Designing a Property Tax: Coupling local expenditure to a property tax By: Karl Deeter (Irish Mortgage Brokers) & Patrick King (Dublin Chamber of Commerce) The views expressed in this paper & presentation are those of the authors and do not necessarily represent the views of, and should not be attributed to, either of their respective organisations. DRAFT DOCUMENT - NOT FOR CIRCULATION
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Designing a Property Tax: Coupling local expenditure to a property tax
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Designing a Property Tax: Coupling local expenditure to a property tax
By: Karl Deeter (Irish Mortgage Brokers) & Patrick King (Dublin Chamber of Commerce)
The views expressed in this paper & presentation are those of the authors and do not necessarily represent the views of, and should not be attributed to, either of their respective organisations.
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Proposal - Property Tax Based on Site Size & Local Authority Costs
• Tax Base = – Residential Zoned Land for
Local Authority• Rate =
– General Local Authority minus Rates divided by the Tax Base
• Benefits– Pay for local services
• Replacing LGF– Simple to determine tax base– Simple to implement
• Administrative• Compliance
– Applies to all but designed to be the least unfair
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House 2250 sq m
(1/4)
House 3125 sq m
(1/8)
House 1312.5 sq m
(5/16)
House 4187.5 sq m
(3/16)House 5125 sq m
(1/8)
Result - provide examples and demonstrate the ease of implementation
• Example Dun Laoghaire/Rathdown (right)• Tax liability in Dun Laoghaire/Rathdown is
€0.67 per m2
• 858m = €574• 960m = €643• 1886m = €1,263
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• Example Fingal (right)• Tax liability in Fingal is €0.57 per m2
• Property tax collected from local households, centralised and then redistributed as necessary to local authorities for services
Local• Benefit Tax View (Tiebout)
– Model of efficiency in provision of local services
• Property tax collected from local households goes directly to their local authority for services
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Ireland Property Tax &Local Government
• “The need for local taxation arises if it is decided to operate a system of local government with real discretionary powers, as distinct from a system of local administration of centrally determined and funded services.” - Commission on Taxation (1985)
• “local authorities should be self-financing in the longer term and that Exchequer support should be replaced with increased revenue generation from local sources” – Report of the Special Group on Public Service Numbers and Expenditure Programmes
• “The funding system is characterised as ‘vertically imbalanced’, with high levels of local expenditures being funded from general taxation.” – Indecon Report
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Total Local Government Expenditure
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• Report of the Special Group on Public Service Numbers and Expenditure Programmes
• Local Government Efficiency Review Group
• Local Authority lead change
Put in 2012
Cost of Services by Division
• Deficit in direct income from service:– €2.17 billion
• Divisional deficit paid through general funding of LGF & commercial rates
Division Expenditure IncomeService Division A - Housing and Building € 773,346,302 € 683,743,890 Service Division B - Road Transportation & Safety € 878,458,415 € 540,868,677 Service Division C - Water Services € 709,783,317 € 261,604,657 Service Division D - Development Management € 282,941,196 € 59,322,559 Service Division E - Environmental Services € 748,794,113 € 230,083,242 Service Division F - Recreation and Amenity € 383,809,974 € 58,799,484 Service Division G - Agriculture, Education, Health & Welfare € 426,534,194 € 395,258,874 Service Division H - Miscellaneous Services € 344,271,263 € 145,233,552 Total € 4,547,938,774 € 2,374,914,935
Summary of Current Expenditure by Division 2011
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AMEND DATA TO
BE CLEARER
Local Authority Variations
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Local Authority Staffing Level End-2009 (Whole Time Equivalents)
• Costs vs Service– Dublin City: 11% live there; 21% work there
• WTE: other LAs (670); staff of agencies (225); and ‘Services / Scale Unique to DCC’ (1857) => below national average
– Ireland’s low population density:• Transmission network 4x European per capita • 2nd largest road network per capita in the EU, after Sweden.
– Higher density locations see lower cost to serve on core function with savings being used to supply other non-core services.
• Local Government Efficiency Review cited the ability of Donegal County Council to double the efficiency of their staff compared to Mayo County Council.
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Who pays for Policies?• Unique policies are democratic choices of
councils
• If local taxpayers are paying for these choices does it matter to national taxpayers?
• Ultimately, local democratic government control over budgets makes Cllrs accountable to ratepayers and homeowners paying for extra services– Not other jurisdictions
Gross Expenditure Contribution by other local authority
Provision of Goods & Services
Gross Expenditure (minus LA contributions & services) per household
£ £ENGLAND 1,439 1,196 By area of authority: London area 1,308 1,214 Metropolitan areas 1,399 1,000 Shire areas (b) 1,484 1,258 By region: North East 1,512 1,060 North West 1,469 1,088 Yorkshire and the Humber 1,406 1,048 East Midlands 1,486 1,140 West Midlands 1,416 1,114 East of England 1,480 1,293 London 1,308 1,214 South East 1,468 1,374 South West 1,500 1,272 Sources: BR and CTB forms (a) Figures include parish precepts. (b) Figures include unitary authorities.
• Council Tax depends on council and other public bodies (eg the police):– spend in your area– get from other funding
• Average cost is double or triple what it would be in Ireland.
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Simple estimate of Avg House Bill
• Tax base is the housing stock
• Each house is proportioned an equal share of the revenue required by their local authority
Housing stock 2011 (Number)
Residential Liability per House in Housing Stock
Carlow 23,300 461.64€ Cavan 33,837 476.52€ Clare 55,826 244.33€ Cork City 55,919 347.65€ Cork County 172,858 250.82€ Donegal 84,356 420.97€ Dublin City 242,388 236.78€ Dun Laoghaire/ Rathdown 86,088 329.89€ Fingal 103,295 218.00€ Galway City 33,826 196.60€ Galway County 78,023 398.37€ Kerry 75,206 333.99€ Kildare 79,170 275.88€ Kilkenny 39,299 454.09€ Laois 32,818 461.42€ Leitrim 18,237 693.60€ Limerick City 26,849 310.59€ Limerick County 55,784 348.05€ Longford 18,889 688.28€ Louth 51,344 340.58€ Mayo 66,086 493.55€ Meath 70,079 351.69€ Monaghan 25,206 594.58€ North Tipperary 30,944 567.77€ Offaly 31,014 481.95€ Roscommon 31,718 582.96€ Sligo 33,223 540.45€ South Dublin 97,541 185.67€ South Tipperary 38,428 611.79€ Waterford City 22,420 249.79€ Waterford County 30,131 664.62€ Westmeath 36,835 509.83€ Wexford 68,551 295.17€ Wicklow 54,687 406.15€
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Cost per hectareLocal Authority revenue from the Local Government Fund
Agricultural Land statistics (source: Agri Census 2010)
Example, Small Farm's tax
liability (half avg size for
county)
Option 1 Cap: Limited to average
residential liability per House in local
authority
13445 347274.63 25.83
47.76
542217.18 38.13
38109.84
Option 1: Farm land to
residential land liability per ha
45.50
Kildare
Longford
LaoisKilkenny
Leitrim
34.53
Monaghan
Offaly
Meath
LouthMayo
Limerick
Kerry
5981 206535.83
RoscommonSligo
2764 125770.64
WicklowWexford
Westmeath
Waterford
North Tipperary
South Tipperary
Carlow
Galway
Cork 14221
Dublin 798
Cavan
Donegal
Clare
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DISCUSSION
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Rent, Mortgage, Own
• Average weekly rent charges:– Local authority housing €54 (12%)– Private owner €172 (26%)
• Mortgage cost €192 (17%)– Highest disposable income €1,194
• Own outright– Disposable income €794 (2nd highest)
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Impact on Local Authorities
• Gains revenue raising capacity– Greater accountability to local citizens
• Challenge of small LAs– Criteria for local taxes, base capable of yielding
revenue to fund LA (CoT 1985)– Population of ~100,000 per local authority
achieving minimum efficiency scale (LGERG)
Local Authority revenue from the Local Government Fund minus €10m in efficiency savings
Residential Liability per House in Housing Stock
Leitrim / Sligo €20,604,671 € 400.40
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• “Democracy rests on the dissemination throughout society of a sense of responsibility and of the opportunities to exercise it.” – The Barrington Report (1991)
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Tax Strategy GroupTaxation of Property
• Lowest assessment either area or value• Advantages:
– self-assessed, relatively easy to administer– easy for taxpayers to measure– size for urban dwellers and valuation for rural dwellers– graduated pricing lower likelihood of underestimation– collect valuable data
• Possible pitfalls:– no known examples – rate carefully determined to obtain the required yield
need to be acceptable rate for most taxpayers.– problems of self-assessment options
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Yes, we can…• Is this easily understood compared to other options?• Can this be done?• Is it simple?• Can it be done rapidly?• Is it equitable and fair? • Can mass appraisals/invoicing occur quickly?• Is it pragmatic?• Does it solve the issue of funding local government?• Can it fund local government dynamically?• Is it inexpensive to implement?• Will people understand it?• Is the compliance cost low?• Is it easy for people to determine if their bill is correct?