General Scheme of the Finance (Local Property Tax) (Amendment) Bill 2021: Discussion

Deputy Jim O'Callaghan took the Chair.

I am acting as Chairman today because of the unavailability of the Chairman and Vice Chairman. I accept their apologies. I will take speakers in the order in which they raise their hand.

The minutes of this committee to date have been agreed in private session. Can we agree to note this and that the minutes of the joint committee's meeting of 23 June are agreed? Agreed.

We are here to scrutinise the general scheme of the finance (local property tax) (amendment) Bill 2021. I welcome members and viewers who may be watching on Oireachtas TV to the public session of the joint committee. We are joined by the Minister for Finance, Deputy Paschal Donohoe, and his officials. The Minister will make some brief opening remarks. After that, there will be questions and answers from committee members. I understand from speaking to the Chairman that the Minister is aware that members may wish to comment on his recent announcement regarding the disposal of the State's shareholding in Bank of Ireland and the finance Bill relating to the European stability mechanism and single resolution fund. Members and the Minister are reminded that the meeting must conclude within two hours.

I have to start with an important notice on parliamentary privilege. 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, her or it identifiable. I remind members of the constitutional requirement that members must be physically present within the confines of the place where Parliament has chosen to sit, namely Leinster House or the Convention Centre Dublin, in order to participate in public meetings. Witnesses attending remotely from outside the parliamentary campus are aware that full privilege may not apply.

I thank the committee for the invitation to engage about the general scheme of the finance (local property tax) (amendment) Bill 2021, which I published at the beginning of June. I published the general scheme with a view to having the Bill enacted before the summer recess. This is necessary to enable the Revenue Commissioners to make the essential technical and administrative preparations to implement the various changes to the local property tax, LPT, regime that are contained within the Bill before the valuation date of 1 November 2021.

Perhaps the most significant proposal in the Bill is a revised method for calculating local property tax liabilities. The 2019 review of the local property tax, which the committee is aware of, analysed five scenarios in detail, broadly based on a €500 million target yield excluding any local adjustment factor, LAF. The scenario analyses were based on a data set assembled by the Revenue Commissioners from the property price register combined with Central Statistics Office and Revenue data and Department of Finance forecasts. The analyses are based on economic modelling and the predicted outcomes can offer only indicative rather than certain conclusions. The analyses can provide only a broad picture of the estimated effects on taxpayers.

A key challenge encountered during both the work on the review and the more recent analysis is the significant variation of property price increases geographically, especially the uneven pace and rate of increases in residential property values throughout the country since the original valuation on 1 May 2013. A key principle that informed the design of the local property tax in 2012 was simplicity for taxpayers and for Revenue, which collects the tax. In that regard, the new basis for calculating local property tax liabilities builds on the existing band structure and is a variation of scenario 5. The new approach maintains the number of bands at 20. Band 1 is expanded from €1 to €200,000 and band 2 contains values in the range €200,000 to €260,500. The LPT charge is fixed at the current charge for bands 1 and 2, which are €90 and €225 respectively. The other bands are widened by 75% to create bands of €87,500, which is an increase from current range of €50,000. For properties in bands 3 to 11, a mid-point rate of 0.1029% will be charged.

There is currently a higher rate for properties valued above €1 million, with the first million charged at 0.18% and everything above at the higher rate of 0.25%. Under the proposed variation of scenario 5, it is likely that owners of high value properties, meaning values over €1 million, would benefit from reductions in LPT liability, due to the widening of the bands and the reduced rate. We therefore have a higher rate which will apply to properties above €1 million, by charging at a higher mid-point rate on bands above €1.05 million and introducing a third rate for properties valued above €1.75 million. Therefore properties in bands 12 to 19, between €1.05 million and €1.75 million, are charged a mid-point rate of 0.1029% on the first €1.05 million and 0.25% on the balance over €1.05 million.

Properties in band 20 are charged on individual property values as before. In other words, the charges are 0.1029% on first €1.05 million, 0.25% between €1 million and €1.75 million and 0.3% on balance. All new residential properties built between valuation dates will be retrospectively valued as if they had existed on the preceding valuation date. New properties becoming liable for the local property tax at the next liability date, which will be the following 1 November, will be valued at the previous valuation date of 1 November 2021. Revenue will provide assistance to property owners to determine this value.

Property valuations will be reviewed every four years, rather than the current three years. This will provide a balance between the timely capture of changes in the property market and the need to limit compliance and administrative costs. It also assists the regular addition of new properties into the local property tax charge. From its inception the local property tax has been underpinned by the principle that keeping the number of exemptions low helps to keep the tax rate low for those who are liable to pay it. I have decided to allow the exemptions for first-time buyers and homes in ghost estates to lapse and to phase out the exemption in respect of pyrite damaged properties. In recognition of the enormously difficult situation facing homeowners affected by pyrite and mica in counties Donegal and Mayo, I am providing for a similar temporary exemption from local property tax for homes in those counties that have been damaged due to the use of defective concrete blocks in their construction and eligible for the defective concrete blocks grant scheme.

I propose to implement the 2019 review group recommendation that the income thresholds for local property tax deferrals be increased from €15,000 to €18,000 for a single owner and from €25,000 to €30,000 for a couple. I am also reducing the rate of interest on deferred local property tax from 4% to 3%.

I believe the measures proposed for the Bill will fulfil the programme for Government commitments and will secure the future of the local property tax although in a reformed structure that better suits our current national needs. I thank the committee.

I thank the Minister. I will first call Deputy Doherty followed by Senator Higgins who I understand is under some time pressure.

Has a copy of the Minister's opening statement been circulated? It had not been circulated before the meeting began. We do not have to rehash this but it is not best practice.

I understood my statement was shared with the committee yesterday. I am not quite sure what has happened. I agreed sharing of the opening statement yesterday.

It may be in the system.

I will get it shared now if it has not already been.

That is perfect. As I said, it may be in the system.

I want to raise with the Minister an issue in the legislation. We only have the heads of the Bill at present. The retention of 100% of local property tax by local authorities does away with a large element of the regime. Notwithstanding our position on the local property tax, I want to dig into the details of this legislation. Under this legislation the requirement to put 20% into an equalisation fund, which is then distributed, is gone. We understand the Government is committed to making up the shortfall. Under this Bill the equalisation fund will no longer exist. Will the Minister outline the alternative model to the equalisation fund? The Minister will be very conscious that a number of counties, including my county of Donegal, rely heavily on the equalisation fund. Counties Donegal, Tipperary, Mayo and Waterford make up 40% of the total of €133 million in payments this year. What will be the alternative model? Has the Minister looked at what Dr. Gerald Turley and Dr. Stephen McNena have said? They said the old model was not good international best practice and that what is needed is a new model that would increase the fund from €133 million to €210 million. I ask the Minister to take these points first and I will come back with further questions on the fund.

I thank Deputy Doherty and again I apologise if the statement has not been made available to the Deputy or the committee. The equalisation fund is not contained in the original local property tax legislation or this Bill. It is a separate matter for the Department and Minister with responsibility for housing regarding how the equalisation fund is structured and how it operates. It is not contained in the local property tax legislation. I did not omit reference to it in my statement for the key reason that it is not contained in the legislation. Nor was it contained in the original legislation.

To deal with the Deputy's substantive point regarding the need to maintain fairness of treatment for all counties, particularly counties that depend on the equalisation fund, to make up the shortfall in their funding for important local services, I have made a commitment to maintain the equalisation approach. It will need to be funded through the Exchequer. My objective is to put this in place over a two year period commencing with the local authority budgetary periods in 2023 and into 2024. I will work out how that will operate with the Minister, Deputy O'Brien. My intention is that no local authority or county would be worse off as a result of this change. The reason it will not happen in the approaching local authority budgetary cycle is because we need to allow the revaluation to happen first to understand what will be the impact on the revenue that various local authorities will receive. I am aware of the debates on evaluation of various funding methods with regard to how equalisation is maintained. This is a matter I will have to consider with the Minister, Deputy O'Brien. I hope this will happen once a successful revaluation is implemented.

That is okay but the legislation is making a significant change whereby local authorities will retain 100% of the local property tax. Therefore, there would not be an equalisation fund from the local property tax proceeds. In fairness, the Minister has acknowledged this. There is a substantial difference in terms of the retention of all of the funds.

How is the baseline calculated for each local authority? Until now local authorities gathered the local property tax in the relevant area and 80% of it was retained while 20% went into the equalisation fund. The difference between the baseline and what the local authority retained was the amount paid out from the equalisation fund. This equalisation fund baseline was the 2014 grant received before the local property tax and what it was retaining in pension-related deductions. Is this still the baseline? Will the baseline increase each year? My concern is there is a commitment from the Government to ensure nobody is worse off. If we were back with the old model of the grant surely it would have been increasing over the decade to deal with the additional costs and pressures on local authorities?

Respectfully, what the Deputy is saying on this is incorrect. The commitment I am giving to retention in some local authority areas, and dealing with the consequences of this to ensure other local authorities are not disadvantaged because of this, is not in this Bill. The issue of retention is not a legislative matter for the Bill. The Bill simply deals with the issues I have touched on, which is how funding is raised and how the tax is structured. To answer the question on how redistribution will occur, it will do so, for want of a better phrase, under the current model for the approaching year. We will then use this current year and I will be guided by the advice of the Department of Housing, Local Government and Heritage to engage on the issue of what the baseline of funding will be in future and how we will deal with the commitment I have made that nobody will be worse off.

I will be primarily guided by the Minister for Housing, Local Government and Heritage, Deputy Darragh O'Brien, with regard to that. I will then deal with the funding consequences of delivering on that commitment.

I will go back to the core question about the baseline calculated for local authorities, which is based on the 2014 grant and pensions-related deductions. Does the Minister envisage that that baseline will increase year-on-year or is it basically stuck at that point? If that is so, local authorities are not any worse off than where they were in 2014, despite the fact they face additional pressures and costs.

That process is being led by the Minister, Deputy O'Brien, not me. I deal with the raising of revenue. I worked closely with the Minister on this but he deals with how the revenue is allocated. He has that review under way as we speak. I expect that within the year in which, I hope, we implement this revaluation successfully, the review will conclude.

Is it not the case that-----

I understand the Deputy's point about the issue of funding pressures local authorities face. It is why what we seek to do is equitable in that it brings into the local property tax perimeter properties that have been built since 2013, for which local authorities are responsible for supporting and providing services but from which they do not receive revenue to help contribute to the cost of those services.

There is a role for the Minister and he can correct me if I am wrong on this. The LPT deals with the portion retained by local authorities plus the equalisation fund. Is it correct that the new model means the equalisation fund will be paid out of the Exchequer? Will there now be an additional charge on the Exchequer?

The Deputy is wrong in the first part of what he said. The LPT legislation and structure is silent on how revenue is allocated. I reiterate that what I deal with, what the LPT deals with and what its predecessor dealt with, is how revenue is collected. It does not deal with the issue of how revenue is distributed.

I did not mention the legislation.

In the context of publishing a significant change, it was important to deal with some of the associated policy issues. To deal with the Deputy's second question on whether there will be an additional charge to the Exchequer, the answer is there will be. That charge will need to be met by the Exchequer. What that will be will become apparent when we have a year of revenue collection under the revaluation under our belts.

We are now getting down to the core point. I did not mention the legislation in my first question. I said that LPT funded the retained portion by local authorities and the equalisation fund. The policy change, which as the Minister said is not included in the legislation but is central to what we are discussing, is that the tax will be retained by local authorities but the equalisation fund will be paid by the Exchequer. If the equalisation fund remains the same as it was last year, it will be €133 million. However, is it not the case that when properties are revalued in many local authorities, despite the fact that residents will be paying a higher rate of local LPT, many of those local authorities will not benefit because the equalisation fund contribution to local authorities will just be reduced?

The second point is that the baseline is crucial. If we have a baseline based on what a local authority received in 2014, that will not be fair to those 20 counties that require support from the equalisation fund. Those 20 counties will not be allowed to grow the services they provide because they will be in a system where they are frozen at a certain point in time.

First, the record will prove that my recollection of the questions the Deputy just put to me is that he either asked or suggested that the issue of the future of retention was included in this legislation. That is what I believed the his questions put-----

That was on the first question, not the latter.

-----and I have spent the past number of replies saying to him that he is incorrect. On the issue he raised regarding the future of the baseline, that is a matter for the Minister for Housing, Local Government and Heritage, not me. I reiterate the commitment I gave that if there is a funding shortfall to local authorities due to changes that are being made, they will not be worse off and the Exchequer will provide additional funding to allow them to be compensated for any shortfall in revenue.

The question about the future of baseline funding is a matter for the Minister, Deputy O'Brien.

I will move on to my questions on mica because I am conscious others are pressed for time but the point I am making is that 20 counties have benefitted from the equalisation fund. There could be higher local property charges for residents in those counties due to the revaluation, yet the local authority will be no better off, especially since many of those counties substantially rely on the equalisation fund, which will be reduced. That is the core point. It is where the role of the Minister for Finance comes into it because he does have a say on how much money he will provide from the equalisation fund.

The Minister may want to comment on that but I will ask a number of questions on mica. As he knows, this issue affects my county substantially and it is heartbreaking. Mica and pyrite issues also affect counties Mayo, Sligo, Clare and a number of other counties. I will ask a few questions on this issue. How long will these properties be exempt from the LPT? Will properties with mica in County Donegal, for example, whose owners have previously paid the LPT, be rebated for that charge? How do they qualify for this exemption? As the Minister knows, the upfront cost for an engineer's report on mica properties is approximately €6,000. Most homeowners in Donegal cannot afford this and it is one of the reasons thousands upon thousands of people came to the streets of Dublin to protest at the scheme and its unaffordability. This was a core point for them. Does the Minister expect somebody to fork out €6,000 for an engineer's report to be exempt from a €200 or €300 annual charge?

I thank the Deputy for his questions. I will deal with the ones on mica in a moment. I will get a note on how the exemption for properties with mica is accessed.

To go back to his earlier question, it is worth emphasising that because of the changes we made in the reduction of rates and widening of bands, most homes will not face an increase. The majority of those that do will face an increase of a single band. There will be some who will face a larger increase, which will be due to the fact that the value of their homes will have gone up by more than the national average across the period since revaluation, but it is important to emphasise that most will not see a change. The Deputy is correct about the shortfall in the equalisation fund. I play a role in that and I repeat my commitment that no local authority will be worse off as a result of these changes when they happen in 2023.

I am very much aware of the massive anxiety and difficulty the mica issue is causing. I recognise the difficulty of this for many homeowners. The exemption will last for a six-year period and, in the course of either his questioning of that of another committee member, I will come back to him with the details on how a homeowner can qualify for that exemption.

I ask the Chairperson for one final question on Bank of Ireland shares. It is one simple question.

I ask the Deputy to be quick because I am conscious other members want to come in and he has had 15 minutes.

The Minister knows our view on the timing of the sale of Bank of Ireland shares. Why did he decide to sell the shares now and not in 2017 when the share price was worth approximately €500 million more than today? Banks made a loss in the recent period but the economy is recovering and banks will recover too. Why has the Minister decided to sell shares now as opposed to 2017 when they were valued by the State at close to €500 million more than they are currently?

I have the information on the Deputy's pyrite question and the qualification criteria. A property that is eligible for the redress scheme is one that will be, or is currently being, remediated.

That is the answer to the question the Deputy put to me on that point.

On Bank of Ireland, the plan I have is to sell the Bank of Ireland a share of the shares that we have in the bank over a period. By doing it over a period as opposed to in a single go, we will be able to recoup good value for the taxpayer in Bank of Ireland. The Deputy is correct to say that in 2017 and at other stages the share price was higher but as he went on to say we are expecting a recovery within our economy. Due to that recovery I am confident that by disposing of this share over time, there will be a very good opportunity to recoup a good price for those shares.

Senator Higgins is next but she does not appear to be here. I will proceed to Deputy Matthews.

I thank the Acting Chairman. I suggest that we could complete our pre-legislative scrutiny of the local property tax before we move on to the second agenda item. I was not aware there was a second agenda item and I want to cover the pre-legislative scrutiny. That is why I am here.

Yes, if we have time at the end we can come back to other issues.

I wonder if that can be agreed by members. It is just a suggestion to keep the meeting moving along and on agenda.

I thank the Minister for being here to take questions. The committee on housing met yesterday with officials from his Department and from Revenue as well because we wanted to look at the LPT. I understand the collection of the LPT rests with his Department but the spend and allocation of it is with the Department of Housing, Local Government and Heritage. It is important we make that distinction clear. I am glad to hear there are talks ongoing between the Minister and his colleague, the Minister for Housing, Local Government and Heritage, Deputy Darragh O'Brien, because our local authorities do depend, albeit some more than others, on the collection of the LPT.

I view the LPT as a progressive tax. It is a tax on the wealth that is in property. I realise that not everybody sitting on a property that is worth a lot of money has a high level of income. We should not mix up the two of those things; just because your house is worth €1 million does not mean that relates to your income. It could be just the luck of the location of your house or when you bought it. Thus there are allowances there and scope for people to defer the payment of property tax in case of inability to pay or hardship. For example, I was, as were many of us, canvassing in Dublin Bay South over the past couple of weeks. Taking an expensive house owned by a couple who are both on the State pension, will the Minister explain what the situation is for that couple regarding the payment of property tax on a property I estimated to be worth somewhere north of €1 million? It would put them into, say, band 11. What could they do about paying the LPT or deferring it, given that both are on the State pension?

We have increased the deferral thresholds so it is now €18,000 for a single owner and €30,000 for a couple. In addition to that, if a homeowner is looking to defer 50% of his or her liability, the thresholds will be increased to €30,000 for a single owner and €42,000 for a couple. The answer to the Deputy's question depends on what the homeowners' total income is. If their income is below those levels and they put forward a case about challenges or hardship they are facing, they are then entitled to either a full or partial deferral.

I thank the Minister. That is a question which comes up now and again from people on limited incomes whose houses are of high value. There was much discussion of this issue - just after this was introduced - at local authority level where a lot of the decisions are made to raise or reduce the local adjustment factor. Senator Casey will remember the discussions we had many times at meetings of Wicklow County Council. It is very easy to estimate where money is being spent in a county. It is easy to work out the per capita spend. Where that income is being generated from is harder to define with the LPT because one cannot identify the districts or areas that are generating the higher levels of LPT. In the interests of fairness and so that people within a county can see equity of spend across that county, is there provision for Revenue, which collects the tax, to identify the exact position, by municipal district or, possibly, electoral district, in order that we can finally show people there is equitable income and spend with the tax across a county? Is that possible? I was told at the time it was not but I believe there may be some progress on that now with Eircode postcodes.

To go back to the division of labour in relation to this charge and to this tax, it is really a decision that sits with the Minister for Housing, Local Government and Heritage and his Department. However, it is something I would like to see happen. I hope we can secure the future of this tax through a revaluation that is well executed in November, to build up the link between the taxes people pay through the LPT and the work that happens either in their community or within their local authority area. This may well be possible on an postcode basis and the Deputy may be ahead of me in his understanding of that. The only caveat is that there are important pieces of local infrastructure that can straddle a number of different postcodes and that is potentially an issue which would need to be considered. In a few years' time, I want to be in a position whereby there is a far better understanding between taxes collected and projects delivered through the LPT. This is a vital part of our tax base. Even though at the moment its share of our national revenue is low that does not diminish the importance of it and the role it can play in future.

I thank the Minister. It is really important because much of the time when we talk about the LPT and having to make the decision at local level to raise it, many people are in agreement with it. They know it is used to provide services and they want to know where the money is being spent and where it is being generated. The more clarity we can give to that situation the better.

I see Senator Higgins is back. If the Acting Chairman wishes to let her in, I can come back in afterward. I have two more questions for the Minister.

Is Senator Higgins still under time pressure?

Apologies, I was not within the precincts. I was listening to the contributions and to the discussion, but I had to get within the precincts for speaking purposes.

I thank the Minister for coming in. I am interested to the provisions he mentioned in respect of mica. What he said points to the need for quality public procurement and greater attention to that matter. He will be aware that tis is a matter on which I have engaged with his Department.

Will he comment on a vacant property tax? Is there, or should there be, more scope in this proposed legislation to address the issue of vacant properties? We know there are properties which are being intentionally kept vacant by large property owners which own multiple properties. Should that opportunity be seized in the context of the proposed legislation?

The other issue I wish to raise was indicated at the beginning, namely, the European Stability Mechanism, ESM, legislation. It has to do with its timing and its scope. I am conscious, as is the Minister, that the fiscal rules in Europe are currently suspended. The latter allows for much potential investment in areas. There has been a very strong emphasis on stimulus from international bodies such as the IMF and the EU and its institutions. Following that, there is a process on the future of Europe which is a combined initiative of the Council, the Commission and the Parliament. I am lucky enough to be involved in that process.

I am concerned that the legislation on the ESM, in particular, the approach being taken to the precautionary credit line, could be seen as either being at cross purposes or even, indeed, pre-empting the goals and policies that have been set out by the three European institutions. Specifically, I am talking about the idea of tight fiscal targets, which in the past took precedence over agreed social goals. I am concerned by placing precautionary credit line targets, which, I understand, even before Covid only nine countries could reach, as a goal, there is a danger that if those targets, under the ESM and under the precautionary credit line should be used - I note there is an intention for the ESM to engage with the future of the semester process - they could create a pressure for a return to the same model of austerity at a time the discussion in Europe is on a different approach forward based more on stimulus and public investment. We felt the cost of failure to invest in that area during Covid. I would be grateful if the Minister could comment on the relationship between those proposals, which he is spearheading as part of the Eurogroup, and those processes that are under way and what we hope is an open space for a different approach to policy as part of the future of Europe and its institutions.

I thank the Senator for the range of questions. I will deal with the first question, which was on the issue of vacant properties. What the revaluation will lead to is that for the first time homeowners will be asked to declare if a property is vacant and will be asked on the IT portal to register for the tax to declare if a property is vacant and indicate a reason the vacancy is occurring.

This is a significant development for us because this will be the first time our tax authorities will have this kind of information. This has been a subject of debate in this committee previously and one of the challenges that we have had is forming an accurate view regarding the breadth of this as an issue and the cause behind levels of vacancy that are there. This is an issue that, once I have data that is evaluated and robustly collected by the Revenue Commissioners, I plan to consider. I will not be able to do it imminently because we need to have the data first and need to have data that has been collected for taxable purposes, but this is a matter that I will give consideration to once it is available to me.

The Senator raised the operation of the ESM and the conditionality for the precautionary credit lines that could be available. In the most recent funding instrument that the ESM made available, which was the precautionary credit line for dealing with the effects of the pandemic on Europe, no conditionality attached to it. As she will be aware, no country has accessed that credit line either. In the discussion regarding conditionality, it is relevant to note that for the most recent intervention from the ESM there was no conditionality attached.

On the Senator's question regarding the use of precautionary conditioned credit lines in the future and the conditionality that is there, she is correct that this is related to the measurements within the Stability and Growth Pact, but that is because the only fundamental budget architecture currently in place in the treaties of the EU are the provisions of the pact and if the use of a credit line is to make reference to changes in a country's budgetary performance then the only anchor available to the ESM to use under EU treaties is the pact. I do not believe that undermines the debate that is due to begin on the pact. The EU, as the Senator will be aware, can only operate on the basis of law and precedent, and if it decides to make some change in fiscal rules in the future, this would, of course, be recognised by the institutions of the Union in the years to come. That would not undermine the debate that I am sure the Senator is eager to participate in but I believe it is important, at a time in which we could yet face economic and financial challenges because of how uncertain the current environment is, to bring forward the operation of the ESM and its relationship with the Single Resolution Fund by two years. It will not undermine the debate that I am sure the Senator and others will be part of.

The concern is that it might create a policy chilling effect. If the precedent of previous fiscal targets, which we know were quite unachievable and created a great deal of pressure in many countries in Europe, is used, it may create an environment where a stimulus in public investment is needed, not only in the Covid response but also the transition necessary in the climate emergency that we face collectively, yet with a set of targets being implemented soon that reflect a previous circumstance. The future of Europe process may include treaty change and that is part of the scope. I am trying to ensure that we do not create a chilling effect or counter pressure against a more stimulus-based approach to Europe's collective financial future.

The Commission and many of my colleagues in ECOFIN are very much aware of the need to take care in the application of fiscal rules in the future because of the investment and demand stimulation needed now and for the foreseeable future. While it is fair to say we probably approach the debate from different starting points, which is fine and the way politics should operate, a common ground at present is an understanding that the timing of the application of rules in the future is a sensitive and important decision. It is in recognition of this that the general escape clause has been activated, not only for this year but for next year, because of an appreciation to continue to inject stimulus into our economies even if we are in an early phase of a rebound.

I thank the Minister. I look forward to further engagement on the matter. I am conscious colleagues are waiting.

I thank Senator Higgins. Deputy Matthews stated he had two short questions he wanted to put to the Minister.

I do. I thank the Chair for letting me back in again.

To take up on a point that Deputy Doherty raised, my understanding of LPT was from the outset that no local authority would be worse off under the system than it was under the historic grant central Government funding system. With the removal of equalisation, I assume it will still be the case that no local authority will be worse off than it was under its baseline.

As I stated in reply to Deputy Doherty on a number of occasions, that is correct.

This is something I have examined, particularly in Wicklow. Seven or eight other local authorities are affected by this issue. The baseline has not been reviewed for many years. Wicklow is the one I am most familiar with, as will Senator Casey.

By population, we are well below what the baseline figure should be. By population growth over the past ten years or so, we are way below where we should be. Another way to measure this is by county area, which I know is not a good metric. There was a request for the local authorities to make submissions to review the baselines. I do not know whether that went to the Minister's Department or to the Department of Housing, Local Government and Heritage, but we will have to look at that. There are local authorities that will bring in a higher local property tax rate than they had under their baseline. This is a complex matter. I know the equalisation would be gone but there is the self-funding element. Some local authority members will agree to raise local property tax because they want to provide services. However, it will not hugely increase the discretionary spend of local authorities. Some councillors are progressive and brave enough to take the responsibility for raising revenue at local level each year. Some parties consistently seek to reduce that funding but still go to the top of the queue when they want to spend that funding. However, we have councillors who take responsibility, and face down the flak that comes with it, to provide local services, which is a really important part of local government. I have four scenarios for Wicklow. I will not go into the detail of them but I would appreciate the opportunity to go through the Wicklow scenario with the Minister in finer detail to show him that even though we are looking at a potential increase of perhaps €2.4 million with the 2013 housing brought into it, when you go through the complexity of how the allocation is spent or divided out, the local authority will still end up with only €400,000 extra. We need to support councillors who make these decisions to raise property tax to provide local services without penalising them by almost an accountancy-style movement of figures. I will leave it at that but I would like the opportunity to talk further to the Minister about this as well as to the Minister of State, Deputy Peter Burke, and the Minister, Deputy Darragh O'Brien.

I would be very happy to speak to the Deputy about that. As he said, the allocation of the funding is a matter for the Minister, Deputy Darragh O'Brien. The Deputy raised an important point in his contribution, which is that if councillors make a decision to leave LPT unchanged and not make use of the LAF to reduce it, and if some even apply the LAF in an upwards direction, we should give consideration to how that is managed and how such decisions are made from year to year. As the Deputy will know, the majority of local authorities are either not using the LAF to reduce the LPT bill or are using the LAF to increase the LPT bill for homeowners in order to pay for more and better local services. I am aware of some of the challenges as to how those decisions are made. Perhaps that is something to look at once we have a successful revaluation under way.

The next questioner is Deputy Tóibín. Are you okay, Minister?

Could you give me literally a 30-second-----

Absolutely. You go off, Minister-----

I just have to resolve something in the location in which I am sitting and then I will be right back to you.

Take your time. While the Minister is temporarily gone, I will outline to members the order of questioners. As I said, the next questioner is Deputy Tóibín. He will be followed by Senator Sherlock, Senator Casey, Deputy Durkan and Deputy Mairéad Farrell. It is great to see the Vice Chairman, Deputy Durkan, back. I thought we would not see you at all today, Deputy Durkan. Minister, you are back.

Yes. I am sorry. To avoid any mystery, the window behind me was open-----

I will not ask what you were doing but it was done very expeditiously.

I just wanted it shut. I could have left the session in worse condition physically than I did when I entered it, which I know none of you would want. Back to you, and thank you for the 30 seconds, Chair.

I am delighted the Minister is sitting more comfortably now.

I knew Deputy Tóibín would be relieved.

The issue of vacant properties that Senator Higgins raised is a really important one. I take the point that this will give Revenue a proper opportunity to analyse and quantify the situation, but we know that roughly one in 33 houses is empty, which adds up to about 250,000. About 60,000 of those are holiday homes. We also know we are in a housing crisis like no other. Any levers that could be used to get some of those vacant properties into use would make a massive humanitarian difference to people. You need only walk around any provincial town in the country to see the evidence in front of you of the level of vacancy that exists in those towns. I urge the Minister to see whether there is a stick we can add to the carrot in respect of the grant funding of these buildings to get them into use.

The second issue I wish to raise relates to the equalisation fund going. In many ways, often as an Opposition Deputy you are asked by the Government to trust in the Government in the future. We are being asked to delete the equalisation fund but are being told that some day we will have a solution to make up for it. We do not have the details in front of us but the Government is saying "trust us". It would be great if we could make sure, especially given the country we live in and the lopsided spatial development we have, that we are confident there is a solution in place now for those 20 counties that benefit from that equalisation.

Maybe the Minister could address those two questions first before I go onto the rest.

In response to Deputy Tóibín's first question, I accept that the issue of vacant homes is one we have to consider far more actively now in light of the great housing challenges we have and our need to provide homes for more people. It is important to understand the scale of this issue and why this vacancy is occurring in the first place. This is why the local property tax return is a very important development. Deputy Tóibín and I have had debates on this and on the scale of vacancy and why it is occurring, but until today we have not had information collected through paying a tax. I have accepted in debates I have had on this issue that this was an omission on which we needed to be able to make progress, and we will do that. When that information becomes available to me through the Revenue Commissioners, I will evaluate it very quickly to see whether it can be of use to us in the design of future policy. That is why the change we will make now in the information portal of the local property tax is an important development.

Regarding Deputy Tóibín's second point about the equalisation fund, I emphasise again that the fund is not being deleted. In fact, it will be in place for the forthcoming year. It will operate as normal and as it has done in the past under the Department of Housing, Local Government and Heritage. The equalisation fund and issues related to it are not in the local property tax Bill. If they were, I would have said it to the Deputy. It will take us a year to make this change. There is the issue of funding being raised within a particular area and in particular local authorities and that being transmitted and shared to other parts of the country that need that funding and will need it in the future. That issue had to be addressed in the context of the future of local property tax.

While I cannot address it in the Bill, I am trying to give a policy direction in relation to it and the Minister, Deputy Darragh O'Brien, and I are committed to implementing it.

Gabhaim buíochas leis an Aire as sin. Unfortunately, I missed the start of the Minister's presentation because Teams was not operational for me at that time. I understand in the Bill itself the definition of a residential property will be amended in three ways. The first one is that land adjoining the house, which exceeds an acre, that is suitable for occupation or for the enjoyment of the house, will be specified as part of the property. Then it goes further and it changes the reference from acre to hectare, which is for compliance with EU standards. Obviously a hectare is bigger than an acre, so that measurement could have a material change along with the first one. Do those two potential changes mean that rural homes could be hit with a higher cost? I have been contacted by people who say they have a turf shed, a driveway, and elements within the plot of land on which their home is located, and the definitional changes look like they could put them into a higher estimation of value and therefore a higher LPT.

I do not believe that it will, when these changes are implemented. In fact, one of the changes that we have made in the LPT structure and the banding of the LPT, is that we have increased the breadth of the entry band for local property tax up to €200,000. One of the reasons I have done that is the risk that was there of homes that had a lower value than the national average could have had the largest percentage increase and one that was ahead of the national average increase since 2013. That could have had an effect on homes with a lower value. In the absence of broadening the band, many of them could have faced LPT increases. In an effort to deal with that issue, which would have been one of equity for them, we have broadened the early bands of LPT to deal with those kind of issues. In any event, the chargeable value itself is unchanged. What has always been the case, is that the chargeable value is based on the house, any associated building or structure such as garages and any adjoining area. The chargeable value itself is unchanged.

Then why is the residential property definition changed in two ways?

Currently, the definition of residential property leaves open the question of the part of the allowable acre that is to be valued. This is currently at variance with the treatment applied in relation to the capital gains tax exemption for the disposal of a person's principal private residence. That is under the Taxes Consolidation Act 1997 and the definition of residential property for stamp duty purposes. In these cases, the part of the acre to be exempted for capital gains tax or treated as a residential property for stamp duty is the part that is most suitable for occupation and enjoyment with the residence. The LPT treatment is now being changed to align it with the capital gains tax and stamp duty definitions. If it would be a help to the Deputy, I can send him a note in advance of the Bill being debated in the Dáil to explain this matter to him more fully.

Yes, I would like that. It is important, because from my reading of it, it does look like the footprint that is being understood as part of the estimation of the value for the LPT is being increased and therefore as a result it could mean that certain properties will have increased bands and would therefore have an increased cost to them.

I do not have too long. Co-living developments have been changed as well. What effect will that have on LPT?

We are not making any change there.

Okay, but as far as I can see that again has been included under the definition of residential property. It is stated that: "Thirdly, a definition of ‘co-living’ developments will be included to come within scope of 'residential property'."

I will come back to the Deputy with a note regarding that.

Regarding mica, previously the Minister mentioned the engagement would last for six years, as per section 10. I do not believe anybody thinks six years will solve the mica issue in Donegal or Mayo. Would it not be logical to say that if a property has mica, whether it is six, seven or ten years, given that an affected family has been let down by the State and the enforcement of regulations by local authorities that they simply will not be liable for LPT?

The six-year period is the period of exemption that we made available when dealing with similar issues in other parts of the country. I expect that the Government will have to act in a way to have the matter dealt with for as many homeowners as we can within a six-year period. That six-year exemption period is exactly the same as we have granted for a similar issue in other parts of the country.

Chair, do I have much time left?

Deputy Tóibín has about two minutes. He does not have to use them though.

Does the Minister know what is the level of payment that is deferred currently from the LPT?

I will get that for the Deputy in two minutes. If he would be good enough to go on to his next question I will come back to him with the information very quickly.

I appreciate that. People are looking for a revised estimate for the cost of the national children's hospital but it is not forthcoming at the moment. A man in the Minister's position would be aware of what the figure is. Could he tell the committee what the figure is?

I am not sure what the link is between that and pre-legislative scrutiny of the local property tax Bill. Because I understood that was the issue I was coming in to address, I am not in a position to give the Deputy an up-to-date answer to the question.

In fairness to the Minister, that is a legitimate response to the question. There was no notice given in respect of it.

I appreciate that, but Deputy Doherty asked a question regarding the sale of Bank of Ireland shares in the current climate as well so I thought there would be latitude.

There was notification in respect of that question. I announced that at the beginning of the meeting.

To deal with the question the Deputy put to me earlier, the current value of the deferrals in 2021 was €8.7 million. It made reference to 45,800 claims and out of those claims the rationale that the vast majority put forward for it was that their income was below a certain level.

I thank the Minister for joining us today. Like some of the others, I had lots of non-LPT questions as well for the Minister but I will confine them to the LPT for the time being.

Head 5, regarding section 11 relates to the enhanced leasing scheme and the long-term leasing scheme, I welcome that the lessor is the liable person for the LPT. Are there any circumstances or situations where a property is owned by a person or investor that is not resident here for tax purposes that it would not be liable for the local property tax, and therefore the lessor would not be liable for the LPT?

None that I am aware of.

Okay. Head 10, in respect of section 133 refers to the deferral and the phasing out of the adjustment of the income for mortgage interest payments.

I want to understand the basis or grounds for phasing out that allowance or adjustment of the mortgage interest payment. Who will this phasing out apply to? It seems from my read of it that anybody who will be newly paying the local property tax will not now be eligible to adjust their income for the mortgage interest payment. That seems most unfair given that a whole raft of households who were not paying since 2013 will now be paying. There is a large degree of uncertainty for certain households this year and going into next year, given the pandemic and having been badly hit by it, with regard to their household income. They may be saddled with a significant mortgage. I would like to hear a little bit more about the rationale for phasing out that allowance or adjustment and who precisely it will affect or apply to.

This particular option was only due to be available until the end of 2019 and was a recommendation that came from the Thornhill report. This is a recommendation that came from the central review of local property tax. Mortgage interest relief was brought in at a time in which interest rates on mortgages, particularly for new applicants, were much higher than they are at the moment.

I accept that perhaps behind the Senator's question is the issue of the affordability of local property tax for many at the moment. I am sure she will correct me if I am wrong but this may be what is driving her question with regard to this head. This is the reason we have worked very hard to try to have a Bill that will be as affordable as it can be for most. Even though the Senator is correct about the change that is being made, it will still be the case that a majority of people will not see an increase in their local property tax. For many of those who see an increase, it will be a band and for those who see an increase that is larger than a band, it will be because their home has gone up in value by a larger amount than the national increase since 2013. The Senator is correct about this change but I am seeking to deal with the issue of affordability in other ways.

I appreciate the initiative taken with regard to containing the change for a large number of households on the review of the bands. As I understand it, that adjustment of income for mortgage interest was put in place to deal with households that are low income and have mortgage interest payments to make. It would be very unfortunate to withdraw that now, particularly in our current circumstances and particularly given the uncertainty a number of households employed in certain sectors are facing into future years. I ask the Minister to reconsider that when publishing the Bill.

I also wish to ask about the review of the thresholds. I do not believe a date has been put in regarding the review of the thresholds for deferral. Is there a plan to specify that in the detail of the Bill?

Could the Senator clarify that a bit more?

I refer to the movement from €25,000. The thresholds are being increased to €30,000 and €42,000. There is no provision in the Bill to allow for them to be indexed or increased in future years.

I understand the Senator's question. They will be fixed for the next four years. Inside that four year period, the only way of reviewing it again would be through legislative change.

This is a comment more than a question. The issue of the necessity for a vacant site tax or vacant house tax has been articulated by others. Many of us believe there is an urgency now in terms of the collation of the data the Minister is seeking to undertake in making these houses be registered in the context of LPT.

I ask for a commitment on when the Minister expects his review of that data and information to be undertaken. When can we expect the Government to come back to the Oireachtas and say whether it is going to proceed with a tax on vacant houses? That clarity would be important.

I understand the Senator's need for that clarity. I am giving a commitment to very thoroughly investigating a case for such a change. What I need and will have soon is far more accurate information regarding the scale of this as an issue and the reason it is happening.

Even in my analysis of data that is available from elsewhere, there are many reasons vacancy of a property occurs. The reasons for those vacancies can sometimes be very understandable, for instance, difficult developments within families regarding health and all the issues of which the Senator will be aware. While I understand the interest in such a change and can see the case for it, I want to be very clear regarding the scale of the issue we are addressing and whether local property tax can play a role in that regard.

I will come back to the committee on this matter soon. One of the reasons I am really asking for the support of the committee to go ahead with the revaluation is that it has many benefits, not least of which is laying the foundations for other things we might consider in the future.

I thank the Minister and Senator Sherlock. The next questioner is Senator Casey.

I thank the Acting Chairman. I welcome the Minister. Having sat on the council and gone through a few budgetary processes, including the LPT, I have waited for this opportunity for a good few years.

I welcome the address of the inequality I believe has existed in the LPT process, where more than 100,000 houses have not been liable to pay the LPT tax since 2013. Having gone through a number of those budgetary meetings, that income would have been very helpful to balance the books at the time. I welcome, therefore, that decision to bring them back into the net.

A number of speakers mentioned previously how we try to retain as much of that as possible within the local authority level. The baseline figure has been mentioned to the Minister on a number of occasions. Equally, it is the self-funding element by the Department. I know these are not directly within the Minister's control but these two elements are flexible within the Department of Housing, Local Government and Heritage. The actual value one gets out of the increase is diminished significantly.

I will move on to the definition mentioned by Deputy Tóibín because it has been raised with me on a number of occasions. The heads of the Bill refer to associated building structures such as sheds, and gardens and any adjoining outdoor area up to one acre. I understand the acre. The Taxes Consolidation Act 1997 refers to "his or her own occupation and enjoyment with that residence as its garden or grounds up to an area ... [of] one acre."

What people in rural areas are probably slightly concerned about is that sheds of no value are now included in the property valuation. I can understand if we are talking about a sauna, gym, or in some cases, even swimming pools that are included in the valuation of the property, once it is within one acre. It then comes to outhouses that serve no purpose only storage, however. As Deputy Tóibín mentioned and as has been raised with me, an element of clarification is needed around that.

The payment of property tax for local authority housing and long-term leasing housing is like an in and out accounting exercise. It does not serve any purpose. I cannot refer to what happens in every local authority but some local authorities take that payment out of the housing budget and redistribute it to fund other departments rather than housing. While it is an in and out accounting exercise I would prefer if that money were to stay in the housing budget. That is just an observation.

I find the lack of the alignment of the local property tax since its introduction with the local authority budgetary process frustrating. That is political and there is no point in saying otherwise. Deputy Matthews mentioned it. It is the people and the councillors who take the tough decisions. The people who do not believe in the local property tax, who will not vote on it, who will not increase it or decrease it and who want nothing to do with it are the first in line when it comes to the budgetary process to try to spend that money on foot of the councillors' decision on the local property tax process.

There is a need for the alignment of the local property tax decision and budget decision on the one day. We have been given reasons as to why that does not happen. We have been told Revenue needs those figures in September or October and the budget is not decided until November. If anything can be done to align the budget process with the local property tax process that should be done as it is needed. It accounts for nearly 30% of the income revenue of the local authority in Wicklow. It needs to be aligned with the budgetary process to ensure the people who are not willing to take the hard decisions are now there to decide where it is to be spent.

I acknowledge that self-financing funding and the baseline are the responsibility of the Minister, Deputy O'Brien but this is a critical issue for counties such as Wicklow and it is hampering what they can deliver at a local level. Anything the Minister can do to influence the baseline, which has not been reviewed for a number of years, would be helpful. The other term now being used is the "self- funding" element. Suddenly local authorities are self-funding something they never funded because the Department wants to keep the money or it does not want to give it to the councils to spend.

Deputy Matthews raised the equalisation fund in terms of getting an understanding of where the property tax comes from within each county. A member of my local authority raises this issue on an annual basis. With the original equalisation fund the richer counties would have helped subsidise the poorer countries. I have some reservations when we get into this level of detail. One area of Wicklow would be a significant revenue generator of property tax but that property tax is needed for the poorer areas of the county. While I have some sympathy with respect to the equalisation fund I would not like it to come down to a local level where one part of a country could ring-fence its fund for its own use. Those are a few observations.

I thank the Senator for the points he made. I also thank him for his recognition of the value of ensuring those 80,000 homes that have been built and purchased since 2013 come into the perimeter of this tax. It is important once we do this revaluation that we are never in this place again. It raises an important issue of fairness and within local authorities, as the Senator said, it raises a demanding issue that local authority councillors are supplying services to an increasing number of homes and those homes are not creating the revenue the local authorities need to provide the additional services. The Senator would expect I would advocate the case for this Bill but an important part of it is making a change to ensure in future when a new home is built and purchased it will always enter the valuation perimeter from the following November. It means the issue the Senator raised, if and when this Bill is passed, should not happen again.

There has been much focus on the baseline issue in this committee. All I can say at this point is I appreciate the importance of the review under way with regard to the future of the baseline and what that means for different local authorities. I will certainly pass on the views of the committee to the Minister, Deputy O’Brien.

Regarding the different points the Senator made on when decisions are made, the Revenue Commissioners have indicated to me that they believe there is an opportunity to move the notification date for local adjustment factor, LAF, decisions by local authorities out to the middle of October. I understand at the moment that is the middle of September and that is for non-valuation years. At this point the Revenue Commissioners have indicated to me they are not in a position to offer more flexibility beyond that point if the arrangements we have regarding local property tax are to be implemented on time.

The Senator also touched on how the decision is made. I accept, in particular, for local authorities that might decide to increase the value of local property tax, if they make that decision, we should at least consider if that is a decision that has to be made again and again. That is a decision purely for the Minister, Deputy O’Brien but it is something he and I have discussed. While it will not be possible in the coming year to deal with that because we will have our hands full implementing the new valuation, it is an important point for the future in terms of how we integrate the decision point of this tax into the decision-making timetable of local authorities and whether this is a decision that needs to be made year after year. That was an interesting point.

The Senator asked if we were to understand how the money is spent within discrete local authority areas what the consequences of that would be. I agree with him that we should not get into a debate where we begin to talk about money that is raised in one part of a local authority area and spent in another or revenue that is raised in one part of a local authority area and whether it should be spent in another part of a local authority area. That is not a productive debate to enter into. Local authority areas in Ireland are mostly compact areas or if they are not, in most case they are configured on county boundaries. That is the appropriate point for decision making. Our councillors decide what kinds of projects they want to support and they should do it on a county-wide basis, and that is the way it should be kept.

I thank the Minister for his response.

The next questioner is the Vice Chairman of the committee, Deputy Durkan.

I apologise for being absent at the start of the meeting. I was upstairs in the Chamber raising another issue. I am thankful the Minister is available to take these proceedings.

I have a number of quick questions. Is the Minister satisfied that adequate protections are in place to ensure the best use of the tax, which is very useful to local authorities to address issues of local importance? Are there sufficient incentives to ensure the sustainability of the tax while avoiding the type of issues previous speakers referred to regarding cherry picking by some local authorities for populist purposes?

I thank the Deputy. Yes, I am. The spending of this revenue is a matter for local authorities and the Minister, Deputy O'Brien, from a policy point of view. Deputy Durkan knows we have put quite some time into reviewing the future of the tax. We have had a debate over many years regarding the future of the local property tax and whether we should revalue or not. I have not become aware of significant issues or concerns about how this revenue is being spent. Senator Casey made an interesting point that 30% of the revenue on which local authorities make decisions comes from the local property tax. In my experience local authorities are aware of the importance of this revenue stream and the contribution it makes to the funding available to them. They try to make good and responsible decisions regarding how the money is spent. I am not aware of accounting or competence issues regarding how the funding is administered. Of course, there will always be political debate regarding where and how it is spent.

I thank the Minister. I listened to previous speakers in the debate refer to vacant houses and their future role in contributions and their potential to resolve the housing crisis. From my knowledge, and this is my opinion, if there is an expectancy to resolve the housing crisis or make any serious impact on it through the medium of vacant houses throughout the country I have to say we will be very sadly disappointed. This is because of the scale of the problem ahead. To my mind, it requires the most appropriate action, which is the direct build as quickly as possible of as many affordable houses as can be made available given there are well over 100,000 families on the waiting lists for property. The longer this remains, the higher rent prices will go and the pressure to increase rents will continue. I am particularly concerned about the cost of restoration of some of the vacant houses referred to. All builders would tell us the restoration of an existing house is more costly for many reasons than to build from scratch on a greenfield site. This is by way of observation. I have considerable grounds for believing this. If the Minister would like to respond I will take the response now and I have one more question.

I thank Deputy Durkan. I take on board what he is saying, which is why I suggest the sequencing of gathering thorough data on this matter first. This appears to be the sensible first step we should take. As I said in my engagement with Senator Sherlock a few moments ago, there are many reasons a property could be vacant. A number of these reasons could be very understandable from a family and homeowner point of view. They may even be reasons that are acceptable to society. When we decide we are going to tax something we need to be very clear on the behaviour we are taxing, what is the objective of doing so and what is the desired change we are looking to bring about. To give some detail on this, if I look at information available from GeoDirectory on 16 rental pressure zones, it indicates a very low level of vacancy in urban areas. For example, in the north inner city of Dublin, which is a lead part of my constituency, it indicates a vacancy rate of 0.86% of all the properties registered and surveyed. The rate in Clontarf was 0.24%. In the south east of Cork city the rate was 0.77%. The percentage of properties vacant in the surveyed area is lower than some may expect. We need a better understanding of why they are vacant than we have at present. We will get this through the information the Revenue Commissioners will collect.

I thank the Minister. I was interested in the discussion I heard at the outset on the need for continued spending in the aftermath of Covid and, as far as this country is concerned, of Brexit. I strongly support the concept of prudent spending. This does not mean it is not necessary to spend more than would be advised at other times. I noted in the course of the conversation there is a difference between the circumstances prevailing now and the circumstances 12 or more years ago. It is now possible under the EU rules to borrow at very low interest rates. What is equally important is the use to which the funds are put. If they are put to good use the country will reap the harvest it deserves. If not, other things will happen. Reference is often made to austerity as if were a tool used by government, and it can be used, to slow down economies or to accelerate growth. However, there were some circumstances in which there were no choices. Because there were no choices there was nothing that could be done because there was no money. All of us need to take this on board and remember that the situation that prevails now would not have come about unless careful management of the funds was undertaken at that particular time.

As the Minister knows, I have often been critical of economists. I usually start by apologising to them in advance. In particular, in the aftermath of the economic crash they came forward from various areas with advice all of which was proved wrong. Someone I respected over the years is no longer with us. John Kenneth Galbraith served four Presidents of the United States. Something he said which is pertinent now is that in the event of introducing stimuli to the economy there may be a necessity to control prices. His reason for so doing was that on every occasion it happens there is an increase in price. There is an increase in building costs now. There is an increase in materials. There are various increases for which I certainly cannot identify the real reason. Arising from the huge supports the State rightly had to give the economy and people in the past 18 months or so is there a danger that we could be overtaken by inflation that would create additional problems for the country further down the road?

I seek guidance from the Acting Chairman as to whether or not I should answer that question? I agree with what the Deputy said, but he also put a few questions to me.

Most of the Deputy's contribution was comment. I would be slightly concerned about starting a discussion on J.K. Galbraith at this stage of the meeting. I listened carefully to what Deputy Durkan had to say, as I am sure the Minister did, and I think it is something the Minister should take into account in terms of the task in front of him.

With the permission of the committee, I will now proceed to the two remaining questioners. Deputy Mairéad Farrell was due to speak next but I understand she has a preference to go after Deputy Barry. If Deputy Barry is with us I invite him to put his questions to the Minister.

I will be brief. I have two questions for the Minister. Before I pose them, I want to make it clear - the Minister is aware of this - that I am an opponent of this property tax. I believe that it is wrongly named and that it could be more accurately described as a tax on the family home. I have no issue with real property taxes such as, for example, a tax on the owners of multiple properties etc. This is a tax on the family home. I favour, not its reform or tweaking, but its abolition.

I will now pose a couple of questions in regard to what is under discussion today. My first question relates to pending increases in the property tax. I understand from the reports that approximately 36% of households will see their property tax increase in the next round and that a large majority of the increases will be on properties which move up one band and, therefore, a €90 increase and that a minority will be on properties which move up two bands and, therefore, a €180 increase. I am looking for as accurate as possible an indication from the Minister as to where these increases are likely to fall. Common sense would indicate that given that property prices have risen most rapidly in recent times in the larger urban areas, the increase in the property valuations and the skipping of bands will be concentrated in those areas and, therefore, the 36% of households that will experience an increase in their property tax bill are likely, although not exclusively, to be concentrated in Dublin, Cork, Limerick, Galway, Waterford and the larger urban areas. There will be exceptions to that, but I am dealing with the general trend. The Minister might comment on that.

My second question is in regard to the finances of the local authorities. I was a member of a local authority for 12 years, three of which, 2013-2016, were years in which the local property tax was in situ. At that time, the local authority retained 80% of revenue, which it is proposed now to increase to 100%. The experience was that no local authority retained 80% of revenue. It may have done so technically but that was compensated for on the other side of the balance sheet by cuts in funding from central Government by a corresponding amount. What a local authority gained on the swings, it lost on the roundabout. I ask the Minister to give a commitment that that will not happen this time around and that for local authorities that gain extra funding there will be no corresponding cut in grants from central Government. In posing that question, I am not holding my breath in terms of the Minister's reply.

I thank the Deputy for the questions. On the first question regarding where increases are likely to fall, I want to emphasise again that most homeowners will not see an increase and, in terms of those who do, the majority of them will move up one band and, therefore, an increase of €90. As to where they will be, there is no precise answer to that question. It depends on the value of individual homes and how they have changed versus where they were in 2013. Of the approximately 30% of homes that will see an increase of one band, some will be in Dublin. We expect others will be in counties along the east coast. In regard to those that will see an increase larger than two bands, we expect some of them to be larger properties in the midlands of the country. The Deputy asked if all of the homes that will face an increase are concentrated within particular cities. That will not be the case. It depends on how the value of the home changed versus the national average since 2013. The households that will face the largest increase will be those currently not paying the local property tax who will have to pay under the revaluation. They will move from no payment to the new LPT valuation. There is no absolute geographical definition as to where the charges will fall. Some parts of Dublin will be affected but they will be distributed alongside the eastern counties as well. While many households in those areas might see an increase, many others will see no change or, perhaps, a decrease.

On the commitment sought by the Deputy, I cannot give a detailed answer now to that question. The issue of the allocation of funding and how it is distributed is a matter for the Minister for Housing, Local Government and Heritage, Deputy Darragh O'Brien. I will work with him to ensure that no local authority is worse off as a result of the changes that are being made. We will do that work in a year's time when we have implemented this revaluation, to which I know the Deputy is opposed.

I would like to put a brief supplementary question on the Minister's response to the first question regarding pending increases. The Minister has indicated that approximately 30% of households will face an increase. The figure I have, which is taken from reports and the media, is 36%, which is closer to 40% than 30%. The Minister might confirm that that is the case.

On statistics, the Minister says that many households will experience a freeze or a decrease as opposed to an increase. The figures would indicate that the ratio in terms of the numbers that would not increase is less than 2:1 and that the number that decrease would be less than one third of the number that increase. The question element on this is in regard to the big cities.

I take the Minister's point there cannot be an absolute indication of where the increases will hit. However, I believe it is a fair comment - I am asking the Minister if he disagrees and I am couching this in quite general terms - that given the fact property price increases have tended to be greater in more concentrated urban areas and the bigger cities, it will tend to be the case that a disproportionate amount of the increases in property tax bills will be concentrated in those areas. I take it the Minister would not seriously challenge that basic statement.

I will give the exact figures so that I am not inconsistent with the Deputy's information. The figures in the table of information we supplied on where increases will happen indicate that approximately 11% of homeowners will see a decrease, approximately 53% will see no change, approximately 33% will see an increase of one band, and approximately 3% will see an increase of two bands or more. The caveat we put on all the information is in that key word "approximately". This is very general guidance because we are looking to form an evaluation of around 1.7 million properties and each one of those properties has a different valuation.

On the general question the Deputy put to me about whether increases are likely to be concentrated within cities, if I look at what I expect to happen when the bills come out in November and at where I believe most properties that will not see an increase will be, I expect most of them to be within Dublin. This is because we have increased the bands and cut the rate by so much. It is actually within Dublin and, possibly, one or two other cities, where I expect a concentration of most of the homes that will not see an increase. Out of the one in three homes, provisionally and generally, that will see an increase, some will be in Dublin. However, for me to equate this to or be able to give the Deputy an absolute assurance that, for example, the majority of homes that will face an increase will be in Dublin, I do not have the information to be able to tell the Deputy, definitively or even generally, that will be the case.

I am aware the Acting Chairperson also wants to come in so I will ask my two questions together because we only have approximately seven minutes. My first question is on the surcharge for non-compliance with LPT requirements that was provided for by section 38 of the Finance (Local Property Tax) Act 2012. This 10% surcharge is applied against the amount of tax contained in an income tax, corporation tax or capital gains tax return. According to Revenue's tax and duty manual on the local property tax surcharge, an LPT-generated surcharge will not apply where a person has a nil tax liability where income refers to corporation, income and capital gains tax. We know Irish real estate funds, IREFs, are liable for neither corporation nor capital gains taxes. Will the Minister clarify whether there are provisions in place to ensure these funds are not exempt from this surcharge as a result of having no apparent income liability against which it can be levied?

I hope the Minister can clarify another matter relating to exemptions. A piece in Revenue's tax and duty manual states residential properties owned by a charity and newly constructed and unused residential properties are exempt from LPT. I am particularly interested in residential properties owned by a charity. We have often heard about orphan structures, which is an issue I raised with the Minister in the past. Owners of these orphan structures can inappropriately use charitable trust ownership structures. Has any analysis has been done on whether the owners of orphan structures have been able to apply for the exemption? Has the charitable trust ownership structure been used for the exemption of residential properties owned by a charity?

I am sure that the Acting Chairperson will give the Deputy a little latitude on this. Will the Deputy explain that second question to me again? I know she has raised the issue of orphan structures with me before but she is now raising it in the context of charities. I do not fully understand the question. If she puts it to me again, I will see if I can answer it.

The Central Bank refers to these as orphan structures. There are types of investment firms that inappropriately use charitable trust ownership structures. I know this is a specific issue, and if the Minister wants to come back on it, that is no problem. On the use of a charitable trust ownership structure, and I understand this is relevant to the previous Act rather than the one we are talking about now, has any analysis been done on the possibility that investment firms have used the LPT exemption for residential properties owned by a charity? If investment firms have been using this charitable trust ownership structure, have they been exempt from the tax? Has any analysis been done to ensure that structure has not been used and, if not, can we take a look at it?

I am not aware of this being an issue. Certainly, the Revenue Commissioners have not raised this with me as a matter that needs to be investigated or as a cause for changing LPT policy. I have not been informed by the Revenue Commissioners that it is an issue. Properties owned by investment funds are liable for local property tax.

I understand they are liable for property tax. The issue is the surcharge for non-compliance, which is done through tax liability. As the IREFs are not liable for corporation or capital gains taxes, is this a loophole they can use? That is what I am asking about.

Again, that has not been raised with me as an issue that is a cause of concern to the Revenue Commissioners. I am certainly happy to ask them the question and come back to the Deputy on it.

That would be great. I thank the Minister.

One of the advantages of being in the Chair is that most of the relevant questions have been asked by my colleagues. I do not have any specific question for the Minister but I will make a comment that I ask him to take into account when he is bringing the Bill before the Houses of the Oireachtas. Many properties of high value are owned by people on no or low income. The Minister will be aware of that from his constituency and other members have mentioned it in respect of my constituency, Dublin Bay South. I ask that that be taken into account as a factor when it comes to drafting the legislation and introducing it into the Oireachtas.

I will make a point on behalf of committee staff that they did not receive the Minister's opening statement in advance of this meeting. I do not say that to criticise him or his officials. I wanted to state it lest members of the committee thought finance committee staff had not passed it on to members.

I thank the Minister for attending today and for his engagement on this very important issue. I note other members may want to come back in but I am conscious that the two hours are now up. I must bring this meeting to a conclusion.

I thank the Chairman.

I would never want to suggest or imply that the staff of the committee have not shared or passed on the information. We will investigate what has happened here. However, I know that if the information had been received by the staff of the committee, that it would of course have been shared with the committee members.

Thank you. The meeting is adjourned until 3.15 p.m., when we will resume in private session under proper chairmanship.

Sitting suspended at 2.30 p.m. and resumed in private session at 3.15 p.m.
The joint committee adjourned at 3.54 p.m. until 12.30 p.m. on Wednesday, 14 July 2021.