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10 things you may not know about the Local Property Tax
Author: Dr Gerard Turley, Economics
Analysis: some of the things which may surprise you about the tax on residential properties introduced in 2013
We all know about the Local Property Tax (LPT). Indeed, this time last year, the government yet again deferred the revaluation date for the tax, and by doing so, avoided the inevitable increases in liabilities for owners of residential properties. Aside from this headline, there is much we don’t know about our LPT (and may not want to know but that's for a different day!) This is a list of facts about the LPT that you may not know, but may find interesting or surprising.
(1) How local is it anyway?
Although it is a local tax in the strict meaning of the definition of a local tax (one where local councils have rate-setting powers and, in this case, the discretion to increase or decrease the base rate by 15%), it is the central or national government that decides everything else, that is, its introduction, tax rate, base and valuation, and collection vis-à-vis Revenue.
(2) Where does the money go?
Not all of the revenue from the tax stays in the local administrative area from where it is collected. Some of it is used to fund financially weaker local councils (see point 5), other local authorities with smaller economic and revenue bases. This is a sensitive and controversial issue for urban areas and especially the local authorities in Dublin.
(3) What's the money spent on?
Not all of the LPT revenue pays for recurring current or day-to-day expenditure on local public services and some of it is used to fund capital spending on roads and housing. €77m of the €500m LPT allocation in the 2019 budgets was for the capital budget.
(4) Does this mean that councils are coining it in?
It's not an additional source of revenue for local councils, as it replaced another source of local government revenue, namely, central government general purpose grants. General purpose grants from central government peaked in 2008, at €1bn. Annual LPT receipts amount to about half that, at just less than €500m.
(5) Are all councils equal?
20% of the LPT receipts are used as an equalisation fund, so well-disposed (in terms of the number of properties and their valuations) local councils partly fund poorer local councils, instead of the alternative where this equalisation funding comes directly from central government. Of course, this may be a moot point as in the end it all comes from the taxpayer.
(6) How much cash does the tax actually bring in?
The Local Property Tax raises a relatively small amount of revenue, at less than one percent of total government tax revenue. This share or percentage will change in 2020 due to falling revenues arising from the coronavirus lockdown.
(7) How does it compare to other local council taxes?
In terms of the share of total revenue income for local councils, it is the smallest at 8%, with commercial rates (31%), charges and fees (29%) and central government specific purpose grants (32%) accounting for the remainder (per 2018 figures).
(8) So commercial rates are huge then?
Commercial rates are a business and property tax and raise almost four times the revenue that LPT raises. Although this will change because of the Covid-19 pandemic, the lockdown and the impact of rates actually paid, tax revenue from residential properties is still much lower than tax revenue from commercial properties.
(9) When will the tax change?
Although the owner of the residential property's liability may change from year to year, this depends on whether your local council decides to vary the base rate. Annually, the majority of councils did not use this local power until 2020. Again, this may change given the very different economic circumstances. We will know more by September when councils are required to inform Revenue of their LPT rate for the next financial year.
(10) Are Dubliners subsiding the rest of the country?
The four Dublin local authorities have cut the LPT rate every year since 2015, amounting to a gain for taxpayers (albeit very small for most owners of residential properties) but a loss to council income, and revenue foregone that was not available to pay for local services. Amounting to almost €150m between 2015 and 2019, this is equivalent to a full year’s spending by all 31 local authorities on street cleaning and litter management.
Although some of this detail may change in 2020 for reasons outlined (namely the impact of the Covid-19 pandemic), the essential features will not change. The LPT was designed during the last economic crisis, and allowed the government to widen the tax base and to tax wealth (in the form of property) while at the same time provide a new and stable source of income to local government.
While Revenue and the government of the time deserve praise for this (unlike the debacle over water charges) the current crisis provides a new government with an opportunity to reform the LPT, and not just in terms of property revaluations for LPT purposes! Whereas this element of the LPT dominates the media headlines - not surprisingly so given the impact on LPT bills for taxpayers - other features of the LPT are equally important for policymakers and citizens, as our national politicians thrash out a new social contract in advance of a programme for government.