I move: "That the Bill be now read a Second Time."
I am pleased to open the debate in the Dáil on the Local Government (Charges) Bill 2009. The purpose of the Bill is to give effect to the Government's budgetary decision to introduce an annual charge on non-principal private residences. The Bill sets the charge at €200 and liability for it will fall, in the main, on owners of rental, holiday and vacant properties. This will broaden the revenue base of local authorities. The proceeds of the charge will be paid to, and retained by, local authorities and it will take effect in 2009 and continue to apply in subsequent years. It has been a long time since a new source of local funding has been made available to local authorities. The Indecon review of local government financing recommended that the sources of local government funding should be extended by a contribution in respect of non-principal private residences, and the Bill gives effect to the Government's budgetary decision in this regard. Furthermore, local authorities should not be disproportionately dependent on central Government funding and, for this reason, the importance of the Bill outweighs the level of revenue it will generate. The existing revenue base of local authorities is very narrow by international standards.
There is a now a measure of consensus that our economy, and especially our tax revenues, has been overly reliant on activity in the construction sector. The decline in the yield from transaction taxes such as stamp duty, capital gains and value added tax on property has been a major factor in the imbalance in our public finances which the Government has had to address. The correction has been sharp and painful and more needs to be done. The €200 charge on non-principal residences is one of the measures taken to close the gap between expenditure and revenue but it should be seen as more than simply a measure to raise additional revenue. It is a new type of revenue stream that will generate a stable yield and will not be subject to the volatility associated with the transaction based property taxes.
The Bill is a relatively short and straightforward legislative measure. Essentially, owners of non-principal private residences will be liable to pay to the city or county council an annual charge of €200 in which a relevant property is located. Liability arises each year on a point in time basis. Ownership of a relevant residential property on a specified day, known in the Bill as a liability date, gives rise to the requirement to pay the charge. My colleague, the Minister for the Environment, Heritage and Local Government, intends to designate 31 July as the liability date for 2009. In subsequent years the liability date will be 31 March and this earlier date will fit somewhat better with the overall annual financial cycle of local authorities.
The charge can be viewed as a type of self-assessment measure because it is for the owners of residential property, in the first instance, to assess whether they are liable to pay it. Given the relatively modest level at which the charge is set, it is very important to minimise the costs associated with its collection. Accordingly, city and county councils will not be required to issue bills or invoices to those persons who own property liable for the charge.
Nonetheless, the basis on which the charge will operate is relatively simple and straightforward, and it is generally easy to understand and administer. I do not anticipate that those persons liable to pay it will be under any confusion on this point and my Department and local authorities will mount an information campaign to advise people of their responsibilities in this regard. In addition to the normal sanctions involving a fine on conviction of an offence, the Bill incorporates a late payment fee which should act as a real incentive to pay the charge by the due date.
From a drafting perspective, the Bill takes as its starting position a universal liability for residential property in respect of the charge. It goes on to exempt certain buildings and owners from this liability. To put it another way, it identifies what is not liable within the totality of residential buildings rather than taking as a starting point buildings and owners that are liable. By far the most important exemption relates to principal private residences. Owner-occupied residences account for 70% of the entire housing stock. The more important of the other exemptions include property which is let directly or indirectly by local authorities or voluntary housing bodies for social housing, property the subject of shared ownership arrangements with local authorities and certain heritage properties. Other exemptions to the charge are provided for persons who, in process of changing house, own two residential properties for a short period, residential properties owned by charities and certain discretionary trusts and a spouse having an interest in a property after a divorce or separation agreement and who does not reside there but the other spouse does.
We had a helpful and constructive debate in the Seanad on the Bill and it is fair to say that most of the discussion revolved around the exemptions from the charge. In the main, Senators advocated additional provisions to exempt more owners and properties from its scope. During the debate, the Minister undertook to table two amendments before this House and to report these back to the Seanad. One of these amendments will exempt a residential property owned by persons who by reason of long-term physical or mental infirmity have to vacate their principal private residence. The other relates to what are sometimes referred to as "granny flats".
The provision of additional exemptions from taxation measures can give rise to a kind of domino effect. Providing an additional exemption from the charge may seem entirely reasonable in itself but can give rise to pressure for more exemptions catering for circumstances different to, but not wholly dissimilar from, the original one. There can be a tendency for an incremental extension of exemptions to a point where the revenue stream from the charge starts to be eroded significantly.
The Government has always taken the view that an annual charge of €200 is a relatively modest one. Against this background, I cannot see that the charge will represent a heavy burden on those required to pay it. This is not to say that there is no case for any exemptions from the charge but simply to make the point that a €200 annual charge is unlikely to be a serious burden for owners of property. The point has been made that the level of the charge may be increased in the future. I do not intend to comment on this except to state that apart from an adjustment for inflation any change in the level of the charge will require primary legislation and cannot be increased without reference to the Oireachtas.
It has been stated that the ideal taxation measure is equitable, simple and robust. The Local Government (Charges) Bill scores well under the criteria of simplicity and robustness. It is simple and cost effective to administer, and it will be simple to understand and comply with. It will generate revenue on a continuing basis and will not be subject to the volatility we have come to associate with transaction based property taxes. In this sense, it is sufficiently robust to cope with varying economic conditions while maintaining a stable yield. It has to be acknowledged that the Bill does not include a valuation-based component, something which would have made the measure very much more complex and difficult to administer and comply with. As against this, I again make the point that the amount of the charge is relatively modest at €200, and should not cause those liable to pay it any great difficulty.
The Bill provides that the charge shall be paid to county and city councils with an estimated annual yield of €40 million. However, census and other data suggest that there may be 400,000 properties in the State liable for the charge. The annual potential yield could, therefore, be higher than estimated at present. However, like any new taxation measure, knowledge of the actual yield will only come with experience of its operation in practice. Given the data sources available, it is likely that, initially at least, collection levels from rental properties, of which there are about 200,000, may be higher than from holiday homes and vacant residential properties.
For reasons of efficiency, the smaller towns and boroughs that are rating authorities — those that levy and collect commercial rates — will not be involved in this exercise. However, they will receive a payment from their parent county council based on the yield from the charge related to properties that are located in the town area. Provision is also made for the costs of collection of these charges to be retained by the parent local authority. This ensures that all local authorities who have revenue raising powers will benefit from the introduction of the charge.
In the event of non-payment of a charge for which a person is liable by a certain date, a late payment fee of €20 will apply for each month or part of a month for which the charge remains unpaid. An unpaid charge and any associated late payment fee will be a charge against the property in respect of which the liability arose. The rolled-up amount of a late payment fee should not be underestimated, and non-payment of a charge for a period of five years will result in a liability of more than €4,000 when account is taken of the charges and the late payment fees. I want the message to go out as clearly as possible to those who are liable to pay the charge that it will be much simpler and much less expensive to pay the charge when it falls due rather than to attempt to evade it, especially in terms of resale of the property concerned.
Where a property liable for the charge is sold, the Bill provides that the new owner of the property will be liable for unpaid charges and late payment fees, and that these will remain a charge against the property for a period of 12 years from the date that they were incurred. This should prove a strong incentive for a purchaser's solicitor to ensure that all outstanding charges are paid before a contract to sell the property is executed. Local authorities will also have power to take prosecutions against owners who fail to discharge their liability to pay the charge. Prosecution will be by way of summary jurisdiction, and a court may impose a fine of up to €2,000.
Local authorities can delegate functions under the Bill to the Local Government Computer Services Board or the Local Government Management Services Board, or both. In practice, the computer services board will design and operate a web-site facilitating electronic payment of the charge and a database to record payments. It is likely that local authorities will delegate functions to the Local Government Computer Services Board on the overall operation and management of a web-site through which the charge can be paid, and a database recording payment of the charge and related matters.
Provision is made for data exchange between local authorities and the Private Residential Tenancies Board, PRTB, the Electricity Supply Board, ESB, and the Revenue Commissioners. This data should assist local authorities to identify properties liable for the charge. The PRTB holds data on rental properties and the ESB's information technology systems can generate data on residential properties where relatively low amounts of electricity are used, something which will indicate the possibility of a holiday or a vacant residential property. The Revenue Commissioners hold data on certain property transactions such as stamp duty, VAT and capital gains taxes.
Payment will be accepted on behalf of any local authority through a web-site designed and constructed by the Local Government Computer Services Board and which is broadly similar to the motor tax on-line system. The revenue accruing will be relayed automatically and at intervals to the bank account of the city or county council in whose area the property is situated. While payment will also be accepted locally in local authority offices, I would ask those concerned to use the website for their own convenience. This will minimise costs associated with the administration and collection of the charge.
Deputies are aware of the significant role which the local government fund has played in financing the local government sector since it was established in 1999. The fund is financed from a combination of an Exchequer contribution and the full proceeds of motor taxation. Total funding for 2009 amounts to €1.46 billion, which represents approximately 30% of local authority current funding. The fund comprises an Exchequer contribution of €417 million and the proceeds of motor tax, which is projected at just over €1 billion this year. In addition, local authorities will retain the full proceeds of the new pension-related deduction, estimated at €80 million in 2009, and the Exchequer contribution to the fund has been reduced to take account of the deduction. The new pension related deduction has, therefore, a neutral impact on local authority finances in 2009.
Local authority current expenditure amounted to €1.8 billion in 1997. This year current expenditure by the local government sector will be of the order of €5 billion. Local authorities were advised of their 2009 general purpose grant allocations in October 2008, which indicated an average reduction of 6.4% over the corresponding 2008 allocations. The general purpose grant allocation from the fund to local authorities for 2009 amounts to €935 million. These allocations have been reviewed in the light of the estimated income from motor tax in 2009 and the Exchequer contribution to the fund for 2009 as set out in the supplementary budget. This has necessitated a further reduction of 3% in individual allocations, and local authorities have been recently notified on the matter.
The €200 charge is estimated to provide some €40 million in income to local authorities. This will more than ameliorate the impact of the reduction of €30 million in general purpose grants to which I have just referred. I hope that local authorities will be proactive in carrying the charge into effect and that the yield from the charge will exceed what I regard as a relatively conservative and prudent budget projection.
A properly resourced local government sector is vital to local democracy but I want to take this opportunity to address another issue that is equally important to the local government sector. As Deputies will be aware, a Green Paper on local government reform has been published and a White Paper will be published after the Government has had an opportunity to consider the report of the Commission on Taxation. The Green Paper addressed a number of issues, including a proper balance of power at local levels between the managers and elected representatives; directly elected mayors; establishing town councils in towns that have displayed significant population growth; quality customer service; and expenditure limits at local elections.
My colleague, the Minister, recently announced that the first election for a mayor for Dublin with a regional mandate will be held during the summer of next year. The election of the Dublin Mayor in 2010 will fulfil, a year ahead of target, a key commitment of the Government's programme. In introducing a directly elected mayor for the region, the Government will be making the most significant change to local democratic leadership in Dublin since the foundation of our current system of local government in the 19th century. Dublin is both a city and a region. A strong, dynamic and sustainable capital is essential to the well-being of the whole nation, not just to the people of the city itself. Experience has shown that strong political leadership can bring a new dynamic to cities and their regions.
The new mayor will be elected by the people of the city and the three surrounding Dublin county councils — that is, the area which constitutes the existing Dublin Regional Authority — and will have the powers to set strategic policy for the region, to co-ordinate across institutional boundaries and to ensure that local activity is in tune with a coherent set of strategic regional policies and plans. A strengthened Dublin Regional Authority, chaired by the mayor, will support and complement the mayor's activities. The introduction of a democratically accountable mayor for Dublin, a position which personifies local government and thereby creates a new connection with the public, will capture the imagination of the people of the city. It should bring about improved strategic planning for the region, better services, greater integration and coherence, the enhanced use of resources, and a stronger local democracy.
Quality customer service is another issue addressed in the Green Paper. The efficient and effective performance of local government is of real importance to our citizens and to the welfare of our local communities. In that context, the transforming public services agenda will build on the local government modernisation programme which has taken place over the past decade or so, but will also represent a step change in regard to progress in this area.
Transforming public services recommends that local government structures should be drawn on to enhance public service delivery. The democratic legitimacy of elected councils is also recognised and should be maximised as a focus for consultation on the delivery of national services locally. The local government sector is a willing and able partner in this agenda and recognises that public sector transformation is an integral part of the solution to Ireland's current economic difficulties. In this regard, greater coherence and synergy between different levels of Government and of the public service are fundamental to more efficient and effective operation. The Department and the local government sector are working closely together to advance broad public service initiatives for a more integrated public service which can achieve better value for money and enhanced customer services.
The Local Government (Charges) Bill is a fairly short and straightforward legislative instrument. The revenue stream to which it will give rise — while not insignificant at some €40 million annually — could not be described as large in the context of overall local government spending. Nonetheless, its importance cannot be measured simply in these terms. The Bill establishes a new funding source for local authorities, one that is genuinely local in that it derives from revenue raised locally and that will be expended for local purposes. By broadening the revenue base of local authorities, the charge can properly be described as a ground-breaking initiative. I hope it will receive a general welcome for that reason.
Arguably, it would serve the interests of local democracy still better if local authority members themselves determined, perhaps within certain limits, the level of the charge, as is the case for commercial rates. There may be scope to devolve other aspects of the charge to local authorities also. These are issues we may well revisit at a future date, and I welcome any views Deputies may have on these matters. I thank Deputies for their co-operation in facilitating early consideration of the Bill and commend it to the House.
