Dáil Éireann Debate, Thursday - 26 October 2017
5. Deputy Catherine Murphy asked the Minister for Housing, Planning and Local Government if a recent analysis has been carried out in respect of the baselines set for local authorities in the context of local property tax; if so, the person or body that conducted it; if it will be published; and if he will make a statement on the matter. [45091/17]
Amharc ar fhreagraThe recent focus on the local property tax relates to the proposed 2019 revaluation and the potential for a shock in terms of increases. This question is about the baselines that are set for each local authority, which are based on historical data and, as such, work to the disadvantage of areas that are growing in population; whether any analysis has been carried in this regard and, if so, if it is feeding into the cross-departmental group.
Local retention of local property tax, LPT, commenced in 2015 and is now established as an alternative and essential source of funding for the local government sector, thereby reducing reliance on central funding. The Government decided that 80% of the estimated LPT liability in each local authority area for a given year is retained in that area to fund public services, notwithstanding any local variation decisions. The remaining 20% of LPT is redistributed to provide equalisation funding to those local authorities that have lower property tax bases due to the variance in property values and density across the State. This reflects the fact that local authorities vary significantly in terms of size, population, public service demands, infrastructure and income sources.
In accordance with decisions taken by the Government regarding the distribution of local property tax, every local authority has a minimum level of funding available to it known as the baseline. There are variances across the country in terms of LPT levels but it is important that all local authorities receive at least this baseline level of funding to ensure they can deliver services. Following consideration by my Department, the baseline was last revised in respect of the 2017 local property tax allocations. For 2017 onwards, an adjustment was made to the baseline of each local authority to include an additional amount equivalent to the pension-related deduction, PRD, income retained by local authorities in 2014. This administrative arrangement was designed to reduce the risk to local government funding that would otherwise arise from declining PRD income from 2016 onwards. Therefore, the baseline is currently linked to previous general purpose grant amounts and the level of pension-related deductions retained by local authorities in 2014.
The Department of Finance has overall responsibility for LPT policy and accordingly, questions around such policies are primarily a matter for my colleague, the Minister for Finance. My Department remains focused on the resource needs of all local authorities. The issue of baselines is one that is raised a great deal with Department officials when they visit local authorities. Most local authorities are happy with the change made in regard to the pension-related deduction. We have given a commitment to analyse ongoing costs and funding issues for local authorities into the future as more money becomes available through our current and capital budgets.
I will try to illustrate my point. Taking the two counties of Wicklow and Mayo, the population of Wicklow is greater than that of Mayo by 12,000. The baseline for Wicklow is €6.84 million and the baseline for Mayo is €17 million, even though the population of Mayo is smaller. The overall spend in Mayo when everything is taken into consideration is €125 million. In Wicklow, it is €91 million. This means the larger populated area has the smaller amount of funding. These baselines date back to the needs and resources model of 2001 and have only been tweaked since. I am aware of the change that occurred last year in regard to the pension-related deduction. It was not about addressing the baselines in the sense I am talking about. Unless population changes matter, growing areas will lose out in terms of the opportunity cost in respect of services that they should be providing. This will result in significant resentments. I ask the Minister of State to ensure this issue is looked at in the context of any review.
In regard to the local property tax, this tax essentially was a replacement for the general purposes grants. There was an expectation that it would be an addition to the general purposes grants but people are now twigging that is not the case. The baseline issue is an important issue, particularly for growing areas.
The baseline figures being used date back to 2005 rather than 2001. It is based on the 2005 assessment of the various services and income and expenditure as well. The Deputy is right that since then they have only been tweaked on a plus or minus basis every year thereafter. As the Deputy knows, the original needs resource model was cumbersome to manage and it did not always prove economical to gather all of the relevant data. The issue of the funding requirements of local authorities is an ongoing one for the Department. The Deputy will be familiar with the requirements of the local authority in her area, as I am familiar with the needs of the local authority in my county. There is increased pressure on services when there is an increase in population. Local authorities currently do a lot more than they did previously. The local property tax is only part of the funding provided to local authorities. They also get other funding.
In regard to Mayo versus Wicklow, this is not only about population size. Counties vary greatly in geographical size as well, which must also be taken into account in the context of the running of a county. I apologise but I cannot recall the Deputy's third question.
I have done a thorough analysis on this issue. Although I used the example of counties Wicklow and Mayo, if one matches counties of similar size, the same profile occurs in relation to growing areas. The 2005 figures were taken from the 2001 data and they were only marginally changed. I have the data for each year from 2001 onwards. The issue is that when the needs and resources model was brought in, a commitment was given that no county would lose out under the new funding mechanism. The problem is that growing areas will always lose out in that environment. A local authority which had a large staff and assets such as libraries or swimming pools at that point could count them as a need but the capacity to develop new services or grow the workforce was not factored into how the metric worked. There is a significant fault at the heart of this funding model, which if not reviewed will work to the disadvantage of some areas. The operation of the equalisation fund means counties that are growing are paying in more and more, which means the baseline will work to their disadvantage in terms of discretionary spend. I ask the Minister of State to ensure this is specifically looked at.
We are constantly looking at the funding situation of all local authorities. We are very conscious of the great differences between them. In accordance with Government decisions on local retention of the local property tax, certain local authorities with large property bases receive additional income from the local property tax compared with their baseline. The Government decided that these local authorities would use this surplus funding in two ways: a proportion of it would be available for their own use and the remainder to fund some services in the housing and roads areas. This process is known as self-funding, replacing central executive funding as well. Approximately €108 million from the local property tax is supporting housing and road services in 2018. We do allow for this in the counties that are growing quicker than others in terms of their property base.
On the Deputy's statement earlier that people are beginning to realise that the local property tax is being used to plug a gap, people were always aware of what it was to be used for. I repeatedly said that it was a great shame that the local property tax was introduced at a time when resources nationally had to be cut across the board. There is great benefit in having a local property tax, although people do not see that at this point because of the timing of its introduction. As things improve, they will be able to link improvements to it. In the early years, it was used to plug the gap in national funding. There is no denying of this and it is a great shame. One of my first suggestions on being elected to this House was that we should bring in a local property tax. At that stage, Bertie Ahern and others were focused on tax reductions without putting in place a local property tax. They should have done a combination of both. We would be in a much better place had we done that. We are now trying to correct the situation and local property tax plays a major part in that regard.
