Tuesday, 31 July 2012

Outbreak of common sense in Ireland, sort of.

Spotted by Khards at HPC in The Independent:

THE Government is considering a 'super property tax' for owners of large, expensive homes. Under the proposals, the rate of tax levied would rise with the value of the property, the Irish Independent has learned.

Similar to income tax, the property tax rate would go up in bands linked to the value of the house. That means owners of such houses would pay a higher percentage rate of tax due to its greater value. This 'super tax' would help the Government to sell the property tax to the public as homeowners would clearly see the rich paying more.

So far so good. Here come the "sort of" bits...

It will spark concern among those who already stretched themselves to buy a relatively expensive property, and have already paid stamp duty.

Nonsense. People shouldn't have stretched themselves in the first place; slapping them with a one per cent (?) progressive property tax is no worse than a 1% hike in interest rates; and the Stamp Duty was borne by the vendor anyway, it gets knocked off the purchase price, not added to it.

The Government is moving away from a site-value tax because it would throw up anomalies. For example, two houses -- one rundown and one modern -- on the same-sized site would have the same property tax bill.

That's the point of site-value rating. Why should the person who can afford to buy a house and allow it to fall derelict get a tax break? What would you rather have next to you - a run down house or one in good condition? Presumably the latter. Further, it is simpler just valuing the site/the value of the planning permission as it is the same for each house and requires no internal inspections.

In urban areas, houses on the same road tend to be more uniform -- with the site and the house being, more or less, the same size and value. But in rural areas there are often houses of different sizes and values built side-by-side.

Fair points, which is why site value rating is much easier for urban areas. Farm houses will always be a bit fiddly, again why it's easier to just value the sites.

Although the site-value tax is favoured by economists, the Government is finding it difficult to identify a country in Europe where it is used effectively.

So what? Somebody has to go first, in for a penny in for a pound. The closest comparison is of course Domestic Rates in Northern Ireland which is a flat 0.7% per annum of the value of a home as at 1 January 2005, capped at the first £400,000 (so the maximum bill is about £2,800 a year).

The Irish version is better; instead of expensive houses having their tax bills being capped, they pay more. This actually makes it a bit closer to proper LVT - a flat rate LVT would almost certainly be a higher percentage of high value homes than of low value ones because a larger part of the value of high value homes is the location value. Clever stuff.

There are some splendid KLN's in the comments, hard working families, generations of family memories, a tax on the prudent blah blah. I liked this man's style though:

Irish In NJ: Why is this newsworthy? We pay huge property taxes in the US. It's simply part of owning a house. More than 25% of my monthly payment is towards property tax... it pays for my local schools, the street cleaning, the garbage pick up etc... the bigger the house, the more the land, the more you pay. Simple. Ireland likes to adopt most things implemented in the US... taxes should be no different.


Pablo said...

"the Govt. is finding it difficult to identify a country in Europe where it is used effectively."

Presently, yes, but remember "The Danish Experiment".

Mark Wadsworth said...

P, good link. But I think they mean the exact mechanics of valuing land in isolation from buildings. We both know it can't be difficult but a progressive tax on total values comes to much the same thing, mathematically.

Bayard said...

Just goes to prove that there is no idea so good that the pols can't f*ck it up.

Mark Wadsworth said...

B, but it's still better than DR in NI, which in turn is better than CT in the rest of the UK. We must be thankful for small mercies.

neil craig said...

According to wiki LVT exists in "Taiwan (Republic of China), Hong Kong, Singapore, Russia and Estonia". Possibly the difficulty with noticing large Russia is that when they say country in Europe they don't actually mean Europe but the EU. The difficulty in noticing Estonia is not so explicable.

All but one of those countries are phenominally successful. Russia is merely growing about 7% faster than us which only makes it a little beyond averagely successful.

So if our models are limited to ones the EU bureaucracy likes...

Mark Wadsworth said...

NC, more good examples. Or as far as progressive property tax goes, Business Rates in the UK will do fine.

Physiocrat said...

Sweden has got a site value tax - it has a two-part property tax. Denmark still has some kind of site value rating.

But why do they need for someone else to try something which a moment's consideration will show that it will obviously work?