Property Tax in Ireland: Key Choices

The introduction of a property tax is now firmly on the policy agenda. Designing such a tax involves a series of choices which affect how the burden of the tax is distributed across households. In this paper we use SWITCH, the ESRI tax-benefit model, to explore the implications of alternative approaches designed to link a property tax with ability to pay. We also draw on international experience with property taxes to provide insights into choices regarding the structure and operation of a new tax. A key finding is that an income exemption limit below which property tax is not payable (with marginal relief for those with incomes just above the limit) could provide a powerful tool for shaping the income distribution consequences of the tax. Without such an approach, the highest burden would be on those with lowest incomes. However, an income exemption limit for a single person of ?12,000 per year, just above the State Contributory Pension rate, would greatly reduce the impact on low income groups. A higher income exemption limit of ?15,000, with a tax rate of ?2.50 per ?1,000 of house value would mean that the property tax would have little impact on those on the lowest incomes, and have its greatest impact ? a reduction in disposable income of just under 1 per cent ? on those with the highest incomes.