinking on the idea that most property tax, if it is kept and spent locally, will be spent for the greater good of the community? If somebody living in an apartment worth €700,000 is paying X amount in property tax and a management fee, he or she is getting the benefit of the management fee through the preservation of the immediate vicinity. Somebody living in a house worth €700,000 in a large housing estate will pay a large amount in property tax but might also be paying fees to a residents' association or whatever. Where is the equity in the proposal that the latter should pay more and why would the Minister consider it?

To make sure I understand the Chairman's question, is he talking about the particular issue of management fees?

I said in the report and on the day it was launched that I was aware of the interest in the Oireachtas in considering this issue. However, people living in properties, homes or apartments who are paying management fees are also more than likely in receipt of services supplied by the local authority as well. We need to assess the contribution they make in that light. Currently, people living in houses in an estate and paying a management fee also benefit directly or indirectly from the services the local authority provides. We need to assess how such homeowners will also make a contribution to the provision of those public services.

What about the other point about considering the models for a property price decrease?

Our modelling is based on the price at which the properties move to remaining unchanged and the yield therefore coming off an unchanged price. We have assumed neither continued inflation nor a deflation in the future. To explain that better, we have said that a property will go from a price point now to one in the future and we have not assumed that price point will go up or down after that. Maybe we can discuss this with the committee when we are doing the work we have to do in advance of bringing in legislation to reform this tax.

I thank the Minister on behalf of the committee for the time he and his officials have given us today. We very much appreciate that. It has been a long sitting day for the committee.

The select committee adjourned at 5.38 p.m. until 1.30 p.m. on Tuesday, 18 June 2019.