Understanding the Benefits and Drawbacks of Local Property Tax in Ireland

Analysis: With most house owners facing higher property tax bills, a look at the advantages and disadvantages of the tax introduced in 2013

By Gerard Turley, University of Galway

The local property tax (LPT) is in the news again. Councillors in Dublin City Council (DCC) recently voted to raise the rate of tax next year, which will mean higher LPT bills for capital city residents. In November, a nationwide revaluation of residential properties will also lead to higher LPT payments.

Over a decade since the LPT was introduced, it is time to reflect on the pros and cons of Ireland's residential property tax, viewed from the perspective of taxpayers, users of public services, government (both central and local), and wider society.

Pros

(1) As a tax on property, the LPT widens the tax base. As a desired feature of a country’s overall tax system, a broad tax base means that there is less need for higher taxes on household incomes, business profits, or consumer spending.

From RTÉ News, Dublin City Council votes to increase local property tax

(2) It is a tax on wealth. As the majority of household wealth in Ireland is in the form of real estate property (primarily housing assets), an annual tax on the value of residential properties is a fair and equitable way to redistribute wealth.

(3) Property taxes distort economic activity and harm economic growth less than other taxes. According to the OECD, on a 'tax and growth’ ranking, recurrent taxes on immovable property appear to have the least impact on economic growth, compared to, for example, personal income taxes, corporate taxes, or consumption taxes (e.g. VAT or excise duties).

(4) Property taxes are an ideal way to fund local government and the provision of local public services as properties are relatively immobile preventing taxpayers from relocating elsewhere. In Ireland, local authorities can vary the LPT rate. These rate-setting powers increase fiscal autonomy and improve local accountability.

(5) As currently designed, the LPT is relatively straightforward to understand and comply with. The tax rate is low (currently at 0.1029% and to be lowered to 0.0906% from next year), progressive (with higher rates, of 0.25% and 0.3%, for higher-valued properties), exemptions are few, deferrals are allowed, revaluations are regular (keeping it up-to-date), with multiple payment options available.

From RTÉ Radio 1's Morning Ireland, majority of Dubliners to see property tax rise next year

Cons

(1) Worldwide, property taxes are unpopular, with opposition from property owners and tenants, public representatives, lobby groups, etc. Often described as the most hated tax of all, the unpopularity of property taxes is related to its visibility, the yearly one-off payment by means of the ‘cheque in the post’, and as it is a tax on the home. In Ireland, opposition is also related to the fact that it is a relatively new tax and was introduced during the austerity era when many households were experiencing financial difficulties.

(2) As a tax source, it raises relatively little revenue. It accounts for less than one per cent of government’s total tax revenue, and is diminishing over time. Despite the rise in property prices, the tax take from the LPT, at about €550m per year, is flat due to the persistent widening of the valuation bands and lowering of the basic rate as a means to placate homeowners and voters.

(3) As it is self-assessed, there is the likelihood that some properties are undervalued, raising less revenue for local government, leading to inequities across properties, and ultimately undermining the LPT system.

Ó RTÉ Raidió na Gaeltachta's Tús Áite, aréir do vótáil Comhairle Contae Dhún Laoghaire Ráth an Dúin ar son laghdú 15% a dhéanamh ar an gcáin mhaoin áitiúil sa chontae – an leibhéal is ísle go bhféadfaí. Labhair Oisín O'Connor, Comhairleoir leis an gComhaontas Glas i gComhairle Contae Dhún Laoghaire Ráth an Dúin linn faoin scéal seo

(4) From the local authority perspective, the LPT is not a buoyant source of income, making it difficult to meet the extra demands on its services and the higher costs arising from recent inflationary pressures. In addition, for urban local authorities with a large property tax base, not all of the income from the LPT is discretionary, as a portion (known as self-funding) is decided by central government vis-à-vis the Department of Housing, Local Government and Heritage. For example, in DCC, although the estimated LPT amount in 2025 was €101m, €57.6m was used for self-funding with only €43.3m left for own-use purposes. When the discount of 15% was applied (albeit by local councillors), it left only €28m for discretionary use.

(5) Given the unpopular nature of the LPT (and especially from the main opposition political party which is committed to phasing out the tax) combined with the relatively small amount of revenue raised, there is the possibility that a future government might be tempted to abolish the LPT, leaving no annual residential property tax levied on homeowners. While many households might welcome such a decision, this would be a mistake similar to the decision almost 50 years ago to abolish domestic rates leaving our local authorities under-resourced and a system of public administration in Ireland that is very centralised with a weakened local democracy.

As homeowners prepare to revalue their properties on November 1st for the purposes of the LPT, I am reminded of a quote attributed to James Madison, the fourth president of the United States and acclaimed father of the US Constitution: \"the power to tax people and their property is essential to the very existence of government\". We may not like tax and especially property taxes but as another famous American once said, taxes are what we pay for a civilised society.

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Dr Gerard Turley is a lecturer in the J.E. Cairnes School of Business and Economics at the University of Galway

The views expressed here are those of the author and do not represent or reflect the views of RTÉ