The basis for calculation of the Local Property Tax (LPT) was examined comprehensively in the 2012 report of the Inter-departmental Group on the Design of a LPT. The report advocated the use of market value of residential properties as the basis of assessment and this recommendation was accepted by the Government. The Design Group considered that under a market value approach applied to housing, the market value of a residential property would be related to the characteristics of the building itself, the site on which it was located and the features and amenities of the neighbourhood. There would be a relationship between the market value of a house and benefits to the owners in terms of enjoyment of the amenity value of the property. The charging structure for LPT is progressive. The basic rate of 0.18 percent applies up to property values of €1 million with a higher rate of 0.25 percent applying on the portion of value above the €1 million threshold.
The Inter-departmental LPT Review Group which reported to me earlier this year was conscious of the potential effects of significant changes in LPT liability on individual households and how progressive these might be. Considerable work was done by the Review Group on the estimated impact of changes in property values including a Distributional Impact Analysis. The Distributional Impact Analysis using the ESRI SWITCH Model (Simulating Welfare and Income Tax Changes) tax and benefit micro-simulation model, was used to compare the impact which the proposed reform scenarios would have on household incomes relative to an indicative benchmark position where the property value increases but there is no change in the LPT rate charged. The results indicate that all scenarios were progressive rather than regressive to varying degrees (see pages 74-77 of LPT review report https://assets.gov.ie/7465/91ccbd3ddc97461898211710e2d7ec55.pdf).
I referred the Review Report to the Budgetary Oversight Committee which has issued its Scrutiny Report on the matter. With this input, I will now reflect on how best to proceed and give effect to changes to the LPT based on the policy objectives I consider should underpin the tax. These are
- Protection of the overall yield
- Relative stability in household liabilities with modest and affordable increases should they arise
- Integration of new properties into the LPT base
- Maintenance of the tax base with a small number of exemptions, and
- Upholding the progressivity of the tax.