Early election looms if Greens stick to their guns on land tax

The first liabilities for the residential zoned land tax are due in February. Simon Harris, the taoiseach, insists that the government will go its full term. If that is the case, then he will be fighting an election as the bills for the tax come due.
It does not take a political genius to deduce that this is not an ideal situation — particularly when Fine Gael, after its relatively good showing in the local and European elections, is sensing that it has the wind behind its back, especially in rural Ireland.
Assuming that Harris does not want to be campaigning when new tax demands are being made by the government he leads, then the election must take place earlier, or the tax is deferred, or both. Fianna Fail, in the guise of its minister for finance, Jack Chambers, has mooted the idea of a deferral and insists that this is not a cynical pre-election ploy. The Greens are adamant that there can be no deferral. Harris, although purportedly unhappy with Chambers’s solo run, supports the deferral to avoid what he describes as active farmers being wrongly taxed.
It is clear that Fianna Fail and Fine Gael have judged that this is not an issue on which the new Green leader, Roderic O’Gorman, will bring down the government. And yet there must be an election in the next six months. The Greens withdrew from government with Fianna Fail back in early 2011. Could the party possibly do so again and make a statement that government policy is government policy and should be introduced and give itself a platform on which to face the country? The alternative is to limp along to the election whenever Harris and Micheál Martin decide between them to have it.
Irish politics has been plagued by various things since the state was founded but two of the most pernicious have been deferrals of policy decisions to avoid the wrath of the electorate and raising tax revenue from property. There has already been one delay in implementing the residential zoned land tax to give farmers enough time to deal with it.
Irish history is littered with property taxes which have fallen due to opposition from the middle classes of the leafy suburbs and wealthy farmers. Property taxes are particularly susceptible to political pressure at election time.
The current saga of implementation, deferral and exemption is just the latest in a sorry list dating back close to half a century ago. Fianna Fail’s infamous 1977 election manifesto promised to abolish local government rates which were levied on all property although exceptions were made for those on low incomes. On the back of Fianna Fail’s landslide victory those domestic rates were quickly removed.
The massive swing against Fine Gael in that election was attributed to the imposition of tax increases on farmers by the coalition government which brought in a wealth tax of 1 per cent on assets in excess of £100,000 in 1975. It was quickly abolished by Fianna Fail in the aftermath of their thumping 20-seat majority.
The wealth tax was only supposed to apply to very large farmers. It was introduced in such a way as to ensure that they were treated more favourably than owners of other forms of wealth. Farmers would require a higher net wealth than non-farmers before becoming liable for the tax and in the case of two individuals with equal levels of wealth, the non-farmer would pay more wealth tax than the farmer.
The wealth tax was a monumental failure because there were so many exemptions and reliefs that the revenue collected was pitifully small and the exceptions cut across the equity principle of taxation by favouring holders of some kinds of assets over those of others.
Private dwellings were totally removed from the tax base until residential property tax was introduced by the Fine Gael Labour coalition in 1983. The tax ran until 1997, but fell foul of numerous exemptions and a lamentably small yield.
Efforts to change the scope of the tax in 1994 by the Fianna Fail-Labour coalition through lowering the value threshold for houses liable to the tax and reducing the income threshold for it led to a furious backlash from the opposition and various interest groups.
It also suffered from an anti-Dublin bias. Identical households with identical homes located in different parts of the country ended up paying differing amounts of the tax. By the end of the scheme just under two thirds of taxpayers were located in the Dublin region and they contributed nearly three quarters of the total tax paid.
A future taoiseach, Enda Kenny, who led a government which actually did bring in a local property tax in 2013, was particularly exercised by residential property tax. In 1994 he declared that “all Irish people believe that a man’s house is his castle. It is morally unjust and unfair to tax a person’s home … It reminds me of a vampire tax in that it drives a stake through the heart of home ownership, through enthusiasm and initiative, and sucks the life blood of people who want to own their own home.” The Fine Gael, Labour, Democratic Left government eventually abolished the tax before the 1997 election and Fianna Fail was happy to see it gone.
The residential property tax was a classic of the genre of political parties believing in the need for tax reform but being unable to get it done. And in true political fashion the same parties couldn’t resist opposing it when out of power.
The introduction of the local property tax in 2013 was essentially forced on to the Fine Gael-Labour government by the troika’s financial bailout which insisted that the state introduce a residential property tax as a means to widen the Irish tax base.
Sinn Fein, rather inexplicably for an avowed socialist party, still opposes local property tax, calling it a tax on the family home à la 1994 vintage Kenny. It has labelled the current controversy as a fake row that only benefits developers and wealthy landowners and continues to call for a wealth tax to replace the property tax. Perhaps it should read a little more history to discover the pitfalls of a wealth tax.
The party has the luxury of opposition but the Greens don’t. If the Greens do accept a deferral fudge it will leave them open to the charge that they are not serious about improving the flow of houses and that is a very dangerous place to be in with housing likely to dominate the election campaign. Having expressed their adamantine opposition to any tax extension the Greens can hardly back down now and the odds of this government not going the full term have been dramatically reduced.