Property Tax in Ireland: Key Choices

A property tax could be designed to protect those on low incomes and to put the greatest burden on those with the highest incomes, according to new ESRI research. By contrast, the temporary Household Charge imposes the greatest percentage losses on those with very low incomes. ESRI researchers carried out initial calculations on how a property tax might work in practice. Their results show that the impact of a property tax on low income groups could be cushioned by the use of an income exemption limit, below which the tax would not be payable. This could be combined with reductions in the amount of tax payable by those with incomes just above the exemption limit. With an income exemption limit of €15,000 for a single person, or €25,000 for a couple, there would be little impact on the poorest one-third of the population. No property tax would be paid by pensioners who rely wholly on the State pension. Similarly, those whose incomes – from social welfare or other sources – are at or below the State pension level would be excluded on grounds of low income. In an example presented by the researchers, most homeowners would pay property tax each year of about €2.50 for every €1,000 of house value. This would raise around €500m for the Exchequer – the amount the government has indicated it is seeking from the tax. The calculations show that those on the highest incomes would pay the greatest percentage of income – on average just under 1 per cent of their disposable income. If a single tax rate were applied to property values nationwide, homeowners in Dublin would have to pay considerably more than homeowners in the rest of the country. In fact, the share borne by Dublin homeowners would be higher not only than Dublin's share of population, but higher than its share of income or income tax. Property tax rates in most countries vary across regions or cities in order to avoid such effects. Report author, Professor Tim Callan, said “Under the agreement with the Troika, the Irish government has committed itself to introducing some form of property tax. There are several key choices to be made in the design of the tax. These will affect how the burden of a property tax is allocated across income groups and across regions. Our analysis helps to inform debate on these topics.”

Note to Editors: 1. Property Tax in Ireland: Key Choices, by Claire Keane, John R. Walsh, Tim Callan and Michael Savage (ESRI), is the 11th paper in a special series of ESRI studies that survey available evidence to address issues related to Ireland's ongoing economic crisis. It will be published online on the ESRI website at 00:01 a.m. Wednesday 18th April. 2. A total of 12 studies are being undertaken as part of this “Renewal” project, which is supported by FBD Trust. 3. This paper will be presented at the ESRI Conference on Economic Renewal: 'Economic Adjustment', to be held at the ESRI on Wednesday 18th April 2012.