We are not the only country coming to terms with a new property tax.
In Rome, the Christmas spirit – and the shopping – has been dampened by the fact that Italians have had to pay the second instalment of their reinstated property tax on primary residences, the IMU, this past week.
The first instalment of the 0.4% tax on market values had to be paid last July. With the existing taxes on second and subsequent properties, the IMU is expected to raise €20 billion for the Italian exchequer.
Residential property tax (on first homes) was only abolished by the Berlusconi government four years ago, which might explain how, while this tax is unpopular, it might not cause the same level of resentment in Ireland where it is over 30 years since our family homes were taxed.
At 0.4% of the market value of the property (and property values are being hiked a massive 60% by some local Italian taxing authorities), it is a considerably larger sum to pay for many Italians, especially Romans, where a tiny apartment of 30-35 square metres in the city centre will typically cost €450,000 to €500,000. The IMU exemption amount is just the first €200 with another €50 per child up to age 26 to a maximum exemption of €400.
Meanwhile, the second resident tax of 0.67% of the market value still applies, but as with our new property tax in which the local authority can also adjust it upward by 15%, in Italy the second property tax can be adjusted upward by 20% to a maximum of 1.06% of the market value.
In Rome, where property prices are so high and a good-sized centre-city apartment is easily worth €1 million (and may have been in the family for centuries!), the 0.4% tax is going to cost such an owner €4,000 a year. Meanwhile, everyone complains about worsening local authority services and higher transport costs. (Rome’s notoriously low bus/metro fares are up 50% this year.)
Most ordinary people rent their homes in Rome and they now expect rents to go up (if their leases permit such a rise) as building owners try to recoup their even higher commercial property tax. Many more Italians become homeowners during the 2000s, taking advantage, as we did, of very low interest rates.
This 0.4% tax on a more typically priced €300,000 two- or three-bedroom apartment in a more distant suburb will cost those Romans €1,000, on top of the higher income taxes and assorted levies that they are now paying.
Back in Ireland, our local property tax must begin to be paid from July (but you must register and self-determine the amount of tax due in May).
At 0.18% of the market value of your property (rising to 0.25% on the value above €1 million), an owner with a €300,000 home will pay €540 compared with the €1,000 (including the first €200 exemption) an Italian will pay.
The only full deferrals permitted here (at 4% flat interest per annum) are for single people earning less than €15,000 or couples earning less than €25,000. A 50% deferral is available for single people earning less than €25,000, or €35,000 for a couple. Mortgage payers can deduct 80% of their mortgage interest from their income, which may assist them in qualifying for these deferrals.
The loss of child benefit payments and the local property tax will be the two single tax increases from this budget that will hit families hardest in 2013. A family living in a house worth, say, €200,000 with three children will see their income fall by €456 a year in reduced child benefit payments and the €180 property tax (€360 for a full year).
With higher car taxes, DIRT, excise on alcohol and tobacco these are most obvious places for a family to make up the €636 or €816 shortfall. Switching any savings you have to tax-free post office savings will save the one-third of interest lost to DIRT. Families are unlikely to be able to give up their car very easily, but this would amount to probably the most significant savings of all. Smokers and drinkers would easily spend – and save – €2,000 a year by giving up.
It may be a deeply unpopular suggestion, but where families are struggling, teenagers who earn money in part-time jobs should be asked to make a contribution to the household. A 20% family income tax is not an unreasonable amount to ask in their recessionary times and the amount collected from a teenage boy or girl who baby-sits or stacks shop shelves and earns, say, €150 a month can add up to €360 a year towards the family property tax or, from next year, the new water charge.
Unless you have a spare room to rent (under the tax-free Rent-a-Room Scheme) or can find some other way to increase your income in 2013, the usual budget suggestions apply to families: review your big-ticket items – the mortgage, food, utilities and insurance. Can you pay interest-only on the mortgage? Can you cut another 10% out of the food budget or waste less? Have you dropped down a health insurance plan (if you still have such insurance)? How many mobile phones does the family really need?