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Designing a Property Tax: Coupling local expenditure to a property tax

Designing a Property Tax: Coupling local expenditure to a property tax. By: Karl Deeter (Irish Mortgage Brokers) & Patrick King (Dublin Chamber of Commerce)

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Designing a Property Tax: Coupling local expenditure to a property tax

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  1. Designing a Property Tax: Coupling local expenditure to a property tax By: Karl Deeter (Irish Mortgage Brokers) & Patrick King (Dublin Chamber of Commerce) The views expressed in this paper & presentation are those of the authors and do not necessarily represent the views of, and should not be attributed to, either of their respective organisations. DRAFT DOCUMENT - NOT FOR CIRCULATION

  2. House 1 312.5 sq m (5/16) House 2 250 sq m (1/4) House 3 125 sq m (1/8) House 4 187.5 sq m (3/16) House 5 125 sq m (1/8) Proposal - Property Tax Based on Site Size & Local Authority Costs • Tax Base = • Residential Zoned Land for Local Authority • Rate = • General Local Authority minus Rates divided by the Tax Base • Benefits • Pay for local services • Replacing LGF • Simple to determine tax base • Simple to implement • Administrative • Compliance • Applies to all but designed to be the least unfair DRAFT DOCUMENT – NOT FOR CIRCULATION

  3. Result - provide examples and demonstrate the ease of implementation • Example Fingal (right) • Tax liability in Fingal is €0.57 per m2 • 380 * €0.57 = € 216 • 190 * €0.57 = € 108 • 180 * €0.57 = € 102 • Example Dun Laoghaire/Rathdown (right) • Tax liability in Dun Laoghaire/Rathdown is €0.67 per m2 • 858m = €574 • 960m = €643 • 1886m = €1,263 DRAFT DOCUMENT - NOT FOR CIRCULATION

  4. Property Value Square Footage Site Value Tax Site size Designing a property tax Value Size DRAFT DOCUMENT - NOT FOR CIRCULATION

  5. Designing a property tax National Local • Capital Tax View (Mieszkowski) • Treats it as differential capital tax • Property tax collected from local households, centralised and then redistributed as necessary to local authorities for services • Benefit Tax View (Tiebout) • Model of efficiency in provision of local services • Property tax collected from local households goes directly to their local authority for services DRAFT DOCUMENT - NOT FOR CIRCULATION

  6. Ireland Property Tax &Local Government • “The need for local taxation arises if it is decided to operate a system of local government with real discretionary powers, as distinct from a system of local administration of centrally determined and funded services.” - Commission on Taxation (1985) • “local authorities should be self-financing in the longer term and that Exchequer support should be replaced with increased revenue generation from local sources” – Report of the Special Group on Public Service Numbers and Expenditure Programmes • “The funding system is characterised as ‘vertically imbalanced’, with high levels of local expenditures being funded from general taxation.” – Indecon Report DRAFT DOCUMENT - NOT FOR CIRCULATION

  7. Total Local Government Expenditure Put in 2012 • Report of the Special Group on Public Service Numbers and Expenditure Programmes • Local Government Efficiency Review Group • Local Authority lead change DRAFT DOCUMENT - NOT FOR CIRCULATION

  8. Cost of Services by Division AMEND DATA TO BE CLEARER • Deficit in direct income from service: • €2.17 billion • Divisional deficit paid through general funding of LGF & commercial rates DRAFT DOCUMENT - NOT FOR CIRCULATION

  9. Local Authority Variations Variations in Spending graph Source: CCMA analysis DRAFT DOCUMENT - NOT FOR CIRCULATION

  10. Varying Services, Citizens, Policies • Costs vs Service • Dublin City: 11% live there; 21% work there • WTE: other LAs (670); staff of agencies (225); and ‘Services / Scale Unique to DCC’ (1857) => below national average • Ireland’s low population density: • Transmission network 4x European per capita • 2nd largest road network per capita in the EU, after Sweden. • Higher density locations see lower cost to serve on core function with savings being used to supply other non-core services. • Local Government Efficiency Review cited the ability of Donegal County Council to double the efficiency of their staff compared to Mayo County Council. DRAFT DOCUMENT - NOT FOR CIRCULATION

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  15. Who pays for Policies? • Unique policies are democratic choices of councils • If local taxpayers are paying for these choices does it matter to national taxpayers? • Ultimately, local democratic government control over budgets makes Cllrs accountable to ratepayers and homeowners paying for extra services • Not other jurisdictions DRAFT DOCUMENT - NOT FOR CIRCULATION

  16. Local Expenditure Conclusions • First Commission on Taxation • Identify the national services from the local services • Local services are optional in nature: • “locality has wide discretion over what is done and the manner in which it is done” • Local services funded through locally raised revenue • Indecon Report • Cover full economic cost of national service delivery DRAFT DOCUMENT - NOT FOR CIRCULATION

  17. Context • Residential Stamp Duty introduced in 1996 to replace Residential Property Tax • Residential Stamp Duty: • 3.8% of peak level Source: Minister for Finance, Written Answers, July 2012 DRAFT DOCUMENT - NOT FOR CIRCULATION

  18. Local Government Fund • Had savings from 2008 to 2012 not been achieved property tax would be 50% higher • Troika MoU commits to a property tax to fund local government • Exchequer contribution through motor tax to LGF replaced by household charge • Money raised locally is distributed nationally DRAFT DOCUMENT - NOT FOR CIRCULATION

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  20. How much you get? Who is paying? AMEND DATA TO BE CLEARER Compared to the past (Indecon Report) DRAFT DOCUMENT - NOT FOR CIRCULATION

  21. PROPERTY TAX DRAFT DOCUMENT - NOT FOR CIRCULATION

  22. England Council Tax • Council Tax depends on council and other public bodies (eg the police): • spend in your area • get from other funding • Average cost is double or triple what it would be in Ireland. DRAFT DOCUMENT - NOT FOR CIRCULATION

  23. Simple estimate of Avg House Bill • Tax base is the housing stock • Each house is proportioned an equal share of the revenue required by their local authority DRAFT DOCUMENT - NOT FOR CIRCULATION

  24. Cost per hectare DRAFT DOCUMENT - NOT FOR CIRCULATION

  25. Residential ExamplesFoxrock, Co Dublin • Tax liability per hectare of zoned land in Dun Laoghaire/Rathdown is €6,693.58 or €0.67 per m2. • 858m = €574 • 960m = €643 • 1886m = €1,263 DRAFT DOCUMENT - NOT FOR CIRCULATION

  26. Residential Examples • Tax liability in Fingal is €5,675 per hectare which equates to €0.57 per m2 • 380 * €0.57 = € 216 • 190 * €0.57 = € 108 • 180 * €0.57 = € 102 • Compare PRAI data against the Google map lot sizes variation is negligible • Below €5 in annual charges in most cases. DRAFT DOCUMENT - NOT FOR CIRCULATION

  27. Apartments • Cost per unit very low • Give responsibility to management company to collect • Assistance from Revenue for those non-compliant DRAFT DOCUMENT - NOT FOR CIRCULATION

  28. Apartment Examples • Block occupies footprint of 3,712 metres • 3,712 * €0.32 = €1,187 DRAFT DOCUMENT - NOT FOR CIRCULATION

  29. Commercial/Residential Mixed • Total zoned land of mixed developed calculated • Residential area as proportion of that by use • Commercial has paid its part through rates • Divide by household unit size (including residential common space) DRAFT DOCUMENT - NOT FOR CIRCULATION

  30. Farm Houses • 2 options • Option 1 (default): • Farm land as a base times percentage that would be for an home (national est. 0.19% home to farm land) • Cap at local authority average size residential property • Option 2: • Self assessment to measure residential foot print (inclusive of all non-agriculture land) at rate equal to other residential properties. DRAFT DOCUMENT - NOT FOR CIRCULATION

  31. Farm table DRAFT DOCUMENT - NOT FOR CIRCULATION

  32. DISCUSSION DRAFT DOCUMENT - NOT FOR CIRCULATION

  33. Rent, Mortgage, Own • Average weekly rent charges: • Local authority housing €54 (12%) • Private owner €172 (26%) • Mortgage cost €192 (17%) • Highest disposable income €1,194 • Own outright • Disposable income €794 (2nd highest) DRAFT DOCUMENT - NOT FOR CIRCULATION

  34. Impact on Local Authorities • Gains revenue raising capacity • Greater accountability to local citizens • Challenge of small LAs • Criteria for local taxes, base capable of yielding revenue to fund LA (CoT 1985) • Population of ~100,000 per local authority achieving minimum efficiency scale (LGERG) DRAFT DOCUMENT - NOT FOR CIRCULATION

  35. “Democracy rests on the dissemination throughout society of a sense of responsibility and of the opportunities to exercise it.” – The Barrington Report (1991) DRAFT DOCUMENT - NOT FOR CIRCULATION

  36. Tax Strategy GroupTaxation of Property • Lowest assessment either area or value • Advantages: • self-assessed, relatively easy to administer • easy for taxpayers to measure • size for urban dwellers and valuation for rural dwellers • graduated pricing lower likelihood of underestimation • collect valuable data • Possible pitfalls: • no known examples • rate carefully determined to obtain the required yield need to be acceptable rate for most taxpayers. • problems of self-assessment options DRAFT DOCUMENT - NOT FOR CIRCULATION

  37. Yes, we can… • Is this easily understood compared to other options? • Can this be done? • Is it simple? • Can it be done rapidly? • Is it equitable and fair? • Can mass appraisals/invoicing occur quickly? • Is it pragmatic? • Does it solve the issue of funding local government? • Can it fund local government dynamically? • Is it inexpensive to implement? • Will people understand it? • Is the compliance cost low? • Is it easy for people to determine if their bill is correct? DRAFT DOCUMENT - NOT FOR CIRCULATION

  38. THANK YOU DRAFT DOCUMENT - NOT FOR CIRCULATION

  39. Own or Rent DRAFT DOCUMENT - NOT FOR CIRCULATION

  40. Housing expenditure: • Urban €163 (20%) • Rural €121 (16%) • Mortgaged 22.5% • Private renter 26.3% • Decile: 1st €72 ( %) | 2nd €79 (%) | 3rd €92 ( Source: CSO (2012), Household Budget Survey 2009-2010. DRAFT DOCUMENT - NOT FOR CIRCULATION

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