Wednesday, 2 July 2014

Property Tax and Local Government Funding

Nat O'Connor: Taxation is the price of civilised society - and that includes taxes to pay for many basic local services, including planning, roads, housing, parks, playgrounds, street lighting, waste management, libraries, cultural activities and much more.

As such, a story in the Irish Times about four Dublin TDs seeking to protect Dublin City's share of local property tax is not just about Dublin, but it is about creating a rational system so that people all over Ireland can have accountability for how much tax they pay and what they get for it in terms of local services. This basic exchange of taxes for services is at the heart of democracy and civic republicanism, for example captured in the French revolutionary D├ęclaration des Droits de l'Homme et du Citoyen 1789, Article 14: "All citizens have the right to ascertain, by themselves, or through their representatives, the need for a public tax, to consent to it freely, to watch over its use, and to determine its proportion, basis, collection and duration."

The issue being raised by the TDs is a classic case of Government giving with one hand, while taking away with the other. Dublin City may be given 80% of the property tax raised within its borders, but will lose other grants due to this "windfall".

Dublin City has an income of €802.7 million for 2014, down from an income of €825.5 million in 2012. The 2012 income was composed of income from commercial rates (€341.3m), goods and services (€222.7m), money from other local authorities (€96.3m), grants (€89.7m) the Local Government Fund - including motor tax and property tax (€53.9m), the pension levy (€17.7m) and transfer from reserves (€3.9m). See page 31 in the full statement of Dublin City's 2012 finances here (PDF). More information about Dublin City's funding is here (web).

According to Revenue, Dublin City provided €39.7 million in local property tax in 2013, which should double in 2014 (first full year) to roughly €80 million. Eighty per cent of €80 million is €64 million.

Apparently, Dublin only got €2 millon from property tax in 2013, so the windfall is around €62 million - or a 7.7% increase in the city's total income.

There is a further argument that Dublin is the engine of the Irish economy and needs further funds to invest to reinforce this role, which will benefit the wider country. (See this official report: Funding The Dublin City Region). A 7.7% increase in income, coming on the back of years of cuts to local authority funding and a fall in various other income lines due to the economic downturn, is not actually a massive windfall. Local businesses would doubtless argue that it is an opportunity to reduce commercial rates, not least to help get boarded-up shops back into business.

For information, the Department of the Environment's 2013 report on funding for all local authorities is here (PDF).

As I argued previously (here), there are perverse consequences of the electioneering around cutting local property tax. If Dublin implements a 15% LPT cut, even the 15% reduction in the fifth of Dublin City's LPT income to be shared around the country could take millions out of the Local Government Fund, which will really hurt smaller authorities.

At the same time, if Dublin loses a share of the Local Government Fund revenue in exchange for the LPT 'windfall', what that really means is that Motor Tax paid in Dublin won't be spent in Dublin, which undermines another 'local tax'.

Ultimately, local government funding is under the control of the Minister for the Environment, Community and Local Government, whose Department holds the purse strings for grants as well as the Local Government Fund. Unless and until local authorities are 100% independently funded, there will always be a risk that a Minister of one political party or from another county will be tempted to reduce funding for local authorities governed by different parties.

Unfortunately, most of the political energy at the local elections was directed at lowering local property tax. Hopefully, some politicians at local and national level will take up the challenge of advocating for 100% independent funding at local level, so that citizens can choose the level of services they want and are willing to pay for.


EOS said...

Nate, You got this wrong. The argument you use for Dublin to keep all its local taxes is the same argument used by Germany to refuse to help the peripheral EU states. Dublin is the principal city of Ireland. It is the engine of the whole economy in Ireland but the hinterland are the body and wheels. A good property tax, which is of course a land value tax does not pay for services - separate charges are for that. It is a location benefit levy - benefits that arise from generations of capital investment by public authorities and private businesses to build the nation's city. The benefits of this investment should be shared in turn with those who come later in history - provincial towns and rural villages. It is about nationhood.

Nat O`Connor said...

@EOS. I'm not at all arguing against a funding mechanism based on solidarity that redistributes funds across the country, from richer areas (like Dublin) to poorer areas. My concern is that property tax variation powers only make sense if by raising or lower the LPT a local authority can provide more or less services. Central government interference in local government funding (as I've outlined it) undermines local democracy.
See also (where I defend the reallocation of funds).