There seems to be some confusion in relation to the current proposed Household Charge Bill 2011 and Im not sure if it is going ahead as is or that there are some legal issues to be resolved. Bearing in mind that some further clarity may be shed in relation to such a charge and some amendments may be mooted. Most people want to pay their bills and there are comprehensive waivers in situ and I dont like the fact that the fine for non payment is in the region of between 1000 -2500, as this will frighten people when they are already put to the pin of their collar to pay their bills. There is some provision to pay it in instalments but unfortunately but a fine of this nature seems very severe. Please have a read of the detail set out below it is worth noting why this money is being collected…
The EU-IMF programme of financial support for Ireland commits the Government to the introduction of a property tax for 2012. The programme reflects the need, in the context of the State’s overall financial position, to put the funding of locally delivered services on a sound financial footing, improve accountability and better align the cost of providing services with the demand for such services.
In light of the complex issues involved, a property tax, requiring a comprehensive property valuation system, would take time to introduce and, accordingly, to meet the requirements in the EU-IMF programme, the Government decided to introduce a household charge in 2012. The household charge is an interim measure and proposals for a full property tax will be a matter for consideration by the Government in due course.
The charge will be set at €100 and will apply to the majority of owners of residential property in the country on a point in time basis. It is expected to raise some €160 million, on full collection, and the revenues from the charge will support the provision of the vital services provided by local authorities. Internationally, local services are administered by local authorities and financed by local service charges. In Ireland, local authorities are responsible for, among other services, fire and emergency services, maintenance and cleaning of streets, street lighting, planning and development services, public parks, libraries, open spaces and leisure facilities.
The household charge will be administered on a self-assessment basis and is to a significant extent based on the arrangements applying to the €200 charge on non-principal private residences introduced under the Local Government (Charges) Act 2009. As such, it will be a matter for owners of houses concerned to register and pay the charge. It is intended that the liability date will be 1 January with payment due at the end of March. The Department of the Environment, Community and Local Government and local authorities will undertake a national information campaign to advise people of their responsibilities in relation to payment of the household charge and I am confident that all residential properties owners in the State will be fully aware of their liability or otherwise to the charge.
The liability date is the date upon which persons will have to assess whether, as an owner of a residential property, they are liable to pay the household charge.
The actual payment of the household charge can be made from this liability date up to and including 31 March 2012. Persons will have a full three months from the liability date to pay the household charge. Late payment fees and late payment interest will only apply if the household charge is not paid in respect of a liable property by or on the due date of 31 March, or if persons do not apply for payment by instalments. These are similar provisions to those that apply under Revenue legislation in respect of the late filing and payment of certain taxes and will act as an incentive to pay the self-assessment household charge on time. In addition, any household charges, late payment fees and late payment penalties will remain as a charge against the property concerned.
The Government recognises that the charge represents an additional cost for all homeowners and it is proposed to facilitate homeowners by allowing it to be paid in four equal instalments of €25, if the householder so wishes. My colleague, the Minister for the Environment, Community and Local Government, Deputy Phil Hogan, will set out in regulations the dates on which each instalment will fall due and the arrangements for the payment of the instalments.
While it is intended that the charge will apply to the majority of residential property in the State, the Government proposes that a small number of exemptions to the household charge will apply. The proposed exemptions are as follows: properties that are part of the trading stock of a business and have not been sold, occupied or been the source of any income since their construction; properties vested in local authorities or voluntary and co-operative housing bodies for social housing, as making such properties liable would lead to a circular flow of income and be unnecessarily bureaucratic; properties owned by a Government Department or the HSE and used or let in the performance of their functions, as, again, making such properties liable would lead to unnecessary circular administrative structures; properties to which commercial rates apply – as with the non-principal private residence, it is intended that this charge would operate as an alternative to commercial rates, that is, a property will be liable for either commercial rates or the household charge, if it is domestic property, but not both; where a person is forced to vacate a property because of long-term mental or physical infirmity – this exemption was included in the Local Government (Charges) Act 2009 as a compassionate measure intended to provide for elderly people who have no choice but to move out of their sole or main residence into a residential nursing home; and where a charity owns a property.
In addition to these exemptions, two important waivers will apply to the charge. The programme for Government commits to giving consideration in the context of introducing a property tax to the impact that such a tax would have on the number of households in mortgage distress. The Government therefore proposes to exclude from the household charge households in receipt of mortgage interest supplement from the Department of Social Protection. Mortgage interest supplement provides short-term support to help eligible households pay mortgage interest payments and has, as a condition of eligibility, that the household could afford the mortgage repayments when the mortgage commenced. In excess of 18,000 households will benefit from this waiver.
The Government also intends providing a waiver for households in certain categories of unfinished housing estates. The report of the advisory group on unfinished estates identified two categories of households in particular difficulty: category 3 estates – some 1,112 estates – where a developer is in place but there is no onsite activity and where there are significant planning, building control compliance and public safety issues to be addressed; and category 4 estates – some 188 estates – where the developer or site owner is effectively not contactable and-or where no receiver has been appointed and serious public safety problems similar to category 3 exist. Again, the Minister, Deputy Hogan, will set out the list of the estates to which the waiver will apply in regulations. The Minister will be informed by local authority returns to his Department from the 2011 national survey of unfinished housing estates. This waiver will benefit residents of such estates as they work with other stakeholders in developing resolutions for these problematic developments. The costs of introducing this waiver will abate over time as more estates are resolved through the site resolution process and property owners become liable for the charge. The exact number of households to benefit from this waiver will be known when the Minister signs the necessary regulations into law.
Similar to the €200 charge on non-principal private residences, an online system is being developed by the Local Government Management Agency, LGMA, to enable homeowners pay the household charge by credit card or debit card. In addition, homeowners will be able to make payments by cheque, postal order and so on through the post to the LGMA. A bureau will be put in place in the LGMA to administer the charge on a shared service-agency basis for all local authorities.
It is recognised that the existing revenue base of local authorities is narrow by international standards. This was a consideration in the introduction of the €200 charge on non-principal private residences, NPPR, in 2009. While the NPPR charge represents a dedicated source of funding for local authorities which is relatively stable, it does not go far enough in addressing the imbalance in the sector’s financing. A proper broadening of the revenue base for local government will come about as a result of the introduction of the household charge in 2012 and the subsequent property tax in due course. This measure is significant because it recognises that local authorities should not be disproportionately dependent on central government funding.
The proceeds of the household charge will be paid directly into the local government fund. The Minister for the Environment, Community and Local Government will disburse moneys back to local authorities in general purpose grants. It is considered that this approach is preferable to allowing local authorities directly retain all moneys collected from the household charge in their areas, as it will make it possible for the Minister to introduce equalisation into distribution, thus ensuring that those local authorities with lower populations than others do not suffer unduly as a result.
We all now know too well that our economy, especially our tax revenue, was overly reliant on activity in the construction sector. The decline in the yield from transaction taxes, such as stamp duty, capital gains tax and VAT on property generally, has been a major factor in the imbalance in the public finances. The correction is sharp and difficult and, unfortunately, more needs to be done. The introduction of the €100 household charge on residential property is one of the measures that needs to be taken, reflecting the EU-IMF programme of financial support for Ireland, to close the gap between expenditure and revenue. However, it should be seen as more than simply a measure to raise revenue. It is a structural change to Ireland’s revenue raising systems, providing an alternative revenue stream that will not be subject to the volatility associated with the transaction-based property taxes to which I have referred. As the household charge will accrue to the local government system, Exchequer support of the local government fund is also being ended.
The Bill is a relatively short and straightforward legislative measure. Essentially, owners of liable residential property will be required to pay to the LGMA an annual charge of €100. Given the relatively modest level at which the charge is set, I consider it important to minimise the costs associated with its collection. Accordingly, county and city councils will delegate their functions in administering the charge to the LGMA, which will collect the charge on a shared services-agency basis. The LGMA will be paid the costs of administering the charge from the proceeds of the household charge.
Liability arises each year on a point in time basis. Ownership of a relevant residential property on a specified day, known in the Bill as the liability date, gives rise to the requirement to pay the charge. It is intended to designate 1 January as the liability date for 2012 and subsequent years. This liability date was chosen due to its fit with the overall annual financial cycle of local authorities and will allow moneys collected to be expended by authorities in the year collected. It also provides clarity as to ownership on the liability date as there are likely to be very few, if any, property transactions on New Year’s Day.
The charge is a self-assessment measure because it is for the owners of residential property, in the first instance, to assess whether they are liable to pay the charge. As the household charge is a self-assessment charge, the LGMA will not issue bills or invoices to those persons who own property liable for the charge.
Nonetheless, the charge is a relatively simple and straightforward measure and is easy to understand. The Department, the LGMA and local authorities will undertake a national information campaign to advise people of their responsibilities regarding payment of the household charge. In addition to the normal sanctions involving a fine on conviction of an offence, the Bill incorporates late payment fee and late payment interest provisions, which should act as a real incentive to pay the household charge when it falls due.
From a drafting perspective, the Bill starts from a position where all residential property is liable for the household charge. It goes on to exempt certain buildings and owners from this liability. In other words, it identifies what is not liable within the totality of residential buildings, rather than taking as a starting point buildings and owners that are liable. Section 2 provides that these include properties owned by a Minister, the HSE or which are vested in local authorities or voluntary and co-operative housing bodies for social housing. Other exemptions to the charge are provided for in section 4, including properties owned by charities and certain discretionary trusts and where a person has to leave their home due to long-term mental or physical infirmity. Waivers are provided for persons in receipt of mortgage interest supplement or residing in certain unfinished housing estates on the liability date. The household charge will apply to immovable property and, therefore, mobile homes and vessels are exempted.
The Bill provides that the charge shall be paid to the county and city councils under section 3, who will delegate their collection functions to the LGMA under section 13. The estimated annual yield, if collected in full, is €160 million. Like any new taxation measure, however, knowledge of the yield will only come with experience of its operation. In the event of non-payment of a household charge for which a person is liable by a certain date, section 7 sets out that late payment fees and late payment interest of 10% per month or part thereof will apply thereafter. The late payment fee to apply in the case of a household charge paid not later than six months after the due date is 10% of the amount outstanding; 20% of the amount outstanding if not paid later than six months and not later than 12 months after the due date; or 30% of the amount outstanding if not paid later than 12 months after the due date. These penalty provisions are proportionate to the level of the household charge and are similar to the provisions that apply under Revenue legislation in respect of the late filing and payment of certain taxes. They will act as an incentive to pay the self-assessment household charge on time. The rolled-up late payment fee should not be underestimated and non-payment of a charge for two years will result in a liability of €280 when account is taken both of the charges, the late payment fees and late payment interest.
I want the message to go out clearly to those liable to pay this necessary charge that it will be simpler and considerably less expensive to pay the charge when it falls due or in instalments, as provided for, than to attempt to evade it. Local authorities will also have power to take prosecutions against owners who fail to discharge their liability to pay the charge. Prosecution will be by way of summary proceedings and a court may impose a class C fine under section 5(4) of the Fines Act 2010 of between €1,000 and €2,500. Where a property liable for the charge is being sold, the Bill provides under section 10(3) that the vendor will be required to discharge all outstanding household charges, late payment fess and late payment interest on or before the date of transfer. This should prove a strong incentive for a purchaser’s solicitor to ensure that all outstanding charges are paid before a contract to sell the property is executed.
Under section 14 provision is made for data exchange between local authorities and the Private Residential Tenancies Board, PRTB, the Electricity Supply Board, ESB, and the Revenue Commissioners. This data should assist local authorities to identify properties liable for the charge. The PRTB holds data on rental properties and the ESB’s systems can generate data on residential properties where electricity is used. The Revenue Commissioners hold data on certain property transactions such as stamp duty, VAT and capital gains taxes.
Payment will be accepted on behalf of any local authority through a website, which has been designed and constructed by the Local Government Computer Services Board and which is broadly similar to the NPPR charge system. The revenue accruing will be relayed automatically and at intervals to the bank account of the local government fund. Payment will not be accepted in local authority offices. Although payment can be made through the postal system to a bureau to be established in the LGMA, I ask everyone who can do so to use the website for his or her own convenience. This will minimise costs associated with the administration and collection of the charge and ensure that the maximum amount of the revenue generated will go towards the provision of vital local services in our communities.
In addition, other amendments and insertions are being made to the Local Government (Charges) Act 2009 in respect of the definitions and other provisions contained in this Bill in order to mirror in the Act the provisions contained in the Bill. The 2009 Act exempts properties leased to a local authority under the rental accommodation scheme, RAS. The RAS exemption was included in order to encourage take-up of the then relatively new scheme. As the scheme has been in existence for a number of years, an incentive is no longer required. Similar long-term leasing arrangements with private property owners are now being entered into in respect of meeting social housing needs. As leases under RAS, now a mainstream social housing option, are subject to the same legal framework applying to private leases under the Residential Tenancies Act 2004, it is not justifiable that a landlord group should continue to receive added incentives from inclusion of their properties in social housing arrangements. The Government has agreed that the charge will apply to properties in this group and that, furthermore, the opportunity will be taken to amend the Local Government (Charges) Act to remove the NPPR exemption with effect from 2012. The exemption for properties leased to the HSE is linked to this and it will fall to be treated in the same way as RAS.
It is also intended to take this opportunity to amend the Local Government (Charges) Act 2009 to provide for a €10 charge on over-the-counter transactions in respect of the NPPR. Initial take-up of the online payment option was encouraging, with 85% of users choosing to pay online in October 2009. By December 2010, this figure had fallen to 59%. It appeared that the early payers were more likely to use the online option, while those that had left it late preferred to pay over the counter. Anecdotal reports suggest that most of these over-the-counter payments are made in cash. Such payments are resource heavy for local authorities and this should be reflected in an additional charge if somebody chooses to use an administratively expensive payment option when others are available. A €10 transaction charge was also recommended by the local government efficiency review group to apply to all payments other than those made electronically but, at this stage, it is only proposed to apply the additional administrative charge to over-the-counter payments for the NPPR. Given that some people may still not have access to electronic means of payment and the fact that broadband is not universally available, an electronic option may not be a realistic alternative to a postal payment for many people, particularly the elderly in rural areas. It is, thus, not proposed to apply the charge to postal applications.
Senators will be aware of the significant role which the local government fund has played in the financing of local government since it was established in 1999. The fund has been financed from a combination of an Exchequer contribution and the full proceeds of motor taxation up to and including 2011. Total funding for 2011 amounts to €1.16 billion. The 2011 fund comprises an Exchequer contribution of €164 million and the proceeds of motor tax, which is projected at €998 million this year. Local authorities were allocated general purpose grants of €790 million in 2011, which represents approximately 29% of local authority current funding. Some €398 million was provided to the Minister for Transport, Tourism and Sport from the fund for the provision of roads and public transport infrastructure. As announced yesterday by my colleague, the Minister for Public Expenditure and Reform, the Exchequer contribution to the fund will cease this year and will be replaced by the proceeds of the household charge in 2012.
The footprint of the local government sector has reduced significantly over the past five years. Local authority investment and service provision capacity has reduced from a record €11.7 billion in 2007 to an estimated €7 billion in 2011.
The reduction has been most pronounced in the local government capital programme, the figure for which has declined from €6.8 billion in 2007 to an estimated €2.2 billion in 2011.
It is important that the funding of locally delivered services be on a sound financial footing, with better alignment between the cost of providing services and the demand for those services. It is clear that local authorities require sufficient funding to ensure that they can operate effectively across their range of functions and responsibilities but this must be balanced with the need to limit the direct financial contribution required of business through rates and charges and having regard to the need for a reduced footprint for the sector generally. Notwithstanding the importance of this source of funding, the Government is mindful of the need to minimise the burden on business, particularly business that may be especially vulnerable in the current difficult economic environment.
As local authorities approach their budget period, elected representatives will be called upon to make difficult choices to adopt balanced budgets for 2012. The emphasis to date has been on cost reductions and efficiencies that will reduce the costs to business, the maintenance of front-line services, broadening of the funding base and the refocusing of capital investment. However, with income from all sources under pressure, each local authority will have to strike a balance between the competing demands for resources. Against this background, local authorities continue to face significant challenges in collecting income arising from rates and local charges.
The Government is not solely focused on the funding of local government. We are also concerned to ensure that local government delivers the services that our communities expect as efficiently and effectively as possible. The Minister, Deputy Hogan, is determined that local authority cost bases will continue to be examined rigorously and reduced to maximise efficiencies which, in turn, impact positively on business. The realisation of the savings and other efficiencies identified in the local government efficiency review report will involve implementation over a focused and achievable timescale. In this context, the Minister established, earlier this year, an implementation group with an independent chairman and business expertise to drive and oversee implementation of relevant prioritised recommendations of the report of the local government efficiency review group.
The implementation group is focusing on key recommendations in areas such as shared services, procurement, ICT and human resources that will remove costs and yield early financial savings for the local government sector. The Minister is due to receive the implementation group’s first report this month and this will include an assessment of progress made to date. This work must take account of the reduction of over 6,500 staff posts in local authorities over the past two years. This is well ahead of any other area of the public service. This is the biggest single contributor to efficiency and productivity.
The Government’s commitment to align the community development sector with local government will also see an expanded role for local authorities in local enterprise and community development. This, in turn, will maximise the impact of investment to produce jobs at a local level. The Department of the Environment, Community and Local Government will continue to work with the County and City Managers Association to identify best practices in the local government sector in building stronger sectoral approaches and in eliminating variances between local authorities.
A properly resourced local government sector is vital to local democracy. I take this opportunity, however, to refer briefly to another issue that is equally important to the well-being of the local government sector. A range of work relevant to the reform and development of local government is also under way, in accordance with the programme for Government, and significant progress has been and is being made.
With regard to structural reform, the Government announced, on 28 June 2011, its decision to create a single local authority to replace Limerick city and county councils with effect from the local elections in mid-2014. In addition, the Government decided to establish a unified county council in Tipperary, also with effect from the next local elections. Implementation groups have been appointed to oversee planning, preparatory work and initial implementation of the reorganisation process in both Limerick and Tipperary, and their work is proceeding. The Minister for the Environment, Community and Local Government has established a local government committee under the Local Government Act 1991 to consider whether the creation of a unified authority in Waterford would be desirable. That committee is in operation and is due to report by the end of February 2012.
These measures are being progressed ahead of more comprehensive policy proposals which will be brought to the Government in regard to local government structures at regional, county and sub-county levels. The local government sector is a willing and able partner in this agenda and recognises that public sector transformation is an integral part of the solution to Ireland’s current economic difficulties. In this context, greater coherence and synergy between different levels of Government and the public service are fundamental to more efficient and effective operation. The Department of the Environment, Community and Local Government and the local government sector are working closely together to advance broad public service initiatives for a more integrated public service which can achieve better value for money and enhanced customer services.
The Local Government (Household Charge) Bill 2011 is a short and straightforward legislative instrument. The revenue stream to which it will potentially give rise is significant, at €160 million annually. The Bill establishes a new funding source for local authorities. It builds on the experience of the charge on non-principal private residences and further broadens the revenue base of local authorities. Its provisions will ensure that charges raised nationally are put to good use locally in providing the wide range of local authority services that the public needs and expects. Arguably, it would serve the interests of local democracy still better if local authority members themselves determined, perhaps within certain limits, the level of the charge, as is the case with commercial rates. There may be scope to devolve other aspects of the charge to local authorities. These are issues that will be revisited in the context of a full property tax to replace the interim household charge in due course. In this context, the Government has decided that an expert interdepartmental group will be established in the new year to consider the approach to the full property tax and report back by mid-2012.