Dáil Éireann Debate, Thursday - 15 November 2012
5. Deputy Mick Wallace asked the Minister for Finance in view of the difficulties that so many persons here are facing in dealing with mortgage arrears and negative equity on their homes, if he will consider raising the anticipated property tax revenue from an alternative source such as an increase in income tax for those who can afford to pay; and if he will make a statement on the matter. [50479/12]
Amharc ar fhreagraThe Government has decided, as part of our obligation under the EU-IMF programme of financial support to Ireland, to introduce an annual recurring property tax. In the latest memorandum of understanding between the Government and the troika, a commitment was given to introducing the tax in the forthcoming budget. The introduction of a property tax has been a condition of the programme since it was first negotiated in November 2010 under the previous Government and has remained a condition following subsequent reviews agreed by all programme partners. The memorandum provides for substitution of measures in certain circumstances. It states that "without prejudice to the minimum consolidation amount referred to in the previous paragraph and to the requirements to achieve the agreed fiscal targets, the Government may, in consultation with the staff of the European Commission, the IMF and the ECB, substitute one or more of the above measures with others of equally good quality based on the options identified in the Comprehensive Review of Expenditure." Therefore any proposal to alter the proposed composition of tax or expenditure measures would need to be substituted with measures of equal value.
It should be noted that the arguments in favour of a property tax go beyond the memorandum. The introduction of a property tax is part of a broader approach to the taxation of property. The aim is to replace some of the revenue from transaction based taxes, which have proven to be an unstable source of Government revenue, with an annual recurring property tax which international experience has shown to be a stable source of funding. The taxation of property through a recurring annual tax is less economically distortional than the imposition of tax on either income or capital. This is supported by economic literature and recent OECD analysis. The OECD has highlighted that annual taxes on land and buildings have a relatively small adverse impact on economic performance.
It is a longstanding practice of the Minister for Finance not to comment in advance of the budget on any tax matters that might be the subject of budget decisions. The property tax forms part of a long-term policy to broaden the tax base, provide a stable funding base for local government and assist the strengthening of democracy at local level. Due consideration will be given to a wide range of issues, including fairness, equity and ability to pay, in any measures that may be announced.
Additional information not given on the floor of the House
Regarding mortgage arrears and negative equity, the Government is conscious of the difficulty some home owners are experiencing in meeting their mortgage obligations. The main focus of attention is on those mortgage holders who are experiencing genuine difficulty in meeting commitments in respect of their home. A range of measures is being advanced in this area including personal insolvency reform, the implementation of the mortgage to rent initiative, engagement with mortgage lenders on the development and implementation by them of mortgage arrears resolution strategies and provision of a mortgage advisory function.
This is not a normal time in Ireland to try to introduce a property tax.
In principle, in a healthy climate I would not have a problem with the notion of a property tax. However, we are approaching a figure of 400,000 homes in negative equity, including those in mortgage arrears. In addition, there are approximately 450,000 people unemployed, meaning about 150,000 households are affected by unemployment. On top of this, a further 150,000 households are in the names of pensioners. This amounts to almost half of the property pot and one can see it will be very difficult to apply a property tax.
It was interesting to hear the comments of Dr. Peter Bacon when challenged and asked if introducing a property tax was a good idea. He said he did not think it was a good idea based on current economic circumstances and that he believed there was nothing a property tax could achieve that could not be achieved by adjusting income tax rates. The argument being made is that a property tax would broaden the tax base, but it would not. It is a residential property tax that would be paid from the incomes of home owners or occupiers; therefore, it would be paid for from their incomes and land on PAYE employees and the self-employed.
Also, the Minister should realise that Ireland is probably the only country in Europe where significant numbers have paid stamp duty on their primary residence, a practice unheard of throughout Europe. For example, anyone who paid €200,000 for a house, paid stamp duty at a rate of 6% or €12,000 on his or her property. This figure becomes €25,000 through a 25 year mortgage or €1,000 a year in stamp duty.
Previous housing policies, property and transaction taxes have been disastrous and placed significant impositions on people. The Government has decided that it will introduce a property tax and I do not see it as a solution to argue that it should increase income tax rates instead. Some of the people mentioned by the Deputy would have to pay increased income tax. The property tax approach would result in a broadening of the tax base and mean all tax revenue would not be taken from income. Therefore, property owners and householders would pay their share. We will try to introduce a fair system and the proposed measures will be announced on budget day.
Dr. Peter Bacon recommends that we do it through income tax. Imposing a tax rate of 50% on earned moneys above €100,000 would bring in €490 million annually, almost equal to what is expected to be raised by the property tax. Such a tax would be based on ability to pay, making it a fairer tax. I remind the Minister that in January 2011 Fine Gael stated it would raise revenue from property, but not by way of a household tax as proposed by Fianna Fáil, on the grounds that such a tax would be difficult to collect from asset rich but income poor households, particularly the elderly and the unemployed, and also that it would be deeply unfair for a young generation who had paid exorbitant amounts in stamp duty and VAT on the purchase of overvalued houses, many of whom now find themselves in negative equity. This is what the Minister's party stated one month before the general election. I am sure he would agree that we should be pursuing a form of taxation based on ability to pay.
We have a difference of opinion on policy. I do not believe imposing very high additional charges on income taxpayers is the way to collect additional taxes or lift the economy out of the position it has been in for some time. We will take the difficulties to which the Deputy points into account in designing the property tax. Approximately three weeks from the budget, I cannot give him the details, but we will provide them on budget day.
