Jill Kerby: Property tax super-spinning now in full flight

“As societies grow decadent, the language grows decadent, too. Words are used to disguise, not to illuminate action. Words are used to confuse, so that at election time people will solemnly vote against their own interests.” – Gore Vidal

“As societies grow decadent, the language grows decadent, too. Words are used to disguise, not to illuminate action. Words are used to confuse, so that at election time people will solemnly vote against their own interests.” – Gore Vidal

The late American writer Gore Vidal clearly knew a thing or two about how governments operate. He’d certainly be impressed at the way the Irish government and its flunkies are now propagandising – ‘spinning’ is the popular phase – the upcoming property tax.

Here, bad Budget news is spun and re-spun many months in advance in order to get a feel for public reaction and to soften taxpayers up for the money blows on the way. (In this case of property tax, to accept another €500 million being lifted out of their pockets.)

The closer we get to the first Wednesday in December, the more we are being fed lines of information that may or may not happen. For example, while previous leaks suggested the tax would be collected via the PAYE system (after so many declined to register voluntarily for the €100 household charge) with employers acting as the tax collector, this idea was dropped after a negative response from employers, who said they were already doing more than enough, collecting not just PAYE and PRSI contributions (or free) but VAT payments too. It was also pointed out that adding a property tax to PAYE deductions would confirm that this isn’t really a genuine property tax (that will meet genuine local authority costs) but just another income tax.

The latest spin is that the property tax will revert to being a self-assessment tax. The million or so people who signed up to the Household Charge will automatically get a blank bill from the Revenue with how to calculate the value of their home, based not on any independent, impartial valuation but on a set of criteria set by the government.

You will tick the appropriate boxes, says the spinners – presumably one that includes the market (sic) price, the location of your property (in a field in the middle of nowhere in or near a village, town, city); whether it is connected to sewerage mains and public roads, has public lighting and transport and is near, shops, schools, libraries, etc.

Then you tick the big box that says that your property is therefore worth, say, €0 to €150,000; €150,001 to €300,000; €300,001 to €450,000, €450,001 to €600,000, etc. From this you will then multiply that value by 0.25%. That 0.25% figure is the amount you send to the Revenue – and if you underestimate the value, or don’t correctly guess the amount the government wants you to pay but won’t actually put in writing, then “severe penalties” will apply.

How the government will ensure that the 600,000 or so home owners who haven’t registered to pay the household charge yet will voluntarily assess and pay the higher property tax is still unanswered (and ‘unspun’), but no doubt ‘Big Phil’ Hogan, the Minister for Property Tax, will end up warning that even more ‘severe penalties’ will apply to them.

The final bit of spin – out of both Enda Kenny and Michael Noonan’s mouths –is that the market value property tax won’t be more than about €400 maximum, no matter the size or location of your cottage or mansion. This certainly isn’t how the troika’s spinners are spinning it so it will be amusing to watch how that little detail is finally presented on Budget Day.

I know already, with some accuracy, what my house is worth. When we bought it for around €100,000 nearly 19 years ago, the rents on this road were the equivalent of about €600 a month. At €7,200 a year this yield (multiplied by a factor of 13, representing the years a landlord would expect for a return on capital) was probably a little low, but the area still hadn’t been ‘gentrified’.

Even at the peak of the mad bubble market, when prices had risen to over €900,000 and even to over €1 million for one lucky seller in late 2006, these houses were renting for about €1,700 to €1,800 a month or between €20,400 and €21,600 a year. The market value was therefore somewhere between €265,200 and €280,800 and represented 13 years of normal property inflation and the ‘gentrification’ of the neighbourhood.

Today, these Victorian terraced houses are still renting for €1,700 to €1,800 a month. Only a handful have been sold in the past five years, though I’m told they achieved more than €300,000. Either way, the rent paid is the only genuine ‘market’ price indicator until a healthy selling market returns.

I don’t doubt that “no final decisions have been taken” about this tax (which the spinners also say will begin in July, not January) and that is because every scenario under consideration is probably coming up as a dead end. And that is because:

• they took the easy option of a market value tax instead of a site value one. The former lets speculators and holders of land banks off the hook and penalises city dwellers in small properties;

• there is no accurate and current national register of property prices to justify ANY price bands the government presents;

• the selling market is still moribund and nationally, property prices are still falling at an annual rate of 16%;

• there is no credible local authority model in place even if there was a genuine, services-based property tax rate;

• there is no ‘fair’ way to waive or exempt certain households

• the target tax rate will be completely arbitrary if it is not part of wider, radical tax reform.

Property taxes evolve over time in other societies. They aren’t dumped overnight on a financially depressed and bankrupt state where hundreds of thousands of people are out of work and/or where half of all mortgage holders are in negative equity and about 20% of them are in arrears or in forbearance deal.

Until we are back on the road to near-full employment, the willingness, let alone ability, of most homeowners to pay a market-based property tax is doubtful.

No matter how proficient the spin.