Response to Budget for 2013 SMART TAXES NETWORK
The PROPERTY TAX
The government has gambled on the ignorance of the Irish people and imposed a grievously unfair, anti-job, anti-urban and uncollectable Property Tax in the Budget for 2013.
It is grievously unfair because it has exempted the owners of zoned land and development sites from paying the Site Value Tax originally planned so that now all the tax will be raised on homeowners alone.
Zoned land and development sites represent approximately 1/3rd of potential receipts. If homeowners pay €.5 billion as the government plans, then developers, speculators and banks are getting a €.25 billion write off every year. Capitalised this represents up to a €5 billion ‘dig out’ given to the very people that caused the crisis.
The ‘Mansion Tax’ does not redress this decision because it will raise a derisory fraction of the sum foregone on development land and sites. It will not be enough to reduce Property Tax on the many distressed boom-time buyers who will be forced to pay the full tax - if not now when they sell.
A Site Value Tax would have raised enough revenue to give these families a fairer deal.
“Why has the government ignored all reasoned and moral arguments for a Site Value Tax? What answer can there be except that it feared that it would depress the value of land and sites held by NAMA, the pillar banks and the loans held by PRBA. This reduction in value should have been taken into account by any competent valuer at the time of transfer as Site Value Tax was in the Programme for Government at the time. Imposing a Property Tax instead is nothing less than another bail-out of developers, speculators and banks at taxpayers expense.”
Says Emer Ó Siochrú Architect and Development and Planning Valuer and member of the Smart Taxes Network (01 4972564 & 0868267555)
The Property Tax and Mansion Tax are taxes on jobs in the construction sector because the tax will rise as the value of a home is increased by energy saving upgrades and extensions. The fact that valuation bands will be fixed for three years will not redress this damaging disincentive. Energy upgrades that give significant Green House Gas reductions are costly and most such upgrades include further remodelling and extensions that easily breach the €50k band thresholds. This is exactly the area of work in which many good architects and builders have recently developed significant expertise – now undermined.
The Property Tax hits apartment owners far harder than a Site Value Tax as it is shared amongst many apartment owners on the same site. As most apartments are located in the cities particularly Dublin, Property Tax is fundamentally anti-urban. The Mansion Tax compounds this effect as the highest valuedhomes are located in Dublin although by far the largest homes are located in the open countryside.
The Property Tax will be very difficult to assess and collect because it is based entirely on self assessment of the current market value of the home. There are many more variations in homes than there are of locations – size, age, quality and energy efficiency all have to be taken into account. The current market has very few transactions on which to make basic comparisons and of those transactions, very few are in rural locations where every house is typically unique.
The current market is also misleading because it is not normal for 40% of purchasers to be cash buyers as is the case at present. This is sure signal that the banks are not prepared to lend sufficient money against the incomes of average couples to buy at current prices. On the other hand, the banks including NAMA and the IBRC have distorted the normal resolution of a property bubble by their policies of forbearance for political and self-interested financial reasons. Their actions have artificially put a floor under housing prices unlike the US which saw precipitous falls, repossessions and finally a rebound from a very low level into a predictable functioning market.
Homeowners will also have to calculate the reduction in value that the imposition of an annual Property Tax will cause, also taking into account the value of the concession offered to buyers in the current year. Under these circumstances at this time, it is problematic for a trained valuer to confidently estimate the value of anyone’s home - or for a government to confidently demand payment.
In contrast Site Value Tax is based on the market price of the site over a significant time period and double checked against capitalised rental values for the same property. The relative differences in value of sites due to natural and public amenities are then established and an objective map developed that gives a value per m2 for each site. The homeowner then only has to double check that there are no circumstances that might make their particular site more or less valuable than those in the same street or near area. Comparisons of sites is much easier than for completed homes. This ease of valuation and collection is demonstrated by the experience of Denmark and the Australian Capital Territories where their Site Value Tax costs a tiny 2% of revenue to collect with the few appeals.
For more information see http://irishsitevaluetax.blogspot.ie/ SVT twitter and www.smarttaxes.org and read ‘The Fair Tax’ available from Amazon, any good bookshop and firstname.lastname@example.org.
Constantin Gurdgiev 087 6164227
Ronan Lyons 0866045655
Judy Osborne 086 3699575
Emer Ó Siochrú 01 4972564 & 0868267555