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 Local Property Tax is expected 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.
The Government has indicated an intention to move, from 2014, to 80% retention of all Local Property Tax receipts within the local authority area where the Tax is raised. The remaining 20% of the Tax collected nationally will be redistributed on an equalised basis to local authorities within the context of the annual allocations of General Purpose Grants. The approach used to allocate the 20% of Local Property Tax revenue available for equalisation will depend on factors such as overall yield and yields at individual local authority level. The priority will be to support those local authorities with weaker funding bases. The details will be decided in the context of Budget 2014.
An important purpose of the changes to the funding of the local authorities is to place the local government sector on a more sustainable financial footing. The concept of financial sustainability should not solely be considered in terms of national recovery from our current economic circumstances over the short to medium term; longer term viability and the connection with the citizen are also important elements. The changes which are currently under way are intended to deliver a model of funding which is sustainable in the broadest sense.
