I thank the Chairman and members of the committee for the invitation to appear before the committee today to discuss the Local Government (Charges) Act 2009 and for the opportunity to make a brief statement. The Act came into effect in July of this year. As members will be aware, its purpose was to give effect to the Government's decision announced in the 2009 budget to introduce an annual charge on non-principal private residences. The charge has been set at €200 and liability for it falls, in the main, on owners of rental, holiday and vacant properties. The intention behind the introduction of the charge was not only to help close the gap between expenditure and revenue but also to broaden the revenue base of local authorities. Proceeds from the charge are being paid to and retained by local authorities and are being used to fund the provision of local services.
In advancing this measure the Minister has drawn attention to the fact that this was a significant new step and the first for some time in which a dedicated new source of funding for local authorities was being put in place. In this context, the committee will be aware that the need for local authorities to have access to additional sources of local finance has been a topic of regular mention. It has been observed that by international standards, the revenue base of local authorities could be viewed as being relatively narrow with local authorities here being disproportionately dependent on central government funding. The Act is important in that it seeks to introduce a relatively stable, local source of funding for local authorities that will not, among other things, be subject to the volatility associated with the transaction-based activity. As such, it represents an important step change in how local government is financed.
The Act provides a relatively short and straightforward legislative measure. Essentially, owners are liable to pay a charge in respect of properties that are not their sole or main residence. Owners are liable to pay an annual charge of €200 to the local authority in whose area the property is situated. Liability arises each year on a point-in-time basis. Ownership of a relevant residential property on a specified day, known in the Act as the liability date, gives rise to the requirement to pay the charge. The date of 31 July was designated as the liability date for 2009. In 2010 and onwards, the liability date will be 31 March, which will fit somewhat better with the overall annual financial cycle of local authorities. The committee will appreciate that in the first year of the charge and having regard to the time associated with preparation and enactment of the legislation, it was necessary to opt for a liability date in the second half of the year. For future years, however, the approach taken has been to build in a liability date at the end of the first quarter.
The legislation provides that payment of the charge falls due two months after the liability date and there is then a further one month's grace before any penalties for non-payment commence. Penalties will mount at the rate of €20 per month so there is a strong incentive for the owner of a property which is liable to pay the charge promptly. The charge can be viewed as a type of self-assessment measure because it is for the owner of the property in question to assess in the first instance whether there is a liability to pay the charge. Given the relatively modest level at which the charge is set, it was considered important to minimise the costs associated with its collection. Accordingly, local authorities are not required to issue bills or invoices for the charge.
The Local Government (Charges) Act is structured with a starting position of a universal liability for residential property in respect of the charge and 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 where a property is the owner's sole or main residence. The residence must be suitable for use as a dwelling to come within the meaning of the Act and be situated in the State.
Owner-occupied residences account for 70% of the entire housing stock so straight away we can say that more than 70% of properties are exempt from the charge. The more important of the other exemptions include property which is let directly or indirectly by local authorities or voluntary and co-operative housing bodies for social housing, property which is the subject of shared ownership arrangements with local authorities and certain properties considered to be of heritage or architectural interest. Other exemptions to the charge are provided for people who, while moving house, may own two residential properties for a short period and for residential properties owned by charities. There is also an exemption for a situation where, following a divorce or separation, a spouse lives in a property owned by the other spouse. Exemptions are also included where a person has to vacate his or her home because of long-term physical or mental infirmity and for property where a relative of the owner lives rent-free, as long as that property is within a certain distance of the owner's home.
In putting the new charge in place, the view taken was that an annual charge of €200 is a relatively modest one. This view was underpinned by a recognition that it is payable by people who own a property other than that in which they live. All in all, in enacting the legislation, it might be concluded that the charge does not represent an unduly heavy burden on those required to pay it. The Act has placed the collection of the charge under the care and management of local authorities.
In the nature of any new charge, a variety of cases have come forward and a wide range of queries relating to the applicability of the charge have arisen. In some cases this is a cause of concern for the individuals involved. This has been represented clearly to the Minister by public representatives.
Local service delivery is a matter of close interest to this committee. The Department has sought to respond as clearly as possible to all cases raised with it. The guidance provided to local authorities is relevant in this regard. On the treatment of individual cases, it is a matter for local authorities in the first instance to interpret the legislation for those cases.
The committee may wish to note that up to 23 November 2009 some €48.3 million had been collected under the charge in respect of just over 240,000 properties.
Payment of the charge is accepted on behalf of any local authority through a website designed and constructed by the Local Government Computer Services Board, which is broadly similar to the motor tax on-line system. The revenue accruing is relayed automatically and at intervals to the bank account of the city or county council in whose area the property is situated. While payment is also accepted locally in local authority offices, local authorities have been asked to use the website for their own convenience and to minimise the costs associated with the administration and collection of the charge. To date, some 75% of transactions have been completed on-line.
The revenue stream which this Act has introduced is immensely important, not just in terms of the amount of money it has generated but in that it has established a new funding source for local authorities, one that is genuinely local in that it derives from revenue raised locally and that it is expended for local purposes.
In putting the new charge in place, the following broad principles were involved: the need to put in place a new additional source of funding for local government; for that to be reasonably modest in its level with an objective of making this as straightforward an application and administration as possible; and to incorporate appropriate penalties to incentivise timely payment.
In the nature of the charge the yield will vary from one city or county council to the next but given the total yield so far and the pressure on local funding generally, it must be counted as an important initiative. Its practical implementation is good evidence of local authorities adopting a shared services approach in keeping with the policy of achieving a more integrated public service.
