Taxing Property: Suggestions for Reform
This paper shows that the Republic of Ireland’s per capita receipts from all taxes and social security contributions are lower than the average for a ‘peer group’ of high-income EU countries. Per capita taxes on capital are close to the peer group average due to Ireland’s relatively high level of receipts from corporation tax. However, Ireland under-taxes stocks of capital relative to the peer countries. I consider potential reforms in the area of taxation of capital stocks. Suggested reforms are consistent with the key objectives of simplicity, equity and efficiency. There are strong theoretical arguments in favour of recurrent taxes on immovable property. With this in mind, I argue that there is a strong case for increasing the basic rate annually over a 10 year period and for regularly rebasing property values to their actual levels. In addition, I caution against proposals to increase the complexity of the tax by applying different rates in different local authorities. Hardship issues are best resolved through a deferment system for low-income households. I also discuss the advantages and disadvantages of introducing a tax on net wealth. Wealth taxes are particularly attractive in distributional terms. The structure that will best reconcile the tension between our main objectives is one with: A) either zero or very few exemptions and reliefs, B) a relatively high tax-free allowance or threshold, and c) a flat marginal rate that is set at a low level. I argue for reforms to Capital Acquisitions Tax, identifying in particular the generosity of existing reliefs as undermining the principle of horizontal equity between taxpayers. Finally, an important principle is that all income, whether from labour or capital, should receive equal treatment. One implication is that capital gains should count as income for tax purposes.