Valuation Bill, 1985: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Mr. Skelly

On the last day I had reached the stage of summarising my contribution, and I would not like to leave Second Stage of this Bill without putting on record some of the recommendations that have been made by certain professionals. The Society of Chartered Surveyors in their analysis of the Bill and of the rating system made some points which should be noted. They were concerned mainly with the system as it exists and they and the Irish Auctioneers and Valuers Institute, who I believe have written to the Minister, generally welcome the Bill. They have made recommendations some of which are more suitable to Committee Stage and some could be taken on board by the Minister if he thinks them worthy of inclusion. The society said that they thought that the local taxation system had been criticised on numerous points but most of all as a system which had little regard to the ability of individuals to pay. The shortcomings could be corrected by allowing for rebates, reliefs and phased payments of rates. This seems to be a criticism, whether justified I do not know, of the staffing in the Valuation Office, which probably is an administrative problem.

When last I spoke on this I was seeking some information relating to the amount of money collected for non-domestic rates so that one could assess the impact they had in a local authority area, the help they might be and the justification for them. The societies I have mentioned seem to welcome the rating system and would favour an increase in the number of situations which would be liable for rates. That is an answer to a question I asked. They make a number of points in that regard, firstly that the rates as a local tax have much to commend them, secondly they are a difficult tax to avoid, thirdly they are easy to collect and they are estimated in advance. They say that they enable a community to recoup in some small way part of the value which that community create. That gives much food for thought. If the community create the wealth or value, then they should get something of it back in order to embellish further the same community, except where that would be a penalty on the success of any venture.

In the situations mentioned in the Bill any form of taxation is a penalty on any type of business that is trying to survive, particularly in a recession. Such concerns do not welcome having to pay arbitrarily imposed, unnecessary or unjustifiable rates, but the point is made that expenditure on property raises its value as a base for taxation. I am not convinced of that. An argument that a person who spends money on his property does not find easy to follow is that if you improve your property you will have to pay more rates for it. I can understand that from a domestic rating point of view but not from an industrial point of view. One can get satisfaction, pleasure and enjoyment from one's own property but from a commercial or industrial point of view one is doing it for the purpose of expanding the business base or because it is absolutely necessary. Therefore, the only basis or reason for doing it is that one expects to get something back, in this case from the local authority.

Domestic rates were phased out under the local Government (Financial Provisions) Act, 1978, which also extended the rates relief for secondary schools and bona fide community halls. The Irish Auctioners and Valuers Institute suggested that profitmaking organisations who provide sports grounds, community facilities or lands developed for sport should achieve nil rating; they should get the same relief as non-profitmaking organisations. In the submission made by the institute — and I am sure the Minister will receive a copy of it — they say that the percentage of local authority revenue from rates in 1965 was 34. By 1981 that figure had dropped to 16 per cent. I am not sure whether that includes domestic rates. I should like to know that.

Generally there is a welcome for the Bill. It is felt that the legislation is outdated and that there has been a neglect of the system. There has been a reduction in the rates assessment base. It is suggested that existing legislation should be repealed and new consolidating legislation introduced. One major point made is that the existing system of annual revisions has proved to be inflexible and it can take two years to effect an alteration of a rateable valuation. The existing annual revisions, being cyclical, create tremendous pressures at one period of the year. That is true of any annual charges falling due. It is true also in the case of insurance where employer's liability or public liability insurance is falling due. It is equally true in the case of rating. It has been suggested that a revaluation should be carried out in an updating period, that it need not be done immediately, and that it could be done over a phased period of a number of years. That is a constructive suggestion.

Both institutes and professions seem to agree on a continuous revision and say that is an essential element of a modern rating system. A continuous revision can go up or down depending on the state of the economy and whether or not we are in a recessionary period. Apart from the past few years, this would have meant that for a considerable number of years the trend would have been upward. They agree that it would provide a more fluid system for carrying out revisions. I can see the merit in that. If there is an arbitrary decision on a particular date and the appeals system is cumbersome, you have to wait until the next time and carry the cost in the meantime. I do not think there would be any great difficulty in adjusting that, except that there could be considerable costs involved in creating an administrative system which would be able to cater for it.

I should like to put on record the fact that the society recommended three things. One is the reform of the existing rating legislation to provide a modern base for the assessment of rateable valuations, that is, the current rental values. The second is the revaluation of all properties. Probably that is a more difficult, bigger and very costly task to undertake. Everybody in the commercial field would welcome an updated and fair system of rateable valuation. They would also like a system under which they could estimate any further costs involved from the point of view of business planning. This might affect smaller scale industrial or business ventures because of the critical nature of its costing. The third thing that seems to be desired is a continuous revision system. That could be to the advantage of the incumbent in the case of an appeal or a change of circumstances. It could also be a disadvantage in a change of climate. If the rating system was revalued from the date of its updating, it would be fair.

Mr. O'Kennedy

Deputy Skelly talked about establishing a modern base for valuation and having a fair base. We would all like to see those as the fundamental criteria applied. This Bill is an amendment of the Valuation Act, 1852, specifically, and other Acts going back to 1860 and in one case 1850. Much has changed between 1852 and 1985. It is appropriate that, when we are talking about a Valuation Bill which deals with some aspects of valuation practice, and the legislation which governs it, we should take a broad look and see if the Bill goes far enough.

I doubt that I will be able to conclude all my comments in the time available to me. Any comments I make will not be a criticism of the Commissioners of Valuation. They are charged by legislation to undertake certain tasks. Irrespective of decisions taken by the Government, such as the decision taken some time ago to derate residential houses, the commissioners and their staff are still obliged, in the absence of amending legislation, to spend a considerable amount of time inspecting residential houses for the purpose of making valuations which now have no relevance having regard to the decision on rates taken some time ago. It is important that legislation should be introduced to enable the commissioners to apply the resources and time of their staff effectively, as distinct from undertaking work which has no relevance at this point. I will come back to that in greater detail later.

We are told the purpose of the Bill is twofold: first, to deal with the consequence of the court decision in relation to valuation of plant and machinery and to include plant and machinery for valuation purposes of business premises and, secondly, to give legislative effect to what has been in some cases and for some time the practice of maintaining the tone of the valuation list, namely, the comparative valuation practice. Those are the two main points.

On the question of the valuation of plant and machinery I want to make two points. We are dealing with a narrow base in terms of rates at this point. As a consequence of a Government decision and as a consequence of the Supreme Court decision, only business properties are liable to rating charges. For that reason we should ensure, in all we do in respect of those properties which are liable, that the law, which is the base on which the practices and procedures are implemented, is fair. I should like to raise the question of whether or not it is fair in the circumstances at a time when we are said to be promoting, or trying to promote, industrial development modernisation of plant and equipment and giving some considerable grants through public expenditure for that purpose, to bring in a Bill of this nature to get around a court decision which effectively excluded plant and machinery. If we are now going to include plant and machinery we should at least consider the effect it is having. I have had representations from numerous business interests and from very representative groups, such as the Confederation of Irish Industry, expressing very grave concern about this Bill in that, as we all know, the overheads of Irish industry are very onerous. We are aware of the liquidation of companies. Therefore, each new cost factor becomes a matter of major importance. For that reason a cost factor of this nature should be very seriously weighed by the Government before they proceed with all Stages of this Bill.

I know that money must come from such sources as can afford to bear it on a basis of equity. However, I believe we have reached the point that, applying equity or the capacity to bear this tax, the business community, particularly those who have considerable plant and equipment which is for the purpose of productive activity in employment, should have this plant excluded. Is it fair and reasonable and in the interests of economic development to include it as if it were hereditament as a permanent fixed physical building, ratable for valuation purposes? I leave that for the Minister to consider, and also for the Minister for Finance, who has particular responsibility here. I believe in fact that this is more a matter for the Minister for Finance. The Commissioners of Valuation will implement whatever decisions in respect of legislation which the Government propose, but it is a matter that the Government should reconsider before bringing it in. I would like during Committee Stage to raise some questions about the cost involved in this and the impact it is having on manufacturing industry in particular. I would like to ask how many of those companies who have gone into liquidation owed the money due in respect of plant and machinery or in respect of rates generally?

The second point I would like to make is in my view much more related to the main purpose of this Bill. We are told in the explanatory memorandum that the Bill is:

to provide statutory authority for the long established practice of fixing valuations of rateable hereditaments by reference to the valuation of similar hereditaments already valued.

That may be all right as a practice but it will now be a matter of law, not practice. If it is to be introduced as a matter of law, which is binding as distinct from practice, which is something which can be changed according to procedure, it is essential that we raise some fundamental questions on what we are now being asked to introduce into our law.

The first thing is in relation to the equity of it. Let us say we have two properties, property (A) with a rental value of £20,000 on which the rateable valuation might be of the order of £200 and we have property (B) with a rental value of £10,000 of which the rateable valuation might be £100 according to the scales being applied. In many cases what can happen is that where you have properties of different value, because of the nature of the business being conducted and because of the state of the building, and you apply the comparative base of valuation to two properties in the same location, let it be "Pana" in Cork, O'Connell Street, Dublin or Main Street, Nenagh. If property (A) has been valued at such an amount per square foot and you now find the square footage in property (B) on the same street, are we now to give legislative effect to a position that might mean that, irrespective of the real rental value of the two properties, which is how the original Valuation Act was drawn up, irrespective of the business going on in the property and of the resale value of the property, that we now fix the rateable valuation on property (B) on the basis of what is already fixed in respect of property (A) which has already been valued? That is a matter which in the course of practice in the Office of the Commissioners of Valuation one would hope they would allow for. If we are going to build it into legislation the commissioners and the staff will be in a very different position. If we have a legislative position giving effect here to providing statutory authority—this is the important thing—for the basis of fixing valuation of rateable hereditaments by reference to the valuation of similar hereditaments already valued, what in the circumstances are similar hereditaments? I know there can be a general idea of what that is, but will it affect the actual value of the property?

I would like to point out some other anomalies. There is not a great deal of evidence of rental value of business properties around this city. We have of rateable valuation but not of real rental value. We have a fair amount of evidence of sale valuation of pubs and hotels. If we take a pub worth £500,000 one would expect to get a rateable valuation of £500. On a similar basis if it was worth £400,000 we would expect to get a rateable valuation of £400. It could happen that the rateable valuation will not relate to the actual sale value or the rental value if we fix in here in permanent legislation what is called as a rule of what has been a practice. I want to make it quite clear in all of this that one would rely on the expertise and fair play of the Commissioners of Valuation and their staff. That is fine when they are allowed to be free in terms of practice. I suggest even then that if they were adequately staffed to do the job they are best equipped to do they might be in a better position to fix the rateable valuation even before this Bill is passed. I am very concerned that this Bill will make it a statutory obligation or will be interpreted as such. We must be very careful about this before we give legal effect to it.

Debate adjourned.

Dáil Éireann debate - Wednesday, 29 May 1985