Reaction to property tax

I've been listening to the reactions of peoples to the property tax letters on the radio. To me the reactions are the initial proof that the Irish government has made a huge mistake trying to impose a high property tax on the people of Ireland.
One set of people are ringing in complaining that their property isnt valued high enough and another set are ringing in saying that the property is not valued low enough. The people ringing in are pure irrate at the revenue for not getting thier property values right and are saying that Daft.ie is more accurate then the revenue estimates.
Like I was saying in previous articles, people in Ireland are used to getting their net income and been told how much tax they owe especially if they are PAYE workers. But with the property tax you have to look at your own circumstances and calulate the tax yourself. This is a huge change for people.
Its the reason people are been so angry with the revenue and in a way they are right. If you develop a culture of not having to claculate your own tax then trying to impose such a fundamental change then it is bound to be met with resisitence
Anyone who has dealt with the revenue knows that they always use estimates. The estimates are just a way of establishing a debt which they can enforce. However they will always come back looking for the correct figure. There are millions of houses in Ireland so there is no way they can independently value each house. So they produce estimates which will on average over the size of the population give a mean value which will be apporximatley correct. Remember the revenue is unlike most government agencies and is in fact run quite cost effectively (okay not in all circumstances but certainly better than most government bodies). As a result the benefits of incurring the costs of valuing each individual house would not be justified so instead they work with estimates and risk analysis and reporting by exception.
It is up to each individual tax payer to put in a correct return as best they can. After all no matter what figure you come up with its only an estimate on your part as well. Because who knows how much any particular house would sell for in a depressed housing market.
The revenues work is based on risk analysis. So they will look at all the returns in total and determine which ones are the most likely to be wrong and then they investigate them. So fr a basic example if everyone in your street values their house in and around 200,000 to just say 300,000 (covering two value bands) and your house is valued at 50000 then you may expect to come up as someone to look into. If you can explain the reason for the difference then they will accept it generally.
In all likely hood the returns they will follow up are ones selected from a random sample and ones of a high value where the individual tax is likely to be high enough to justify chasing up any tax under paid.
My point really is that the Irish government have opened up a mine field for the revenue commissioners to step into.
Author Frank McGivney 13 March 2013 All rights retained by author

Will the Property Tax be the reason for a government falling

In the 2013 Finance act the Irish Government are bringing into law a property tax, The first such tax in Ireland in many years. The British empire imposed a window tax in Ireland in 1696 which was in effect a property tax.This needed a shocking amount of detailed legislation to impose because as you would expect the people of Ireland did all kind of adjustments to their windows in order to avoid it. Further on in the  1800's the payment of taxes to land owners which was then sent over to London left Ireland  in the grips of a crippling famine in a country with the some of the most fertile land in the world. So will the current Irish government have any more success with imposing this property tax.
 You only have to look at the main street of any small town in Ireland and you will see a scene that you would see in any horror movie where the streets are deserted of humans. Then if you drive through any of the housing estates you will see cars in all the driveways during the daytime, a sign that people are at home rather than at work. The government is constantly talking about its efforts to attract foreign investment which is all great. However to me it appears to be ignoring Irish indigenous business. Small Irish business are been devastated with a lack of trade. It is in this context that the government is imposing a high property tax which will take even more money out of the Irish economy. There is nothing wrong with high taxes if that tax is reinvested in the economy through government spending but this is not the destination of this tax  because all government spending is been reduced or frozen at present. Therefore all additional taxes are ultimately going to be used to repay the debts of either the banks or the government or to repay bondholders. This tax will reduce the amount of money people have to spend in the local shops and businesses. This will further suppress the economy and reduce the amount of vat collectible from businesses, It will also reduce the amount of people employed and the amount of tax from employees and the amount of income tax and corporation tax collected. In other words the amount of tax from the property tax will be offset to a large extent from a reduction in other taxes. Regardless of the government saying the tax will be targeted to local authorities this effect will still happen because the expenditure on local services is to be maintained at current levels or lower levels. Therefore the spin that the tax will be used on funding local services by the local authorities will have no net effect on local output (because it would have been spent anyway) but conversely the reduction of money in people’s pockets will have a dramatic effect.

This tax is in my opinion a fundamental shift from the way tax has been imposed in Ireland in regard to PAYE workers. Self-employed people are used to paying taxes out of the money they have received. However Paye workers get their wages net of tax. This also applies to social welfare recipients. Up to this people can spend their net income in whatever way they want to. However now the property tax will have to be paid out of their net income’s. This means for the first time a lot of people will have to pay tax themselves. It can be argued that motor tax is similar but there is one big difference, motor tax is only due to be paid if you decide to own a car and it is not imposed in the fashion that this property tax is proposed. The majority of Irish people have had very limited exposure to the revenue commissioners. But this is about to change with the property tax and people will discover that if you owe the revenue money then they will do everything to make sure you pay it and will not take no for an answer. In other words everyone who is due to pay this tax will end up paying because it will be deducted from social welfare payments or from net income by your employer, Even if you can avail of the deferral option you will still eventually pay it. However I feel that this may be the moment when Irish people finally stand up for themselves and the resistance to this tax will be significant, as evidenced by the huge percentage of people who have not paid the household charge from last year and also because people are in such a poor financial position that they simply can not afford to pay it.

I do believe that a country should have a property tax. It should be part of an overall tax system. I should be very progressive with normal value homes been at a very low rate of for example €100 per year and then higher value houses owned by high net worth individuals should be subject to much higher property tax charges. The tax however needs to be linked to take account of people’s incomes and levels of assets other than the family home.   The spread of income in the world is represented by a Lorenz curve with very few people holding most of the wealth therefore this should be reflected in the overall tax system. This means people are responsible for paying for their local amenities but not to a level where there is a negative effect on the economy.   There is a lot more issues involved such as using the taxes of the country on proper government spending in the economy rather than paying back bonds to banks and bondholders who are seemingly the only ones in the world protected from the risks associated with business.  Maybe a tax once again will topple a government like the vat on children’s clothes did in the 1980’s

Basic structure of tax

I was writing an article on the new property tax and i was trying looking at it from the angle of fairness and its effect on the economy but I got side tracked a bit when i started thinking about taxes and what they are. So I wrote this piece on tax and how it should be structured. I intend this article to help put the property tax in the correct context for the next article. Some basics about tax: Governments get money in various ways. Some of these are
 (1) taxes
 (2) other sources include fines (i.e. Speeding fines, parking fines),
 (3) income from state run organizations (i.e. contributions from state universities student fees, revenue from profitable state bodies)
 (4) Printing currency by the central bank (not an option for euro countries anymore)
 (5) Borrowings and so on.

Taxes could be defined by the following

(1) they should be non penal. i.e. they should be based on a percentage of income or wealth that is fair and equitable

 (2) They should be compulsory , i.e. you have no option but to pay them

 (3) The government should impose them by way of the law of the country

(4) taxes should be in essence a transfer of wealth from the private to the public sector (i.e. government)

(5) they should based on preset criteria as laid down in the tax laws so that people can calculate how much they owe in the tax and know the basis of calculating the tax

(6) the tax paid should not be a reflection of services received i.e. its based on each taxpayers income or wealth and not on how much public services they receive. This is completely different to everything else you spend money on. The more books you buy in a bookshop the more you will pay but with tax often times those who pay the most receive the least amount of services. This is of course the redistribution of wealth from the wealthier to the poor. The ultimate model of this is perhaps communism

(7) The non payment of the tax should always punishable by penalties and fines and imprisonment. This is vital in order to ensure the tax is paid. Also it encourages people to pay on time by penalizing those who are late paying

 (8) It should be equitable and progressive. so the more you earn the more you pay and the greater your wealth the more you pay. Number 8 is one of the areas where problems arise with property tax because a person may have substantial assets which are very valuable but which generate no income and they may not be able to pay higher taxes based on wealth alone. However implied in the tax system is the premise that such a person should sell their assets until they are at a level where they can pay the tax. This is again complicated by taxes which arise when you sell assets.