Scotland’s Commission on Local Tax Reform was established in early 2015 with the purpose of considering reforms to the current Council Tax system – one deemed outdated and broken by those on all sides. On December 14th last the Commission published its final report entitled ‘Just Change: A New Approach to Local Taxation ”.
The report’s title underscores the exasperation of policy makers in Scotland with its current system and consequently the report is clear on the need for its replacement. However, cleverly, the report does not make any specific recommendation for its replacement; rather it outlines in some detail a number of fairer and more progressive options that are available to those who find themselves in government after the 2016 Scottish Election.
The report is accompanied by a technical annex (with more details on the options and how they might work in practice) and a compendium of evidence. The latter summarises contributions from various people and organisations who met the Commission during its meetings and public consultations. It includes a summary of evidence presented by myself to the Commission at a meeting in Edinburgh during June last. In that meeting the Commission explored the experiences of neighbouring jurisdictions (Ireland, Northern Ireland and Wales) in implementing and reforming local property taxes. The Commissions summary of my evidence is below; with a link to the full statement following this.
Summary of Evidence: Dr Micheál Collins, Nevin Economic Research Institute
A recurring property tax is an important part of a stable taxation base, and a property tax structured so that revenue flows to local government is an important part of local democracy. Micheál encouraged the Commission to include local rate setting as part of any new system.
Levying taxes on out of date valuations undermines the tax and the tax system. Whilst exact valuation may be ideal, it may not be practical, and bands and clusters make some sense, especially if time is an issue, although Bands should be relatively wide so owner/occupiers can make improvements without being penalised.
Costs of transition are important, but the first year costs of a new scheme should be seen as an investment for the most part.
Property taxes are not income taxes – the two tax bases should not be confused, but there is a need to recognise the difficulties that low income families face. Deferral should be common-place in any system, and it is of regret that it is seen as a last resort in Ireland. Irrespective of the chosen system, the Commission should recommend some system which recaptures most of any speculative gains that developers make from land being rezoned. The same sort of system should be in place to capture windfall gains as a result of new publically funded capital investment. Finally, there is a case for a mansion tax (Commission on Local Taxation, 2015 Volume 3: 35).
A copy of the opening statement to the Commission is available here.