The local government funding model will change considerably in 2014. Under the Finance (Local Property Tax) Act 2012, commencing in 2014, the Minister for Finance will pay into the Local Government Fund an amount equivalent to the Local Property Tax paid into the Central Fund during that year; this revenue will be allocated to local authorities from the Fund. In addition, the establishment of Irish Water and its financial relationship with the local government sector will have a considerable impact on local authority financing.
The Government has indicated an intention to move to 80% retention of all Local Property Tax receipts within the local authority area where the Tax is raised. The establishment of Irish Water presents local government with significant organisational and financial challenges in 2014. Service provision responsibilities will shift from the local authorities to Irish Water, infrastructure will be transferred, financing arrangements will alter and local authorities will operate on behalf of Irish Water under Service Level Agreements. These changes must be managed.
In this context, it has been necessary to defer defining a certain proportion of the proceeds of the Local Property Tax to be retained in each local authority until 2015. This approach allows maximum flexibility in allocating Local Property Tax in 2014 in the form of General Purpose Grants, with the priority to support those local authorities with weaker funding bases. This decision has been taken in the context of Budget 2014. The 2014 Local Government Fund General Purpose Grants will be announced in due course.
I expect the Local Property Tax to have multiple benefits, including a more sustainable and resilient system of funding for local authorities and therefore a sounder financial footing for the provision of essential local services; greater local scope for financial decision-making concerning service provision - in particular, the inclusion of the local variation mechanism from 2015 will further increase the autonomy of local authorities; and a strengthening of democracy at local level with a more active relationship between local authorities and local electorates. A stronger democratic relationship and clearer lines of accountability can only have a beneficial impact on service provision from the perspective of the service user.