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Finance (Local Property Tax) Bill 2012: Second Stage (Continued)

Friday, 14 December 2012

Dáil Éireann Debate
Vol. 786 No. 4

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(Speaker Continuing)

[Deputy Michael McGrath: Information on Michael McGrath Zoom on Michael McGrath] In the case of two neighbouring properties, for example, one of the households might have an annual income of €200,000, say, while the other might be relying on jobseeker's allowance. Despite this huge discrepancy in income, both families will pay the same amount in property tax under the proposed system because their houses have the same value. That is absolutely not fair or progressive. The Minister is wrong in his claim that the wealthiest will pay the most under the local property tax charge. If the charge were based on net wealth, which would take account of ability to pay and the amount of the mortgage relative to the value of the property, he might have some argument. The way in which the charge is structured, however, certainly does not ensure that the wealthiest will pay the most.

  I do not want to use up too much of my speaking time on the politics behind this proposal, but I must challenge the Minister on a particular point. When I debated with him on "Primetime" on budget night last week, he denied that Fine Gael had stated its opposition to the introduction of a property tax in its election manifesto last year. That is patently untrue. That manifesto stated:

[An] annual, recurring residential property tax on the family home is unfair... What will be viewed as fair in south Dublin might be viewed as unworkable in rural Clare... [We] will empower local authorities to put in place, following the 2014 local elections, fairer alternatives to Fianna Fáil's and Labour's recurring annual tax on the family home.

The manifesto gave an undertaking that there would be no additional local taxes and that local authorities might have to curtail services if necessary, introduce increased local user charges for waste or impose a local site sale profits tax on the profit made from the site value on the sale of a residence. That is what Fine Gael proposed before the general election, indicating that these measures would be "both fairer and more economically sensible than an annual recurring property tax". That manifesto was written in full knowledge of the memorandum of understanding already in place with the EU-IMF-ECB troika.

  The Labour Party adopted a different tack, indicating its acceptance that a site value charge should be introduced. It was of the view, however, that this could not be done before 2014. The party's manifesto went on to state that such a charge would have to take account of the variation in the value of properties between different regions and the need to exempt some categories of home owner. Consideration was also to be given to those who had recently paid large sums in stamp duty and householders in negative equity. The Bill before us today takes no account of these factors. Both of the parties in power received no mandate from the Irish people to introduce the tax we are discussing today. Anybody who reads both parties' manifesto will be absolutely clear on that point.

  The key concern regarding the proposed local property tax is that no account is taken of ability to pay. It is a charge that will have the greatest impact on low and middle-income families and those who are already struggling to pay their mortgages and other bills. A family with a gross income of anything over €480 per week, or €25,000 per year, will not be entitled to a full deferral and only those with a gross income of less than €673 per week can avail of a half-rate deferral. These thresholds take no account of any financial commitments that an individual household might have, household size or ability to pay. This is the fundamental flaw that runs right through the legislation.

  In addition, there is no consideration of the size of the mortgage relative to the value of the property. The Government is proposing that people who are deep in negative equity - who have, for example, a mortgage of €250,000 or €300,000 but whose home is worth only €150,000 - will be required to pay this tax. That type of shortfall between mortgage and home value is not uncommon given the scale of the collapse in property prices. Absolutely no consideration is being given to home owners who find themselves in such circumstances despite the promise made to them by the Labour Party in the election last year. For these people, the property tax is a charge on a net liability - effectively, a tax on debt. This is deeply unfair and unjust and should be rectified.

  The issue of mortgage arrears is central to this debate. Yesterday the Central Bank released more sobering statistics illustrating the extent of the crisis in this regard. It is now the case that one in four family home mortgages are in some level of distress - that is, the home owners either are in arrears or have had their loans restructured. That is a phenomenal statistic and it does not take into account those who are just about managing to meet their repayments. These issues should be front and centre in this debate. The property tax is being foisted on families who cannot afford or are barely managing to pay their mortgages every month. In some cases, it will come down to a choice between paying the tax and making a mortgage payment. What is the Government advising that home owners in that position should do?

  One must consider these proposals in the totality of budget measures. For instance, a family with three children and a home worth a little over €200,000 will face a property tax of €405 in a full year while losing €420 in child benefit and, if it is a one-income household, an increase of €264 in PRSI. That amounts to a loss in income of €1,100. Moreover, all of these measures will apply irrespective of household income. In other words, a family with an income of €25,000 or €30,000 will take the same hit as families with much higher incomes. It is beyond belief that the Government would seek to impose such taxes and charges in a regressive way. Moreover, the property tax must be considered alongside all of the other measures in the budget. One does not have the full picture until one sees the cumulative impact of the entire package of cuts and charges. The figures I have given do not include the other charges people will face next year, including the increase in motor tax and the raft of other measures included in last week's budget. When one adds them up, the family in my example is facing a loss of income of well over €1,000.

  The information released by the Central Bank yesterday shows a worrying trend with regard to mortgages, with the rate of arrears having doubled since the Government came to office. I accept that there is, of course, a time lag after the loss of a job during which people will use any savings they have before they end up in an arrears situation. However, at the time the Government came to office the headline rate for those in arrears of 90 days or more was 5.7%, or 44,500 households. Yesterday we discovered that this had increased to 11.3%, amounting to 85,000 family home mortgages. Rather than being contained, as the Government claims, the mortgage arrears crisis is out of control. Some 29% of family home mortgages, in value terms, are currently in distress and close to 500,000 people are living in houses for which the mortgage is in trouble. If we cover nothing else in this debate, we must at least confront that issue. These people are being given no meaningful respite in respect of the property tax as currently proposed.

  In the years 2003 to 2009, the average stamp duty payment per transaction on the purchase of a home was just over €20,000. I acknowledge that the Thornhill report recommended that people not be given any credit for stamp duty paid in recent years. The Commission on Taxation, however, did recommend that such a credit be given against property tax liability. No provision to that effect has been made in the Bill.

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