I move: "That the Bill be now read a Second Time."
This Bill is long overdue, being the first comprehensive valuation legislation introduced since the 1850s. It is designed to improve, streamline and modernise the operation of the valuation system which was the basis for the collection of £456 million in local authority rates in 2000. The new legislation removes deficiencies that have built up over the years in the valuation system, brings the system into line with the contemporary commercial environment and makes it more transparent and equitable for the ratepayer.
A key motivation for introducing the legislation is to allow a revaluation of commercial and industrial properties to take place in all rating authority areas over a period of years. A national revaluation has not been undertaken since the middle of the 19th century. The world has changed a lot since then and the bulk of the existing legislation was not designed to deal with the rapid pace of expansion, development and change that is a feature of our modern economy. A revaluation will allow a uniform and equitable valuation base to be established and anomalies to be removed. It will facilitate a return to the use of full net annual values rather than the confusing fractions arrangement that is operated at present.
Provision is being made for regular revaluations to be undertaken in all local authority areas. This measure will ensure that valuations are kept in line with changes in market values and provide for fairness and equity between ratepayers. Furthermore, the new legislation enhances the opportunities for ratepayers to be involved in the valuation process from an early stage. In addition to retaining the existing multi-tiered appeals system, it introduces a new consultative phase at the initial stage of the valuation process. The consultative phase means that, in future, ratepayers will be notified of the Valuation Office's proposed determination in respect of their property before it becomes effective for rating purposes. Ratepayers will then be given an opportunity to make a submission to the Valuation Office about that determination if they so wish. The Valuation Office is obliged to take a submission into account before the valuation certificate is issued and the valuation list amended or published.
I assure the House that increasing local authorities' rates income through a revaluation is not the purpose of the new legislation. In order to put this beyond doubt, provision is made for the capping of the increase in the overall rates income of a rating authority area in the year in which the first revaluation is used for rating purposes to the increase in the consumer price index.
The Bill is comprehensive legislation which provides for the repeal of existing valuation legislation and its replacement by modern legislation for those elements of the current valuation system it is proposed to retain and a revaluation of all rateable property in the country on a rolling basis, that is, the revaluation of individual rating authorities in a planned sequential manner. The whole country is to be revalued over a period of five years and there will be subsequent revaluations at regular intervals thereafter.
The Bill also provides for the continued use of net annual value as the basis of valuation and a return to the use of full NAV and the continued exemption from rates of a wide range of properties currently exempt for rates. Such properties include domestic property, agricultural land and non-residential farm buildings, State occupied property, land developed for forestry, horticulture or sport, non-commercial and State funded hospitals and other treatment and care facilities, non-commercial and State funded educational undertakings such as national, vocational, and secondary schools, places of public worship, public parks, lighthouses and non-commercial graveyards, certain properties of a cultural nature, such as non-commercial art galleries, museums, libraries, national monuments and any legally designated national cultural institutions, property used for the advancement of pure science or literature or the fine arts, property used by charitable organisations exclusively in a non-commercial manner for charitable purposes and property occupied by An Taisce. The Bill further provides for the continued exemption of bed and breakfast accommodation and self-catering accommodation from the rating system.
The main changes proposed in the rates base are the rating of the administrative offices of health boards and Teagasc, the full rating of all harbours, except those in State occupation, confirming the rateability of VEC offices and the rating of those non-commercial State-sponsored bodies and agencies not already paying rates, such as An Bord Pleanála; the current fixed term relief from rates for the mining and land based petroleum extraction industries is being abolished, an exemption from rates for property used to breed and rear fish is being applied, the extension of the current exempt status enjoyed by most schools on the basis that they are not established or conducted for profit and/or are State funded, to those universities or other third level institutions on the same basis, which are not already exempted from rates, repealing the existing arrangements for valuing Irish Rail and allowing for the option of globally valuing that organisation.
The Bill also provides for the streamlining of the valuation process and providing ratepayers with a formal opportunity to be heard in the process of determining rateable valuations, enhanced powers for the Valuation Office to obtain information relevant to the valuation process and to obtain access to property for valuation purposes, the continued use and updating of existing valuation lists until such time as new valuation lists are made available from the initial revaluation proposed in the Bill and giving the Minister for the Environment and Local Government the power to specify the maximum rates income for local authorities in the first year in which a revaluation is effective for rating purposes. I have indicated that the consumer price index is the guide in this regard. In addition, the Bill re-enacts various provisions relating to the Commissioner of Valuation and the valuation tribunal.
This Bill has been in gestation for a number of years. An interdepartmental review of the rateable valuation system was undertaken by the Department of Finance, the then Department of the Environment and the Valuation Office in 1995. This review was prompted by the need to carry out a thorough study of the valuation system and to consider options for improving it before any work commenced on comprehensive valuation legislation. The findings and the recommendations of the review group have significantly influenced the drawing up of the Valuation Bill.
Existing valuation legislation provides for the valuation of all fixed property, including land and buildings. Also valued is incorporeal property, defined as property with no physical existence, such as tolls, easements, fishery rights and other rights over property. The Valuation Office has responsibility for the rating valuation system. Although rates are no longer collected on domestic property as a result of the provisions of the 1978 Local Government (Financial Provisions) Act, or on agricultural land as a consequence of a 1984 Supreme Court decision, nevertheless, both categories of property are still included in the valuation lists. At this point the commercial and industrial sector effectively constitutes the rateable valuation base.
The basis of assessment for valuation purposes is the net annual value of a property. The NAV of a property is equivalent to the annual rent, exclusive of all payments in respect of rates, taxes, repairs and insurance which a property could reasonably be expected to command. The unit of assessment is the rateable hereditament, a hereditament being a property capable of inheritance. The rateable occupier, the person who has to pay the rates, is the person in the immediate use and enjoyment of the property, that is, the tenant or the owner in certain cases.
Both rating authorities and ratepayers have the option of having a property listed for revision. As no national revaluation has been carried out in the last century and a half, this revision process is effectively the only way in which the valuation lists were changed in the intervening years.
The principal recommendation made by the interdepartmental review group was that a revaluation of all rateable property should be undertaken. The primary objectives of such a revaluation are to remove anomalies in the valuation lists, to establish a uniform and equitable valuation base and to lessen the risk of any eventual challenge to the valuation system. Anomalies are widespread in the valuation lists. This is principally because no national revaluation has been carried out since the national valuation of all property in Ireland undertaken between 1852 and 1865. The rateable valuation of a property had been intended to be equivalent to its NAV but, over time, the rateable valuation increasingly represented a smaller and smaller fraction of the NAV.
It is important to update the valuation lists to eliminate any anomalies as they form the base on which a substantial part of locally raised revenue for local government is levied. This will be done through a national revaluation based on the new legislation. The proposed revaluation, the first general revaluation since the middle of the 19th century, will be a significant undertaking. Accordingly, the Bill provides that the revaluation be carried out on a rolling basis. This means that each rating authority will be separately revalued as part of a planned sequential revaluation of the whole country. The sequence will depend on the Commissioner of Valuation's judgment as to which rating authorities are most in need of a revaluation. Each rating authority will have its own base date by reference to which valuations will be determined. Uniformity between valuations will be established on a rating authority basis, whereby all valuations in a rating district will be uniform relative to one another instead of having a national uniformity, that is, where all valuations in the State would be required to be uniform with one another. Between revaluations, uniformity will be maintained on a rating authority basis. Such rating authority uniformity will be easier to establish and maintain than a national uniformity, thus making it easier to ensure ratepayers will be treated equitably. It is estimated that the revaluation will be completed in about five years and will be more easily and safely managed under the approach of a rolling revaluation which was also favoured by the interdepartmental review group. Under this approach, the Commissioner of Valuation will have the power to make an order for the revaluation of a particular rating authority. The base date, by reference to which valuations will be determined, will be designated in the commissioner's order and will be specific to that rating authority.
A revaluation will impact on ratepayers in two ways. First, the rateable valuation base is likely to be redistributed within the rating area, with some ratepayers' bills increasing and some ratepayers' bills decreasing. Second, the rateable valuation of a ratepayer's property will no longer be expressed in terms of a fraction of the property's net annual value, but in terms of the property's full net annual value.
A revaluation by itself will not increase the overall rates take by a rating authority. The rates take will be determined by the rate in the pound struck by the rating authority after a revaluation. A cap will be placed by the Minister for the Environment and Local Government on the increase in rates income allowed in the first year in which the revaluation takes effect. However, a revaluation will lead to a redistribution of the rates burden between ratepayers, reflecting changes in the property market that have taken place over the years. The different rates of increase in rental levels between different categories of property and between different locations in a rating authority will have an impact on the outcome of the revaluation. The proportion of rateable properties in a rating authority represented by the different categories of rateable property, such as retail or industrial property or office accommodation, will also affect the outcome of a revaluation. Because of the multiplicity of relevant factors involved, the precise effect of a revaluation on individual ratepayers' rates bills cannot be indicated before the revaluation has been completed.
As I have already indicated, rateable valuations will be expressed in terms of full net annual value, with effect from the first revaluation, instead of the current practice of using fractions of NAV. A return to full NAV was recommended by the interdepartmental review group as a means of improving the ease of comprehension and transparency of the valuation system and as the most appropriate basis of valuation for commercial and industrial property. The concept of NAV has been used since the inception of the valuation system in both Ireland and Great Britain. When the valuation system was reformed in England, Scotland and Northern Ireland, NAV was retained as the basis of valuation. The continued use of annual values have several advantages: both ratepayers and valuation practitioners are familiar with the concept and use of NAV in determining rateable valuations; the concept and use of NAV are familiar also to the courts; there is a lot of readily available evidence on which NAV can be based; and annual values are generally sufficiently stable to provide a predictable and reliable revenue base for rating authorities.
It is considered that a return to using full NAV may cause the level of rateable valuations to increase on average by the order of 300 fold. However, the increase on individual properties will vary considerably. To take an example for illustrative purposes, a property with a rateable valuation of £100 under the present arrangements could have a rateable valuation in the region of £30,000 when full NAV is used. Consequently, the rate in the pound charged by local authorities will have to fall sharply in order that the total rates collected through the rating system will remain broadly the same. Effectively, the rate in the pound will be reduced sufficiently to offset the increase in rateable valuation and hence deliver a revenue neutral outcome, subject to some adjustment for inflation.
The Bill, which is primarily aimed towards modernising the valuation process, mainly retains the current effective rateable valuation base. I have already set out those types of properties which will continue to be subject to rates, that is, mainly commercial and industrial properties. I have also indicated those properties which will not be subject to rates. In addition, I have outlined the changes being made in the rates base under the Bill. I would, however, like to made some further comments in this regard.
Under the existing valuation code those harbours which have been established as commercial bodies under the Harbours Act, 1996, are deemed to be rateable. The harbours concerned are, however, appealing the rateable valuations and do not consider that they should be included in the list of rateable properties. Consequently, to dispel any doubt about this issue, the Bill confirms their rateability and removes the anomaly whereby Dublin Port is liable for rates on only 21% of its rateable valuation. Prior to the 1996 Harbours Act, only Greenore and Rosslare ports were fully rateable. The Bill will ensure that all commercial ports in the State are treated in a similar manner and, on equitable grounds, the case for their exclusion from the rates base is not sustainable. Under the Bill those harbours operated by harbour authorities, excluding those harbours still in State occupation, will also be liable to rates.
The Bill provides that the exemption status currently enjoyed by most schools be extended to those universities and other third level educational institutions not established or conducted for profit and-or State funded which are not already relieved of the obligation to pay rates. The principal beneficiaries will be Trinity College and UCD, which are currently partly rated. Private agricultural colleges may benefit in so far as they meet the exemption criteria. Other possible beneficiaries are the Royal College of Surgeons, the Royal College of Physicians and the Incorporated Society of the King's Inns. The extent to which these institutions will benefit is dependent on whether they can show they are not established or conducted for a private profit and are conducted for educational purposes.
The Bill removes the anomaly whereby mines become rateable only seven years after they have been opened and reopened mines become rateable seven years after they have been reopened. This seven year relief from rates was conceded in the 19th century when mining technology was less advanced than it is today and it might have taken several years to bring a mine into full production after it was opened. The Bill also removes the anomaly whereby the right to drill for and take away petroleum is not deemed a rateable hereditament in relation to a particular oil pool until the expiration of 20 years from the date on which petrol was first produced from that oil pool. Any mine, reopened mine or petroleum extraction operation already enjoying a relief from rates at the time the new valuation Act commences will continue to benefit from the balance of the respective relief. That is only fair.
All commercial and non-commercial State-sponsored bodies are liable for rates under the existing valuation code, with the exception of Teagasc and An Bord Pleanála. These two bodies are currently exempted on the grounds that they exist for public purposes. To have all commercial and non-commercial State-sponsored bodies treated consistently, the Bill provides for the inclusion of both bodies and other State-sponsored bodies in the rates base. As regards Teagasc, it is proposed to exclude from rates all property that is used for educational purposes and non-commercial agricultural research. Similarly, property in use by FÁS for industrial training and property in use for industrial research by Forbairt will continue to be excluded from the rates base.
All property operated by local authorities and occupied by the Central and Regional Fisheries Boards is liable for rates under existing legislation and it is not proposed to alter this position. Prior to a judgment of the Valuation Tribunal in 1989, all administrative offices of health boards were deemed to be rateable in the same manner as local authority property. The Bill returns them to that position. Some of the administrative offices of the vocational education committees are also exempt from rates on the grounds that they are used for public purposes. However, rates are collected in respect of other VEC administrative offices. The Bill contains provisions which will confirm the rateability of these administrative offices. The administrative elements of schools will be unaffected by these provisions.
The Bill also provides for the continued exemption from rates for An Taisce by providing an exemption from rates for property occupied by a body established to conserve Ireland's natural and built endowments when the property is used exclusively in a non-commercial manner to meet that objective.
Given the continuing relief being provided for farm buildings, the Bill provides for similar relief from rates to facilities used for the breeding and rearing of fish. Fish farms are currently rateable. The exemption will cover facilities directly related to the operation of the fish farm but facilities used for the processing, storage and retailing of fish products will, of course, continue to be rateable.
The Bill provides that State-occupied property will continue to be exempt from rates – that is Government offices, Garda stations, Army barracks, prisons, State-occupied harbours and canals occupied by the Minister for Arts, Heritage, Gaeltacht and the Islands. The commercial sector, in particular IBEC and the Dublin Regional Business Alliance, have made representations that State-occupied property should be made subject to rates. While having some sympathy for their viewpoint, I would point out that rates have never been levied on property occupied by the State but that a contribution in lieu of rates was paid to local authorities from the 1870s until 1987. Since 1999, the contribution has been subsumed into the rates support grant, now the local government fund.
Making State-occupied property subject to rates would have to be on the basis of clawback measures from the local government fund being put in place to compensate for the significant rates income that certain local authorities would derive from State-occupied property. It must also be recognised that the local government fund has increased considerably in recent years. Rating State-occupied property with clawback measures from the fund being put in place, would almost certainly result in no reduction in the rates paid by current ratepayers. I simply was not going to enter into this cycle. I did not see any purpose in doing so and, in the final analysis, there would not be any real benefit.
While exempting State-occupied property from rates, the Valuation Bill does, however, provide for the commissioner of valuation to value these properties in the first revaluation following enactment. This will allow for rates to be collected in respect of these properties should Government decide at a later date to pursue that course of action. The State should have a knowledge of the rateable base of all the property it owns and, thus, of what the rateable income of all its property throughout the country could be. The Bill will provide for that.
Bed & Breakfast accommodation and self-catering accommodation have not been liable to rates since the Local Government (Financial Provisions) Act, 1978, took effect. In preparing the Valuation Bill, the Government considered this issue at length but decided not to rate B&B and self-catering accommodation. While there might be merit on equity grounds in the proposals to rate B&B and self catering accommodations, it is also clear that there are currently significant practical difficulties in doing so, in particular, the absence of a compulsory national licensing or registration system for such premises.
