Tricky property tax issue a real banana skin for govt

As 2012 dawns, it is becoming ever more clear that the hottest political topic over the coming few months is going to be that of the new household charge, to be replaced in either 2013 or 2014 by a new property tax. This proposed property tax will raise about €500 million in revenue on an annualised basis, or three times more than the new flat-rate €100 household charge will bring in during 2012. The €100 across-the-board fee people will be forced to pay from this year - which is expected to raise €160m for the exchequer - is effectively to soften up homeowners for what is to come in 2013. The amount people will pay for the new property tax will be determined by an expert group which is beginning its work this month and which will be expected to make recommendations within a few months. It has already been reported that it could cost households roughly €312 on average, though some speculation has put it at €1,000 or more. Taoiseach Enda Kenny has already admitted that the €100 household charge for this year is not fair as it is charged at a flat rate - therefore, a millionaire living in an eight-bedroom mansion will pay the same rate of household tax as someone living in a two-up, two-down terraced home. This is considered by many people to be deeply unjust. The government clearly wants to move as speedily as possible to a fairer system where the amount of tax paid is based on the value of the property but also because the increase in revenue to almost half a billion under the latter property tax will make up one-third of the EU-IMF bailout target of new tax intake for that year. Many households will be able to afford a payment of €100; for many more, they will not. It may well be less than the cost of a weekly shop, but this single issue has the capacity to be a lightning rod for the anger of a people who have already been subjected to harsh austerity measures more than any other stealth tax imposed so far. The new charge is being brought in under the guise of paying for services provided by local authorities, but few are buying that. Most see it as another stealth tax so the citizens of this country can continue to pay the banking debts that have led Ireland to penury. There is anger, too, at the punishment regime for those who refuse to pay and who can be hit with fines of up to €2,500. Those who are late in paying face a sliding scale of penalties. No matter how this new tax is imposed, it is going to cause great difficulties for the government, never mind the citizens who must pay it. Those who argue in favour of a property tax point to the examples of virtually every other EU member state which has one, as well as Canada, the United States and Australia. But that fails to take into account that many Irish people have already paid large amounts of tax through stamp duty to buy their homes, and many of these countries have far less penal rates of tax on a range of consumer goods, like motor vehicles, than we do in Ireland. While most people will grumble about having to pay the new €100 levy this year, the likelihood is that most will grudgingly pay it. However, more importantly for the following years, is that the government imposes a tax on properties that is fair and equitable and one that people are able to afford, according to their means. Suggestions from the ESRI of a tax as high as €1,300 per annum on average will bring people out onto the streets. Economists have said for years that a property tax is essential to providing a stable revenue source for the government, and it is one of the demands of the IMF/EU/ECB deal. But devising a system that is both fair and that works is going to be very tricky politically. All of these new levies are adding insult to injury for householders as those living in rural areas will also be forced to pay a charge to register their septic tanks - and water meters are about to be installed across the country as well in any home which uses a public water supply. The government will need to be very careful about how it approaches this tightrope. Penal property taxes on top of the other charges coming down the road could see the dutiful coping classes beaten down by rising bills and additional taxation rise up and rebel in a monumental backlash against continuing austerity policies.