Research published by Chambers Ireland today has revealed that income from development contributions has risen from €0.11bn to €0.55bn between 2000 and 2005 and now represent 13.6% of local government expenditure.
Chair of the Chambers Ireland Ratepayers’ Council Hilary Haydon explained, “income from development contributions has risen dramatically in recent years, increasing by 62% from 2004 to 2005 alone. Local authorities now rely on this income stream which is unsustainable as it is dependent on continued construction growth which is predicted to fall in the coming years.”
“This again highlights the precarious structure of local authority financing. Local government is the area showing the fastest rate of reform in the public sector in spite of being hamstrung by a deeply flawed funding system,” Haydon said.
“Local authority services are the vital ingredients to securing a good quality of life and the development of a healthy business environment in every locality. However, their ability to provide essential services is being seriously undermined by a slipshod funding structure. This is exacerbated by the Government increasing local authorities’ responsibilities without putting in place adequate and sustainable funding structures,” he stated.
“The Government’s own Small Business Forum Report correctly named business as the ‘funder of last resort’ for local authorities. This problem will not be resolved until central government accepts this analysis and either properly funds the costs for providing local services from central government revenues or else puts in place the tax regime that will enable local authorities to raise the funds themselves,” Haydon added.
The Government collects an average of €100,000 in taxes and levies from every new housing unit built in the State.
Davy Stockbrokers said in a report last week that property market accounts for one-sixth of tax revenue
- Tax revenue from the property market (VAT, stamp duty and capital gains tax) has tripled since 2002.
- Revenue from the property market will reach almost €7.5bn (5% of GNP) this year and accounts for almost 17% of total tax revenue, up from 5% eight years ago.
- Government finances now exposed to property market downturn
- Davy estimates that each 1% change in the volume of property built or traded could cost as much as €105m in tax foregone; each 1% change in price is worth about €75m.
How to Adjust Local Government Financing
Outlining the scale of the problem, Chambers Ireland’s Chief Executive John Dunne noted, “the Indecon report into the financing of local government earlier this year projected that within four years, additional funding of €2bn will be required for local authority service levels to be simply maintained. In such circumstances, it seems bizarre that the Government is having to work hard to dampen expectations of a giveaway budget, and to ensure that public funds are spent prudently and offer value for money.”
"In this context, Chambers Ireland is calling on the Government to take advantage of these favourable circumstances to rebalance the tax system in a revenue-negative way with a reduction in total central government tax take of €2bn. In tandem with this, we propose replacing stamp duty with a re-balanced property tax that goes directly to local authorities,” Dunne said.
All Users Must Pay – Including Householders
“Local authorities should be finally allowed to fully implement the user pays principle and charge all users of services and producers of waste for the associated services/infrastructure (including primary homes, perhaps above a reasonable, defined consumption threshold, which would be met by central government),” said Dunne.
"Business is not afraid of paying its share, however central government must play its part by either paying the full cost of income foregone by local authorities due to their current inability to charge for the services that they provide to all users, or else it must give local authorities the ability to recoup these costs via a ring fenced property tax," Dunne concluded.
Other Key Research Findings
- Income received from development contributions has continued to rise in the last two decades with a cumulative increase of almost 500% since 1987.
- Development charges per square metre range from €7 in Donegal County Council to €123 in Dublin City Council.
- The Department of Environment, Heritage and Local Government does not prescribe a specific method for the calculation of contributions under the general development contribution scheme. Instead, local authorities are required only to satisfy themselves that the basis for determining the charge can be justified or supported.
- Several factors within each development contribution scheme differ considerably across local authority areas with no definitive guidelines provided by the DoEHLG. This results in significant variations in the calculation and imposition of development charges.
Davy Stockbrokers report says severe downturn in construction sector would have dramatic impact on public finances; Tax revenue from the property market has tripled since 2002
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