Opinion: Huge unfairness lies at the heart of local property tax

October 31, 2017

Opinion: Catherine Murphy TD

We need to talk about Local Property Tax. Not in a headline grabbing way that reduces it to a simple question of how much more you or I may have to pay when the controversial tax is reviewed in 2019.

Not in a populist way that pits counties with higher house prices and higher property tax takings against those with lower prices and weaker funding bases.

No, there’s a much more fundamental conversation that needs to take place about this tax.

It’s a conversation that must be based on solid evidence which shows that hundreds of thousands of people who pay LPT are not getting the services they deserve because of how their councils’ tax bases and needs are calculated.

The fact is that we have been sold a lie about LPT, which was introduced in haste in 2013 at the behest of the Troika, the third Budget under the National Recovery Programme. We were told that LPT would mean extra funding for local areas – better fire services, more swimming pools, improved libraries, cleaner streets.

But what has actually happened is that as LPT was introduced, other local authority income streams were withdrawn, particularly the old General Purpose Grants which were made up of motor tax revenues.

Councils are now funded through a combination of LPT, commercial rates, grants and subsidies from central government, and goods and services. LPT is a small but significant proportion of councils’ incomes (nationally it’s 8 per cent but this varies from council to council). But a huge unfairness lies at the heart of LPT.

How it works
Here’s how it works: Each council is allowed keep and spend locally 80 per cent of the LPT revenue it collects, with the other 20 per cent passed on to an Equalisation Fund. This fund helps less ‘well-off’ councils to cover their LPT baseline costs to pay for services, staff and amenities.

The LPT baseline, as set by central government, is the limit beneath which a council’s funding is not permitted to fall. So, where a local authority’s LPT income does not meet the baseline figure, it is topped up from the central pot that is the Equalisation Fund.

In 2017, ten out of our 31 councils are net contributors to the Equalisation Fund. These are: Clare, Cork County, Dublin City, Dún Laoghaire Rathdown, Fingal, Galway City, Meath, Kildare, South Dublin and Wicklow. Out of the 21 councils which are net recipients from the fund in 2017, the top three in monetary terms are Tipperary, Donegal and Mayo.

This wealth transfer may come as a surprise to those who assume that a local tax would be spent locally. However, the fact that tax-richer counties effectively subsidise those with more modest revenues is not in itself a problem – after all, all taxes are about redistribution. Until, that is, you crunch the numbers.

The essential unfairness at the heart of the LPT system lies with the flawed way in which the LPT funding baseline for each local authority is determined. This is based on a complex and outdated set of calculations, known as the Needs and Resources Model, which tally a council’s existing staff levels, assets, amenities and services etc. While the current baselines were last set in 2014, the main data used in the Needs and Resources model dates back to 2001.

Rapidly growing populations
This means that counties with rapidly growing populations since 2001, needing extensive investment in roads, staff and municipal services, are assessed as requiring spending based on historically lower resources.

An example illustrates this point.

Census figures show that between 2001 and 2016 Wicklow experienced a 24 per cent population increase. The population of Mayo increased by 11 per cent in the same period. Yet in 2016 Wicklow, with a population of 142,332, was estimated to need an LPT baseline of €6.8 million to fund council services while Mayo, with a population of 130,425 enjoyed an LPT baseline of €17.5million.

In 2016, Wicklow County Council brought in €16.6 million in LPT, and paid €3.3 million into the Equalisation Fund, leaving it with a net LPT allocation of €13.3 million. Mayo County Council meanwhile brought in €10.2 million, and paid €2 million to the Equalisation Fund. However, it received a top up of €9.3 million back from the fund to bring it up to its LPT baseline which, at €17.5 million, is more than double Wicklow’s. (Wicklow County Council’s overall budget for 2016 was €91 million; Mayo’s was €125 million.)

Pattern replicated
What can account for Mayo’s higher LPT baseline, as compared with Wicklow’s?

And why do we see this pattern replicated elsewhere, with councils with often lower populations not only better resourced from their LPT baselines, but also with more staff than their more densely populated, and growing, counterparts?

A reasonable conclusion is that there simply isn’t the political will to address the issue.

For example, recent figures show that Fingal County Council – with the fastest growing population in the whole country – has only 177 more staff than Kerry County Council, which has a population that is half Fingal’s. Tipperary County Council has 982 staff for its population of 160,441, while Kildare County Council has 848 staff for its population of 222,130.

Historically large differences in staffing ratios in local authorities around the country appear to be at least partly responsible for disparities in the LPT baseline calculations. Inexplicably, the 2016 Census of population, despite showing significant demographic changes – particularly in Dublin and its hinterland, Galway City and County Cork – is not used to calculate the LPT baselines.

Whatever the full technical reasons are – and this is something that needs to be very closely examined – we end up with anomaly after anomaly. The same trends we see when comparing Wicklow and Mayo are repeated elsewhere – see table below.

Local Authority populations and Local Property baselines

Sources: CSO and Department of  Housing, Planning and Local Government.

There can be no doubt that these structural inequities are having real impacts on local services and amenities. For example, legacy issues appear to account for the fact that Kerry has one swimming pool for every 40,000 people, whereas Kildare has one for every 110,000, despite its growing population needs.

As house prices continue their inexorable rise – due to a housing shortage caused by failed government policies – councils in urban areas and with higher house densities will inevitably end up transferring more and more money to the Equalisation Fund.

Residents in these council areas will continue to be doubly punished, because net contributors to the Equalisation Fund are usually required to self-fund capital projects on housing and roads in place of government grants and subsidies, a requirement which does not apply to councils which are net recipients of LPT. In 2016, the self-funding of capital projects accounted for €108 million nationally, with €85 million of it spent by the four Dublin councils.

Complicated
As if it wasn’t already complicated enough, even after the 20 per cent is paid into the Equalisation Fund, net contributor counties are only permitted to spend 20 per cent of their LPT incomes on discretionary items like parks, playgrounds and roads.

We have been repeatedly told that the current model of LPT is both fair and equitable. Yet the data tells an entirely different story. As the 2019 deadline for the revaluation of properties for LPT purposes approaches, debate will inevitably turn to the question of much each of us should pay. Large variations in house values around the country feed into public antipathy to this tax, particularly when higher contributions do not necessarily mean better services.

What we must do ahead of 2019 is to start talking honestly about the structural unfairness hardwired into our LPT system and indeed our wider council funding model.

ENDS

31 October 2017

Catherine Murphy is joint-leader of the Social Democrats. An edited version of this opinion piece originally appeared in The Irish Times on Monday 30th October 2017.