With Local Property Tax System Frozen in the Past, Councillors Prepare to Set Next Year’s Rate

The new batch of Dublin city councillors will get the chance to set local property tax rates for the first time later this month.

Each year, councillors decide whether to leave the local property tax at the base rate or vary it upwards or downwards for the year by up to 15 percent.

It’s one of the few powers the councillors have that affects how much money the council has in its budget, to provide public services.

During each of the five years of the previous council term, before the elections in May, councillors voted to vary the local property tax downwards by 15 percent – the maximum – forgoing millions of euro for the council.

In debates at the time, some called this a dereliction of duty, denying the council much-needed revenue. Others supported it, seeing the tax as unfair, and saying it redistributes money away from their constituencies.

This annual debate takes place – as previous ones have – against a wider backdrop of stasis in the central government’s local property tax policy.

Both the property values on which the tax is based, and the central government’s estimates – known as “baselines” – for how much money local councils need to provide specific services remain frozen in the past, ignoring increases in home values and the populations of local council areas.

“The concentration at this time of the year tends to be on should council increase or decrease local property tax,” says Social Democrats TD Catherine Murphy. But there’s more important issues with the tax that need to be discussed, she says.

Same Valuations

The local property tax helps fund some of the essential services the council provides, such as roads, housing, litter collection and parks.

It was introduced in 2012 and came into effect the next year, meant to provide, the argument goes, a stable and sustainable source of funding for local authorities, according to a report published by the Department of Finance earlier this year.

Local authorities get funding from other places too: from commercial rates, grants from central government, as well as from goods and services they provide.

Last year, the local property tax for the Dublin City Council area could have raised €80 million. But councillors voted to vary it downwards by 15 percent, reducing that to €68 million. Then €16 million went to the national “equalisation fund” (more on that later).

In the end, the council was left with €52 million of local property tax revenue to spend – a relatively small part of its €915.5 million budget for the year.

The property tax is self-assessed, supposedly based on the market value of residential properties. But those valuations were last set in 2013, so they’re way out of date.

The Department of Finance review published earlier this year focused on the impact of increasing house prices on the tax and the taxpayer, said a department spokesperson.

The review recommended that residential properties be revalued for the purposes of the local property tax on 1 November 2019. It noted that “any further delays in revaluation may present risks to the long term sustainability of the tax”.

Updating the property valuations it’s based on could massively increase the amount of money the tax brings in. House prices have risen by 83 percent nationally since 2013.

However, according to the Department of Finance spokesperson, “the Minister decided to defer the valuation date from 1st November 2019 to 1st November 2020”.

This, said the spokesperson, is to ensure that there are no dramatic increases in the tax for taxpayers.

The Baselines

It’s not just valuations that are frozen. Right now, Revenue collects the property tax and then divvies it up among local authorities around the country.

Local authorities that bring in more revenue, over what are known as “baselines”, have to give 20 percent of their total take to an equalisation fund, basically a pool of money shared with less well-off councils.

The baseline is the limit below which a local authority’s funding can’t fall, says Social Democrats TD Catherine Murphy. It is the minimum funding local authorities are thought to need to operate, she says.

But the baselines are “ridiculous”, says Murphy, who made a submission last July to the Department of Housing, Planning and Local Government on how they’re set.

They haven’t changed since they were set in the late 1990s, back when the government was looking at how to distribute motor taxation to ensure funding for local authorities, says Murphy. “The distribution of that was done on a needs and resource model.”

Consultants came in, tallied what resources local authorities had, what they needed, and how they funded services, says Murphy.

“It was kind of a static thing. If you had four swimming pools in the year 2000 then you had the funding to maintain them four swimming pools. If you had a staff of 2,000, you continued to get the funding for that,” says Murphy.

But it’s been more or less stuck at that. “There was no factoring in changes,” she says. Population increases, say, or staffing levels.

Murphy points to Mayo and Wicklow, which are similar in geography and population. In the last census, in 2016, Mayo had a population of 130,425. Wicklow had a slightly larger population of 142,332.

Their baselines differ substantially: Mayo’s is €19.8 million; Wicklow’s is €8.5 million.

Mayo brings in €10.4 million in property tax, while Wicklow brings in €17 million. This means that Mayo is “topped up” by €9 million to reach its baseline figure, according to Murphy’s submission.

For Dublin City Council, the baseline has been around €19 million. In the last census, the city had a population of 553,165.

There are other issues with the baselines too, says Murphy. Councils bringing in more than their baseline have discretion over 20 percent of the total funds raised to spend on whatever they wish.

But if there’s funds left after that, councils have to self-fund for roads and housing – in other words, use that instead of, rather than on top of, central government funding.

“The self-fund element is a double whammy that they’re excluded from some of the government grants and they have to fund services,” says Murphy.

Choices for Councillors

Wider issues with the distribution of the property tax are outside the remit of local councillors, says Social Democrats Councillor Gary Gannon. “That’s not what councillors are asked to vote on.”

Last year, the council’s chief executive, Owen Keegan, recommended that councillors vary the tax downwards for the year by 10 percent at most – rather than the 15 percent they had pushed it down in the previous years.

Keegan said going with 10 percent instead of 15 percent would bring in an extra €4 million for the council, which it could use to fund things like refurbishing footpaths, tree pruning and more sports officers.

It’s unclear yet what council management will recommend that councillors do with the local property tax this year. A council spokesperson said its report for the upcoming meeting will be circulated next week.

Green Party Councillor Micheal Pidgeon says he wants to set the tax at the base rate, and not vary it downwards at all. Ten of the 63 Dublin City Councillors are members of the Green Party.

More councillors would be inclined to support this approach if they could determine how the council would spend the money this would generate, he said.

“If councillors could get together with a reasonable programme for not varying the rate and then we could discuss with management, how that would be spent, I suspect that would be something that they would be open to,” says Pidgeon.

The Labour Party, which has eight councillors, also wants to set the tax at its base level, said that party group leader Councillor Dermot Lacey.

Fianna Fáil, the Green Party, Labour and the Social Democrats – the coalition leading this council – have all signed up to the Dublin Agreement, a pact of promises and goals for the next five years.

But there’s nothing binding in the Dublin Agreement saying what they agree to do about setting the property tax each year. Parties can adopt whatever position they want.

“In this council we have across-the-board support for remunicipalisation of waste management,” says the Social Democrats’ Gannon, which would require significant funding. (Quite a few councillors did support remunicipalisation in their election campaigns earlier this year.)

At the same time, some councillors also want to vote to vary the local property tax downwards, says Gannon, whose party has five seats on the current council. “[T]here’s a major hypocrisy about it,” he says.

Lacey agrees. Proceeds from the tax would be used to fund elements of the Dublin Agreement, he says.

Fine Gael Councillor Anne Feeney says that until all of the reviews have been considered, the Fine Gael group’s nine councillors won’t be voting to increase the property tax from the rate the council set it at last year – 15 percent below the base.

“The crucial thing for us is that Dublin City would get a fair show and an appropriate consideration in relation to it,” says Feeney, of proposed changes. “We’re a capital city with growing demand and huge needs for investment in infrastructure.”

Councillors from Sinn Féin, who have eight seats on the council, have said that their party also wants to see the tax varied downwards by 15 percent again this year.

“We’re voting to reduce it by 15 percent,” says Sinn Féin Councillor Anthony Connaghan. “Our position all along has been you don’t tax a family home. You look at other ways.”

Fianna Fáil too – the largest party on the council, with 11 seats – will vote to vary the property tax downwards by 15 percent, says Fianna Fáil Councillor Deirdre Heney. “We have put down a motion asking for a 15 percent reduction,” she says.

The way the tax is distributed is fundamentally unfair, Heney says. The tax needs to be kept where it’s raised, she says. “I’m just not prepared to be blackmailed by the government telling me, ‘Well we’ll let you keep the bit you increase’,” she says.

Councillor Daryl Barron, also of Fianna Fáil, says he’d like more transparency on where the funds raised by the tax go. “There’s no chain to see how funds collected are spent locally,” he says. “We need a more fair and transparent system. We need to be able to see what we’re getting.”

That’s another recommendation in the Department of Finance’s review: that 100 percent of the tax should be kept by the local authority in which it is collected. But that isn’t being implemented yet either.

A cross-departmental group is working on another review, looking at the distribution model, says Murphy, the Social Democrats TD.

“My understanding is that they have that work done and it’s not published,” she says. “It really should have happened in advance of the local elections.”

But, says Murphy, it would no doubt show winners and losers. “Anytime you hear about winners and losers those decisions tend to happen after a general election so it doesn’t end up being a flash point for government parties,” she says.