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Committee on Budgetary Oversight debate -
Tuesday, 16 Jan 2018

Local Property Tax and Commercial Stamp Duty: Department of Finance

Before we begin, I remind members and witnesses to turn off their mobile phones as interference from mobile phones affects sound quality and the broadcast of the meeting. I welcome our witnesses from the Department of Finance, Mr. John Hogan, assistant secretary, who is accompanied by Ms Anna Donegan and Mr. John Palmer, principal officers, Mr. Faris Bader, tax policy analyst, and Mr. Kevin Nolan, assistant principal officer. I thank them for making themselves available to meet the committee. Their attendance is appreciated.

Today we are meeting to discuss the revaluation of the local property tax and ex post analysis of commercial stamp duty. We spoke with officials from the Revenue Commissioners at our last meeting on 12 December about the local property tax revaluation and commercial stamp duty. The purpose of this meeting with the officials from the Department of Finance is to undertake that ex post budget scrutiny and to discuss concerns that the committee flagged last September regarding the revaluation of the local property tax, and the potential sudden increases in local property tax arising from the revaluation process. We will also undertake ex post analysis of the commercial stamp duty changes made in budget 2018.

I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.

I invite Mr. Hogan to make his opening statement.

Mr. John Hogan

I thank the committee for the invitation to address it. I am accompanied by my colleagues Ms Anna Donegan, Mr. John Palmer, Mr. Kevin Nolan and Mr. Faris Bader, who are all from the Department of Finance. My understanding is that the committee wishes to discuss the revaluation of properties for the purposes of the local property tax, LPT, and the yield from the increase in stamp duty on non-residential property. My statement will address each of these in turn.

The LPT is an annually recurring tax applying to most residential properties owned on a specific liability date. The tax is currently linked to the market value of the property as at 1 May 2013. The legislative basis for LPT is the Finance (Local Property Tax) Act 2012, as amended. The Revenue Commissioners have operational responsibility for the administration of the LPT and the tax has been collected by the Revenue Commissioners since it commenced. This continues to be the case. Between 2014 and the end of last year, Revenue remitted LPT to the Exchequer and an equivalent amount was paid over to the local government fund by the Minister for Finance for onward distribution to the 31 local authorities by the Minister for Housing, Planning and Local Government. As of the start of this year, the Revenue Commissioners are remitting LPT directly to the local government fund under reforms provided for in the Water Services Act 2017. The Department of Housing, Planning and Local Government has responsibility for LPT allocations to local authorities from the local government fund.

The local property tax has broadened the domestic tax base and provided a new source of revenue for local authorities to replace some of the revenue from transaction-based taxes with an annual recurring property tax. Our reliance in the past on transaction-based taxes proved to be an unstable foundation for Government revenue. In contrast, the experience internationally has been that property taxes provide a stable and secure source of funding. The LPT is producing a stable revenue yield for local authorities, although both yields and rates are modest by international standards. The charging structure for LPT is progressive. The basic rate of 0.18% applies up to property values of €1 million with a higher rate of 0.25% applying on the portion of value above the €1 million threshold. At the end of 2017 and since its inception, LPT has contributed over €2 billion to the funding of local authorities.

From 1 January 2015, elected members of local authorities have had discretion to vary the LPT rates by plus or minus 15%. If a local authority decides to reduce the LPT rate, it forgoes the equivalent amount of the reduced LPT yield from its allocation. If a local authority votes to increase the LPT rate above the basic rate, it receives the full amount of the increased yield. We understand that seven local authorities voted to increase their LPT above the basic rate in 2018 and that four have decided on a reduced rate.

The introduction of the LPT in 2013 was the largest extension of self-assessment in the history of the State, with over 1.3 million taxpayers obliged to file LPT returns and pay the tax in respect of around 1.9 million properties. The first valuation date was 1 May 2013. The valuations declared for that date determined tax liabilities for 2013 - a half year - 2014, 2015 and 2016. The Finance (Local Property Tax) (Amendment) Act 2015 gave effect to the postponement of the revaluation date of residential property for LPT purposes to November 2019. The postponement to November 2019 of the revaluation date for LPT means that homeowners were not be faced with significant increases in their LPT for 2017, 2018 and 2019 as a result of increased property values.

The Revenue Commissioners publish comprehensive LPT statistics on a quarterly and annual basis, which include information in relation to collection and compliance, exemptions and deferrals, and payment types. Some of this is broken down by local authority. The compliance rate for 2017 is currently 97%, which is line with rates in previous years.

Given its importance and conscious of the concerns of homeowners over increasing property prices and potential effects on their LPT liabilities, particularly in urban areas, the previous Minister for Finance engaged Dr. Don Thornhill in 2015 to conduct a review of the operation of the LPT. The review focused in particular on any impacts on LPT liabilities due to property price developments. The terms of reference for the 2015 review required that it also have regard to the overall yield from LPT and its contribution to total tax revenue on an ongoing basis and the desirability of achieving relative stability, both over the short and longer terms, in LPT payments of liable persons.

The central recommendation of Dr. Thornhill’s 2015 review was for a revised system whereby a minimum level of LPT revenues in each local authority area would be determined by Government, ideally having regard to the apportionment between local authority areas of the historic yield. This, in turn, would allow for the estimation of LPT rates for each local authority area and the application of these by taxpayers and Revenue. Local authorities could adjust this rate upwards by a factor of up to 15%. This new system was recommended by Dr. Thornhill with a possible interim deferral of the next valuation date until November 2018 or November 2019.

The Department of Finance is now advancing consideration of issues relating to the implementation of the remaining recommendations in the 2015 Thornhill LPT review report in line with the 2019 revaluation timeline. We welcome the opportunity to hear the views of committee members in relation to LPT and we look forward to the report of the committee’s deliberations which will inform our own work. Following the completion of the Department’s work, recommendations will be put to the Minister for Finance who intends to make the future position on LPT clear so that households will know well advance of November 2019 what the Government’s plans are for the LPT. It is important to note that the Minister for Finance has reiterated the importance of the principle that formed a central part of the terms of reference for the 2015 review of LPT, that is, achieving relative stability in LPT payments of liable persons both over the short and longer term. This principle will inform our current consideration of this matter.

Budget 2018 included a change to the rate of stamp duty on non-residential property from 2% to 6%, which was projected to raise €376 million in 2018. This was based on estimates in Revenue’s pre-budget ready reckoner, which showed the effect of a 0.5% increase in the rate on non-residential property to be a €47 million increase in yield – this is multiplied up to €94 million for a 1% increase or €376 million for a 4% increase.

We understand from Revenue that the yield projection for 2018 was based on receipts for previous years, combined with an ongoing assessment of expected receipts by the end of 2017 and for 2018, as well as impacts of earlier policy changes. This process includes assessment of significant once-off transactions that positively increased 2016 receipts but which were not expected to recur on a regular basis. Failure to account for these one-off transactions would have led to a higher estimate for 2018. The estimate is therefore considered to be conservative and prudent.

Following budget 2018, Revenue updated the ready reckoner to a post-budget basis, taking account of budgetary changes and revised growth forecasts from the Department for 2018. The post-budget ready reckoner indicates that each 0.5% increase in the stamp duty rate applying to non-residential property would result in a €49 million increase in the overall yield. This would indicate that the estimated additional yield from the increase in stamp duty rate on non-residential property could be in the region of €392 million rather than €376 million. In the absence of precise and accurate forecasts for transaction volumes in 2018, basing receipts on 2016-17 levels and trends is the most reasonable option. The estimate also assumes current exemptions and other reliefs remain unchanged.

We are advised by Revenue that, adjusting for possible one-off transactions in 2016, receipts in the three-year period from 2014 to 2016 were quite stable and Revenue's assessment is that it seems reasonable to expect this level of activity is sustainable and for it to continue.

Tax receipts under all heads are monitored closely and reported on in the monthly fiscal monitor, which incorporates the Exchequer statement.

As regards the economic rationale perspective, there were three primary reasons for the increase in the rate. Investment in non-housing building and construction has expanded rapidly over recent years and is approaching its pre-crisis share of GNI. The Department’s forecasts suggest that this category of building investment will amount to some 8.1% of GNI in 2017, increasing to 10% by 2021. These forecasts are well in excess of the long-term average of 7.1%. The forecasts suggest that if left unchecked and combined with the need to significantly increase the level of residential construction there is a risk of overheating in the sector.

The need for increased housing supply is acute. To ensure that the building and construction sector is able to meet this demand while avoiding overheating in the sector as a whole, policy measures that would incentivise a re-balancing of activity away from non-residential commercial construction activity in favour of residential activity are needed. I would like to note that our position on this matter has been supported by a number of economic commentators.

The flat rate of 2% was introduced at a time when activity levels were exceptionally low. It was intended to incentivise activity and was justified by the exceptionally difficult market situation and lack of commercial output that applied at the time of its introduction. Activity in the sector has now fully recovered, negating the need for the continuation of such a measure.

I hope the foregoing will be of assistance to the committee. My colleagues and I are happy to take any questions.

I thank Mr. Hogan. I would like to open up the discussion. Several Deputies have indicated to me and I know some are under time constraint. I call Deputy Eamon Ryan.

I thank the Chair for allowing me to speak now because I am due to attend a meeting of the Joint Committee on Communications, Climate Action and Environment which will shortly begin. I very much welcome this discussion, which is a good example of the work this committee can do.

I asked the Taoiseach earlier today about the Government's approach on this issue. Perhaps the officials could inform me further in that regard. The Taoiseach informed me that the Minister for Finance was to today launch a proposal or reflect on a paper that went to Cabinet today. In the absence of the Minister, perhaps the officials could give members some indication of what that involves. I very much see this as an opportunity.

One of the areas on which I want to focus is the possibility of a switch from the current model of local property tax towards a site value form of property tax, which I believe would bring a variety of benefits to the country. Is that being considered as part of the review that is taking place? I will briefly outline why it makes sense. Central to the national planning framework is the conviction that we have to start bringing development back to the centre of our communities, make efficient use of our land and stop the ongoing sprawl of cities in our country which has huge cost to the State in terms of transport, health, education and other services.

One of the main benefits of a site value tax is it gives a great kick towards more sustainable, concentrated development. Second, in the absence of any other measures to get back the value that the State often applies in terms of the building of infrastructure and so on, it provides a mechanism whereby that value would not necessarily accrue to the private landowner but, rather, would be a public value, which could come from rezoning, investment in the public transport system or the building of a school, that would have a real effect in terms of increasing property and land values. A site value tax would be a very effective way of capturing some of that value. It is a method used in Denmark, Australia, parts of America and other locations. We are not looking for something untested or out of the ordinary. In my experience, it has always been opposed by the Department of Finance because of the belief that we do not know who owns what land.

In 2009, the tax commission set out some of those difficulties, as well as difficulties in terms of how to assess the site value. However, my understanding is that in the interim we have built up a better register of land ownership and there are new mechanisms involving computerised data and indexes of property transactions. The work done by Ronan Lyons in Trinity College Dublin shows that there are ways in which such valuation schemes could be introduced at low cost. There is a gain to the State in terms of the incentive towards a better form of housing development and also a better form of local government revenue. I would like site value tax to apply to commercial land as well as residential land, thus replacing the rates system. It would bring huge benefits. It is not an issue of Dublin versus the rest of the country. The level of tax would not necessarily vary, although research would be needed in terms of what people in Dublin would pay compared to those elsewhere in the country. However it would begin stopping the unsustainable use of land in our country by putting absolutely valid and correct constraints on landowners. I am very interested to know whether the witnesses or other departmental officials are considering that as part of the review.

Mr. John Hogan

I thank Deputy Ryan for his comments. As regards his first point on what he discussed earlier today with the Taoiseach, the Minister has this afternoon issued a press release announcing a review of the local property tax, LPT. Today he briefed his Government colleagues on the approach the Department will be advancing during 2018. The review will include a consultation process to enable all interested parties and individuals to submit their views on the future of LPT. It will start in February and will, in particular, consider the impact on LPT liabilities of properly priced developments. It will include an examination of the outstanding recommendations of the 2015 Thornhill report and will be conducted by a cross-departmental group chaired by this Department and comprising officials from Revenue Commissioners and the Departments of Public Expenditure and Reform and Housing, Planning and Local Government. It is expected that it will be completed by the end of August and the group will provide several policy options for consideration by the Minister.

The purpose of the review will be to inform the Minister of any actions he may recommend to Government concerning the overall yield from LPT and its contribution to total tax revenue. As I said in my opening address, the review will be informed by the desirability of achieving relative stability over the short and longer terms on LPT payments of liable persons. It will kick off in February and move on from there.

As regards the issue of site value tax, Deputy Ryan can appreciate that it was considered at some length in the original Thornhill report of 2012, which considered the issue of the market value tax that was ultimately opted for versus site value tax and the options and opportunities in that regard. It was concluded that site value tax did not stand up to the rigorous scrutiny across several parameters or indicators by which a property tax would be introduced in the same manner that market value tax did. The Deputy is correct that along with the Thornhill report there were previous explorations of the potential for a property tax by both commissions of taxation that looked at the approach and rejected the idea of a site value tax. When the Thornhill report considered the options or the development of property taxes in other countries, it found that site value tax was not as common as one might have expected.

For all those reasons, it was rejected. The challenge in this regard now relates to whether we go over ground which we have already covered and which was considered quite extensively in the original Thornhill report. While any movement in that direction would, quite correctly, be a decision for the Minister, we need to be careful that we are not starting from zero again and that the work on this particular methodology of introducing LPT would not be repeated.

I was not involved in 2012. The tax commission believed that there was real economic rationale behind a site value tax but that administrative difficulties would arise. In 2012, it feared that the real concentration was on the immediate task of getting a very quick revenue boost for the State, which was in significant financial difficulty. Is there not a case, on the basis of what the national planning framework says we want to do, to say that we should use tax as a signal in the context of ensuring better development and use of land? A site value tax, in my mind, would do that. I cannot think of a better way to do that, for both commercial and residential land. In one fell swoop, it would provide massive a stimulus towards sustainable development, which is essential for a properly working economy.

Listening to the radio this morning, I heard that construction is not happening in the centre of Dublin. Some companies are leaving the city because we do not have the correct signals in terms of use of our land so that accommodation can be provided in the places that people want it. A site value tax provides that. I recognise that there are administrative difficulties. Ten years ago, people said that we should do it but that it would take time and would not provide immediate revenue. We now have a certain amount of time and we are in a different fiscal position. I am of the view that it should be reconsidered in that light and in the context of the housing crisis, which, to my mind, has been caused by the inappropriate tax signals we have. Yesterday, I met a lady in the café upstairs in this building. It took her three hours to get from Edenderry to Dublin yesterday. I am sure it took her three hours to get home in the evening. We have chaotic transport and land use systems. This is a chance to start getting it right. Why should that be ruled out? The only reason pointed to any of these reports is administrative difficulties, which is not a good enough reason.

Mr. John Hogan

I acknowledge that in the context of Thornhill's original assessment of the site value tax there were certainly some merits from an efficiency perspective. That was acknowledged in the report. However, there were several other guiding principles that informed the recommendation to move on a market value basis. They included simplicity, transparency and equity, and to have regard for what the Commission on Taxation had looked at previously. It was also fed by the international experience. I looked at the Thornhill report again in recent days. It was a very comprehensive assessment of all of the issues that fed into the policy choices that were made in 2012 and 2013 concerning the introduction of LPT. All of those fed into the considerations that were put to the Minister at the time and they were very persuasive.

Mr. Hogan is not going to look at the idea of a site value tax.

Mr. John Hogan

It is ultimately a policy choice for the Minister as to how he wants to re-base or if he decides to move in that direction. I would caution that there has been a very extensive exploration of this issue four, five or six years ago and I am not sure that the circumstances have changed so fundamentally since.

I will be brief, because I have to speak in the House. I am against the property tax. I never saw the rationale for it. I am of the view that it is a regressive tax. I do not expect the witness to agree with me on that.

For the record, facts are important. At the time the property tax was first introduced, there were a number of justifications for it. I have not checked the records, but I am fairly sure it was the case that those introducing it - presumably advised by the Department of Finance - suggested that a property tax would help quell the property market and prevent some of the excesses we saw in the period leading up to the crash in 2008. Can the witness remind us if the Department of Finance actually advised the Government at the time that it would have this impact? I certainly remember that as being one of the arguments that was used.

My primary concern is for the future. There is absolutely no doubt that with a 71% increase in property values since 2013 that we are talking about frightening increases in property tax for huge numbers of people. Has the Department carried out an assessment in terms of the regressive impact on those who cannot afford it? That is one of the primary reasons we opposed it. Has the Department carried out an analysis of the potential regressive impact of dramatic increases in property tax? If I read the paper correctly, 46,000 households have already sought deferrals on the basis that their income is below the threshold. People cannot afford to pay. How many more households would find themselves unable to pay if there was a 71% increase. In order to inform any meaningful discussion on this matter, we need to know that. How many people are going to be impoverished by this because they will simply not be able to pay? If that analysis has not been carried out the Department is not really serious about scrutinising the potential impact of this.

Does the witness know how much is owed by those who have sought deferrals on the basis that their income is not adequate to pay the tax? How much debt liability is being built up by those who cannot afford to pay this regressive tax as a consequence of deferrals? Is there any plan in the review of the tax to discuss the issue of ability to pay? I do not find these discussions about site value and property very interesting, because for me the issue is whether people can pay the tax or not. It is already clear that huge numbers of people cannot. Dublin is full of these people, as are the other urban centres. They are pensioners with miserable pensions, people on social welfare or those with very low incomes who happen to live in properties that have high values. The values of those properties are going through the roof, and the tax that will be levied against them, which is bad now and may be worse in the future, bears no relationship whatsoever with their ability to pay. Has any analysis of this been done? Specifically, can the witness give us figures about how much is owed by that group of people who could not afford to pay?

Mr. John Hogan

On the Deputy's first point, I believe that the rationale and reasons for introducing the property tax were manyfold. I was not dealing with it at the time, so I would have to go back and check the record as to whether the potential effect on property prices was considered.

On the deferrals issue, from the Revenue statistics we have, the 62,000 properties with LPT deferrals in place amount to €61.7 million-----

It is €61.7 million.

Mr. John Hogan

-----in the period 2013 to 2017, inclusive. That figure is cumulative over that time. In the context of the review that we are about to undertake, there were a number of recommendations in the Thornhill report, including the issue of deferrals and how they have been managed and administered and the rationale and reasons behind them. In the context of our analysis of the impact of those recommendations, the issue of deferrals will be considered in detail by the group in due course.

That work has yet to commence though. It will commence next month.

That will be part of the review.

Mr. John Hogan

We will be looking at the whole issue of deferrals and our experience with deferrals over the past number of years by virtue of the fact that we are looking at it as part of one of the recommendations from the Thornhill report

I am sorry for being rude but I have to run across here.

I do not think I have ever seen someone leaving quite like that. I call Deputy Lahart.

I thank the officials for attending and for their presentations. My questions are in no particular order. I represent a Dublin constituency and as the witnesses are aware, there is a feeling in urban areas that they are disproportionately affected by property tax and how it is levied. From the figures provided in the table by the Revenue Commissioners today, I note the yield from Dublin city in 2016 was close to €17 million, in Dún Laoghaire-Rathdown it was close to €45 million and in Fingal, it was just over €30 million. In my own area of South Dublin County Council, it was €26.5 million. As Dublin local authorities accounted for 40% of the overall local property tax take, it would be catastrophic if properties were revalued given that, according the figures cited today, values in Dublin have increased by more than 80% since 2012 and 2013, while nationally figures have gone up by 71%. I am taken by the fact that Revenue needs certain information quite quickly in terms of planning. During the meeting of 12 December, Revenue officials stated that no analysis has been carried out on the impact of property price increases since 2013 on local property tax liabilities and yield if a re-evaluation were to be carried out. No work has been done there. Given that policy decisions will need to be taken in 2018, does the Department intend to carry out such an analysis?

The Chairman and anyone who is a local authority member will appreciate my next question. We have talked about yield, values, and how the local property tax, LPT, is a consistent revenue yield for local authorities. That is true in part but any increase in the income they got and are getting from the LPT was offset by a reduction in grants coming from the Department of the environment. There was no significant net yield and this comes to the heart of the matter. One argument put forward by the former Minister, Mr. Phil Hogan, around the time of the introduction of the local property tax was that it would lead to a significant increase in services provided by local authorities. From my own experience of 17 years as a county councillor, I cannot testify to any significant increase in revenue leading to additional local government services being provided. The local property tax allowed for a reduction by each local authority of up to 15%. No figures have been provided, however, and we could do with the figures on what local authorities have done in that regard over the past four or five years. For instance, how many have reduced it year on year?

While South Dublin County Council reduced it every year by 15%, to my knowledge only a small number of local authorities reduced it by less than 15%. I do not know if any local authority increased it. I, therefore, would love to see an analysis of the exercise of the ability to increase or decrease it by 15% because very few councillors throughout the country will vote for an increase in a local tax, regardless of how it is packaged. When I was a local councillor, each year the chief executive presented to local councillors what the council could get in if the local property tax was increased by 15%. If the officials do not have to hand an analysis of this ability to increase or decrease the tax by 15%, perhaps they could provide it over the next few weeks. How effective has it been or have councils and public representatives essentially felt paralysed in the face of it? The Minister announced a review today but there seem to be mixed signals coming from the Government about this, or there were until today. The Minister for Housing, Planning and Local Government spoke about a radical overhaul and seemed to imply that any new local property tax system would not be based on property value but on a range of other issues.

Another Deputy mentioned the next issue which is very close to my heart. Both the Chairman and I represent the same area and he knows the types of estates about which I am speaking. Older people who are reliant on the State pension are living beside someone in a terraced or a semi-detached house that is worth exactly the same, but the State pensioner is utterly reliant on the State pension while the person next door could have a significant salary, yet they are both paying the exact same property tax. The ability of an individual to pay was never recognised and this needs to be fed into the system. This is testified to by the amount of people struggling with it.

The figures for collection are testimony to the fact that the Revenue Commissioners are the best sheriff in the west. However, some counties are falling a little behind. The Dublin counties are 98% or 99% compliant. Those figures are very high. The same applies to some other counties. When we consider other urban areas such as Cork, Limerick and Waterford cities, well over 50% of the local property tax is being contributed by the urban areas. The officials might explain why some counties are 95% compliant rather than 98% or 99%. Are there data on that?

Mr. John Hogan

The Deputy might forgive me if I respond to his observations in no particular order. On the last one, the issue of compliance is a matter for the Revenue Commissioners. The Deputy is right that there are small variations in terms of compliance across different local authority areas but the overall compliance figure of 97% is a very effective rate across the board. Perhaps some of the reasons some local authorities seem to be lower rather than higher may be something that we would look at in the context of the group announced by the Minister today. On the variations, I have to hand a table which gives some detail-----

Have we got that?

Mr. John Hogan

No, I think it was in a different presentation. However, we can furnish it to the Deputy.

Mr. John Hogan

It will give a sense of the situation. In 2016, there was a variation by Cork City Council of minus 10%; Longford County Council, minus 3%; Louth County Council, minus 1.5%; Monaghan County Council, minus 7.5%; Clare County Council, minus 15%; Cork County Council, minus 5%; Dún Laoghaire-----

It is available in the Parliamentary Budget Office briefing as well.

Mr. John Hogan

I will not read it out so. There is an opportunity for the committee, however, to review some of the issues that arose.

On ability to pay, part of the rationale for the deferral option was to recognise that there may be circumstances where individual householders were not in a position to pay. They were given another option to address their liability at a later stage.

On other issues more generally, Deputy Lahart alluded to the fact that the local authorities in Dublin and other urban regions contribute the highest proportion of the local property tax. To a certain extent, given that they are the highest areas of population and house prices are of the highest values in those areas, that is to be expected.

The Deputy has alluded to concerns over how this may unfold over the revaluation period. Part of the rationale for the Minister putting the group in place is to look at the options he can bring forward for consideration by his Government colleagues in good time and in good order. The Revenue Commissioners referred to some timing issues and, as participants in the group, they will be well informed as to the constraints that there are in adjusting the approach to the administration of the tax. Systems have to be altered in some way, tested and in place in good time for the introduction of whatever new arrangements are being put in place. We are conscious of those challenges for our colleagues in the Revenue Commissioners and we do not want to compromise the 97% compliance rate by the changes we make.

As we are not doing a separate section on commercial stamp duty, I ask members to put any questions they have on that issue when they contribute.

On the question of inability to pay, the people on the ground, particularly older people and those on State pensions who live in their own homes, tend to mind their budgets and the idea of deferring a debt until the sale of their house after their death is anathema to them. That is a significant issue.

What yield does the Department want from LPT?

Mr. John Hogan

Ultimately the decision on yield is a matter for the Minister. Over the past number of years the yield has been reasonably stable, at between €470 million and €500 million. It makes a significant contribution to overall tax revenues.

As the anticipated review has been frozen, what measures can be taken if there is not to be an increase that reflects the existing bands? What measures can be taken that do not allow disproportionality to arise? How are new properties valued? Are they valued in a fair way, especially in urban areas where property prices have gone through the roof?

Mr. John Hogan

These are key issues which we need to look at as we examine where we go with local property tax, LPT. Ultimately, the LPT is a mix of three things. First is the overall yield, the second is the appropriate rate and the third is the base. If we include properties that have been exempted, the base broadens. The question of yield is for the Minister to determine in the context of the role he wishes local property tax to have in the overall contribution to State revenues. In a committee meeting with the previous Minister for Finance, he articulated the three factors that were in play and made his adjustments on the basis of them.

The middle-class areas of Ballycullen, Firhouse and Knocklyon were valued in 2013 and put into particular bands. In the past year, 100 new houses have been built and will be brought into the system but they will have a value of twice what their neighbours were valued at in 2013, despite being the same size etc. How does that fit into the equation involving base, rate and yield?

Mr. John Hogan

This is about the impact additional properties have on the system and understanding how valuations created now stand against other valuations. This is one of the challenges we will have in our work in the coming couple of months.

I am concerned because some of the questions I was going to ask, and which Deputy Lahart asked, are going to inform the workings of the new interdepartmental group. Will we be extending the base to houses that are currently exempt and how will we implement that? What will happen in the event of a revaluation or if the decision is taken to maintain the freeze? I presume the Minister will have to decide where he sees all this going in terms of yield. If he decides to maintain the current amount being brought in via LPT, how will it fit into the work of the working group?

Mr. Hogan said the interdepartmental group was set up to inform the Minister of various policy options and he stressed maintaining stability. I presume this is to ensure compliance rates do not decrease with increases in the amounts being charged or a variation of bands. It comes back to a political decision for the Minister over how much revenue he wants to raise. Does Mr. Hogan agree that a decision on how much we want to raise would provide the starting point for an interdepartmental working group, and that we would then look at how we could achieve it? The briefing document of the Parliamentary Budget Office considers a number of options, one of which was revaluing and adjusting rates locally to maintain the current LPT yield. If that was to happen, would it not mean those who would potentially pay more will pay less while those who are paying less now will end up having to pay more?

As regards the 0.25% surcharge on properties over €1 million, if the freeze was lifted do we have any estimate of how many properties would fall into that category based on the increase in property values? Mr. Hogan may not have the answer but perhaps he could forward it to us at a later stage. We met Revenue before Christmas and its representatives said there was no consultation with the Department before the stamp duty measure was introduced.

I wonder whether that is correct. Can Mr. Hogan confirm that the Department did not seek any consultation with Revenue or that no discussions of this particular proposal with Revenue took place?

Mr. John Hogan

I thank the Deputy for several detailed questions. I will begin by addressing the question on the potential yield from the local property tax, LPT, and what the starting point is. I do not want to pre-empt the direction in which we take the work of the group. However, it would probably be useful for the group to work on understanding the implications of various options and their impact on yield. I am not quite sure that it is necessary for the starting point to be a very firm ministerial direction saying that the LPT should deliver €400 million, €500 million or €600 million. It would be much more helpful for the Minister to be able to understand the options for LPT and their implications for yield. Our initial work in the group may well involve looking at those implications.

I presume this work would also examine the impact of changes to the regime on deferral rates and ability to pay.

Mr. John Hogan

All of those considerations would come into play. The additional data from Revenue on the extent of deferral options will be important to the group's analysis. On the separate question of stamp duty, the issue of the Minister's consideration regarding the potential outcomes of changes to stamp duty was assessed. There was interaction between the Department and Revenue. This takes place at all levels, particularly when options are being prepared for the Minister's consideration as part of the budgetary process.

I think the Revenue official who came before the committee said that his account was as far as he could recall. However, we are fairly clear that we had quite a bit of interaction with Revenue throughout the summer, on stamp duty and on other measures that could have been taken as part of budget 2018. That is part of the natural discourse that we have with Revenue as we build our information resource to help the Minister make budgetary decisions.

The pre-budget ready reckoner produced by Revenue was available from mid-July onwards. That gave an indicative number of €94 million raised per 1% increase. Often when we look at policy options to put to the Minister the background to a number such as that will be part of our dialogue with Revenue. More generally, we discuss whether there is some scope for increasing or reducing a figure because of the potential impact of that on yield and the available fiscal space.

Throughout our discussions of the Finance Bill, there was quite a lot of interaction between the Department and our Revenue colleagues. We discussed the change to commercial stamp duty and the associated legislative provisions that were needed to give effect in the budget to that decision by the Minister.

The representative from the Revenue stated that to the best of his recollection, there was no consultation with the Department on this measure. Mr. Hogan is now saying that there were conversations on it and on other measures throughout the summer.

Mr. John Hogan

Yes.

Mr. John Hogan

One of the innovations and developments in the budgetary process over recent years has been the much earlier publication of the tax strategy group, TSG, papers. This may have originated in a suggestion from this particular committee. The tax strategy group now meets in July and throughout the summer. It is chaired by officials from the Department of Finance. We look at a range of options that may arise in the context of different tax measures. Stamp duty was one measure included in this year's TSG papers, and perhaps those of last year. Putting those documents and figures together involved conversations between teams at different levels in the Department of Finance and the Revenue Commissioners.

Would the witness not concur with the view that putting this in the budget was a very last-minute decision?

Mr. John Hogan

As I have mentioned, it was signalled as a potential policy option as long ago as July 2016.

I had one other question. I do not know whether Mr. Hogan has the answer. It concerns the surcharge on properties valued at over €1 million.

Mr. John Hogan

I apologise, Deputy O'Brien asked me about this. We do not have the information on the implications of that to hand at the moment. We certainly must undertake an exercise to match property price movements against the different scenarios. As we explored earlier, we will examine the options as to where the LPT can be taken from here. There are considerations that may help the Minister to ultimately reach his decision on it. That deep-dive analysis, examining the potential impact and the number of properties passing the threshold of €1 million, is detailed work we have yet to undertake.

Finally, in regard to the upcoming review, did the witness mention a date at the end of August?

Mr. John Hogan

As matters stand, our current planning horizon is that the work will begin in the next month and the group will be in a position to finalise its report to the Government by August. Notwithstanding Deputy Lahart's earlier comments, it is helpful to note the planning that is necessary for Revenue to introduce any changes in the system. We fully understand that. However, it is also important to note that whatever decision is taken on revaluation around 1 November 2019 will not apply to the 2019 LPT charges but to those from 2020 onwards.

I will have to leave in the next few minutes. I have asked Deputy McGrath to take the Chair. I have one very quick question I wish to ask before I depart. Of the local authorities that are in surplus on collection of the LPT, does Mr. Hogan know whether there is a discretionary figure available to them? The Parliamentary Budget Office, which has supplied us with some excellent information and has done great work for the committee, has provided a figure. My understanding was that there was about €63 million in extra funds for local authorities that are in surplus on the LPT. Is that something on which the witness can comment?

Mr. John Hogan

I apologise to the Chair. We do not have that information to hand.

To clarify, there was no extra funding available. However, is there extra funding for the local authorities that are in surplus?

Mr. John Hogan

I apologise to the Chair. We do not have that information.

Very well.

Mr. John Hogan

Would the Chairman mind if we went away and tried to obtain additional information in respect of that matter?

That is no problem.

Mr. John Hogan

It may be an issue that is better addressed by our colleagues in the Department of Housing, Planning and Local Government.

There is a 97% compliance rate in respect of the tax. Are there benefits to keeping a review as tight or minimal as possible? Should what has been announced enable a full reopening of the discussion, as indicated by other Deputes? Does the Department have a view on the matter? Can Mr. Hogan comment on it?

Mr. John Hogan

The parameters under which the property tax will operate always remain a policy choice for the Minister for Finance. Earlier, I reflected on some very good work done by the initial Thornhill group and then by the second Thornhill iteration. We think that many of the issues have been explored in terms of the two exercises that were conducted in 2012 and 2015. Indeed, when I look at the 2015 Thornhill report, a number of the options remain live in terms of the choices that we and the Minister have regarding what happens with the revaluation exercise.

In terms of the additional recommendations of the Thornhill group, the Government at the time adopted two of the 13 recommendations. Another 11 recommendations will be the subject of more in-depth analysis by the review group in the coming weeks and months. That will form a very central part of our work as we move forward and make those recommendations to the Minister post-summer.

I thank Mr. Hogan for his comments. I apologise for the fact that I am unable to stay until the end of the meeting. Deputy Michael McGrath will take the Chair in my stead.

Deputy Michael McGrath took the Chair.

The interdepartmental group will conduct a review and issue its report to the Minister by August. What are the group's terms of reference?

Mr. John Hogan

I think the broad terms of reference are contained in the Minister's press statement and I shall ask my colleague, Mr. Nolan, for a copy. The press statement reads:

The purpose of the review will be to inform the Minister in relation to any actions he may recommend to Government concerning the overall yield from LPT and its contribution to total tax revenue. The review will be informed by the desirability of achieving relative stability, both over the short and longer terms, in LPT payments of liable persons.

The review will be conducted by the end of August and the group will provide a number of policy choices. In particular, the review will look at the impact on LPT liabilities of property price developments. It will include an examination of the outstanding recommendations of the 2015 Thornhill review of LPT. In terms of the focus, it will primarily involve those two aspects, namely: where LPT may go as a result of the impact of property prices and examining the outstanding recommendations from the last Thornhill review in the context of how they could and should be implemented. It will also involve identifying policy options. The Department will also engage in a public consultation process. We will try, in so far as is possible, to inform ourselves about the different ideas that exist in the context of the implementation of the recommendations in question. We anticipate that the public consultation process will form an important part of our early deliberations through the course of the review.

The outstanding recommendations in the Thornhill report are quite straightforward. It is more the issue of property prices and the sudden shock many households across the State will face in 2020 when the revaluation freeze comes to an end. Many households will move up not only one band but multiple bands, which will cost hundreds of euro per annum to those households.

The Department cannot steer policy so obviously it will have to second-guess what the Government wants. The Government does not want a sudden shock. It does not want what was actually originally envisaged, namely, a local property tax aligned with valuations. The Department will probably speculate as to what would happen if the measure remained as dictated under the legislation and provide examples regarding what would be the impact if certain actions were taken. Am I correct? Will the Department state what will happen when the freeze ends and revaluation takes place in 2019? Will it outline the impact on certain cohorts? Will it outline the options available if the Government reduces the impact of the revaluation date in 2019?

Mr. John Hogan

I have covered some of that ground with the Deputy's colleague. The 2015 Thornhill report outlined a series of potential options that could be taken as a next step. Some of those options remain valid even at this stage. Over the next number of weeks and months, the interdepartmental group will consider the potential impact so that the Government can be best apprised of the potential impact of changes having regard to the movement of property prices. I hope my explanation has been helpful.

I understand from where Mr. Hogan is coming. From the point of view of the officials, the Government has signalled that, to a certain extent, it no longer wants what it originally introduced. Sinn Féin warned the Government about what would happen if a local property tax was introduced. In my view it is not a property tax but I shall not rehearse our arguments about what constitutes a property. Sinn Féin believe that the Government introduced a tax on the home. Introducing the tax at the bottom was always going to mean we were going to face this situation. At the same time the Government introduced the legislation in 2013 reports had been completed on how house prices would develop over the next ten years. They predicted what we are seeing at present, namely, a substantial increase. The Government no longer has the troika to blame and is thinking, "By God, if we do this to the people of Dún Laoghaire then maybe some of our ministerial colleagues might not be Ministers anymore." That is the reality that one is faced with, which makes a mockery of the legislation. The problem is that the Government froze the three-year option and now there will be a six-year bump, which people will not accept.

What type of work will the Department undertake? Will it extrapolate on data supplied by the Revenue Commissioners? Will it share information with this committee when the report has been completed? Is the report for the Minister's eyes only?

Mr. John Hogan

When we get our work under way, it will become easier for us to identify the different staging points over the next number of months by which time we will have completed different aspects of the work. We will use the information that is available from the Revenue Commissioners and consider property prices. We think that the consultation exercise will also, as I mentioned earlier, give us different insights and information. However, it is a report for the Minister in the first instance. I am also conscious that this committee is compiling its own report and analysis, which will be very helpful and feed into the work what the Department is about to embark on. From all of those aspects and perspectives, the work that we are about to embark on will be best informed by a variety of sources and a variety of data points and entries.

Will the Department consider the fact that the tax or charge has been levied on people who are in negative equity and mortgage arrears? Some people who lost their houses in the past couple of years were subjected to the mandatory deduction of this tax as sheriffs knocked on their doors and took the keys to their houses.

Mr. John Hogan

I shall not comment on particular aspects of that. Within the Thornhill report there is one recommendation that is associated with households in mortgage distress.

As we look at that particular recommendation, we will be mindful of the particular circumstances of those households in difficulty.

On the deferrals, obviously there are no exemptions for the classes of individuals that I have identified. There are some exemptions but not for genuine householders. There are deferrals with interest rates that were quite punitive. What are the interest rates again? Are they still 4% and 8%?

Mr. John Hogan

It is 4%.

And 8% if there is non-payment?

Mr. John Hogan

If it is deferred and it is not paid, it is 4%-----

No, deferral is if a person is actually one of the poor in society and is able to avail of the deferral. For those-----

Mr. John Hogan

If a person is subject to penalty interest from the Revenue in the normal course of events, I think the rate is 8%.

Does Mr. Hogan have any view on the 4% when we look at the interest rates that are prevailing at present? The deferral is something to which a person is legally entitled. Not only must that money be provided at some point in the future but there is also an interest rate of 4%. No bank in the State will provide a person with a 4% interest rate on any savings.

Mr. John Hogan

As it is 4% on 0.18% of the valuation of the property, it is quite a modest amount. As we see property prices increase, that does represent a factor in the whole consideration. When we embark on our work around the deferrals, there is a range of issues at which we, quite rightly, will need to look. Informed by the data that Revenue has available to it, these issues may well form part of our work.

Has Mr. Hogan any idea how many new homes will come under the local property tax once the new evaluation date kicks in 2019? Obviously, new-builds are exempt from it. How many new home properties are we looking at?

Mr. John Hogan

I think the number we are looking at is based on new ESB connections over that particular period. It is of the order of, and my colleagues will confirm this, 62,000. If the Deputy does not mind, we will check that and I will give it to him as soon we have it. I thought it was in the region of 60,000. If the Deputy has another question, I will take that.

Mr. John Hogan

It is 61,830, so close to 62,000 ESB connections from May to November 2017, according to figures from the Department of Housing, Planning and Local Government. We will be looking at that in more detail as part of our deliberations.

The Department is using that dodgy way of calculating new houses, which are the ESB connections. I thought the Department of Finance was a bit better than the Department of Housing, Planning and Local Government. Mr. Hogan is making me sweat over here now, with the Department of Finance using the-----

Mr. John Hogan

That is why I said we use them as an indicative number.

That is fair enough.

Mr. John Hogan

That is okay.

Obviously, just using that, it is 62,000, and possibly more, until last year. With two more years of new connections, there is probably in the region of 80,000? Is that correct?

Mr. John Hogan

Sorry, the number I am looking at here is 61,832 ESB connections from May 2013 to November 2017.

Yes, but during the-----

Mr. John Hogan

Sorry, yes during the course of the year there will be additional stock coming on stream.

We are talking about anything up to 80,000, bearing in mind the way that the figures are being calculated. Anything up to 80,000 or 90,000 properties that are exempt at present from the local property tax will incur a first charge in 2020.

Mr. John Hogan

That could well be the case, depending on the activity in the building sector over the next number of months.

The other issue then is the stamp duty. I was interested in Mr. Hogan's opening statement. I was reflecting on it with the Revenue's post-budget ready reckoner, which showed a €2 million increase on the 0.5% rate for commercial stamp duty. He makes the point in his opening statement that "We are advised by Revenue that, adjusting for possible one-off transactions in 2016, receipts in the three-year period from 2014 to 2016 were quite stable and Revenue's assessment is that it seems reasonable to expect this level of activity is sustainable and for it to continue." How long does the Department expect the €9 billion of commercial property transactions to continue? I refer to it because that is what this is based on.

Mr. John Hogan

I think that the Revenue officials would have taken the committee through their calculations in some detail when they appeared here before Christmas. Certainly, the advice to the committee, as was the advice to ourselves, is exactly along those lines. Stripping out once-off transactions, there would be quite a stable base going forward over the next number of years. Even the commentary from the industry over the Christmas period and into the early part of the new year has been quite upbeat in terms of the plans for further development in the sector over the next number of years. Having regard to all of those factors, our expectation is that Revenue's approach to this has been based on solid analysis and will help us fulfil our target for stamp duty for this year.

I will revert to the question. How long does the Department expect it to continue? Mr. Hogan's statement says "it seems reasonable to expect this level of activity is sustainable and for it to continue". How long is it expected to continue? Is it that we will get over 2018, we will have €9 billion of property transactions, we will meet the target and it will then drop back to what it was prior to the three years which Revenue is using to calculate it? In 2013 the level of commercial property transactions was half what is was in 2014. Then 2014, 2015 and 2016 remained stable, when one-offs were stripped out. I am not sure of the final figures for 2017. How long does the Department expect that trend to continue?

It has been stated to be sustainable and for it to continue. In the Department's view, which I am sure accepts Revenue's view, how long do we expect this? The reason I ask is that while it will be okay if we hit the figure this year, if there is a drop off - as there was in 2013 - then half the base is gone. It is quite interesting because, in the last conversation about the local property tax, one of the big arguing points the former Minister for Finance had at that time was about commercial stamp duty and over-reliance on it. In his opening statement one of his major gambits was that we needed a more stable base rather than relying on 9% commercial stamp duty. It is quite interesting that these two subjects are sandwiched together. How long does the Department of Finance expect us to have €9 billion of commercial property transactions annually? That is the figure that needs to continue to be achieved to be able to bring in the type of revenue that is suggested would come in annually from this increase.

Mr. John Hogan

I do not think we have a precise timeframe as to how long we expect this to continue. However, on the basis of Revenue's analysis provided to us, it certainly seems robust and substantiated over the next year or two. Obviously, all of these things remain under review. Our colleagues who look at the tax forecasting will be building into the longer term what they consider to be the movement in the commercial property sector. That will be informed by what seem to be quite robust forecasts from the commercial sector as to what its expected outputs will be over the next number of years. We had a very upbeat forecast from Lisney today on the way it sees the market unfolding. Demand for commercial property, particularly in urban areas, seems to be quite strong.

There is some confidence around the ability of this level of activity to continue but obviously we are mindful that we do not want to see a return to a situation where we are overly reliant on transaction based taxes to fund our revenues more generally. The 2% rate was quite low. We are now at a level where we would have been previously. My colleagues can correct me if I am wrong but I think the 6% rate was applicable at an earlier stage of the process.

I agree 100% with the rates. I have no problem in that regard. I believe we should have done this last year because in my view there is a bubble emerging in commercial property, particularly around Dublin. The amount of commercial property that has flipped over the last number of years is unbelievable. It amounts to one third of the centre of Dublin. There is potential for over-heating in this area, as outlined by the Department of Finance in its tax strategy paper. I agree with the rate increase.

Mr. John Hogan

The budget documentation contained a specific paper alerting people to the risk that may be emerging from activity in the commercial sector.

That leads me to the following point. To achieve the revenue identified in the budget document, there would need to be €9 billion worth of commercial property transactions. It is expected that this level of activity will continue into 2018. Is the Department of the view that it will continue not only in 2018, but in 2019 and 2020? If it is, I am a little worried because I believe there is overheating in the commercial sector. This increase in stamp duty is not about tax increases, rather it is about trying to slow down what is happening in this sector. If what is happening remains constant, then this measure is not having the desired impact. This is not just about the buildings or offices being constructed but the sharp increase in value in commercial property, which was at the core of our banking crisis. For that reason, this is important. Does the Department of Finance expect that level of activity to continue beyond 2018 to 2019 and 2020 and, if so, how does that sit alongside the concerns identified in the tax strategy papers the year before last regarding the need to view this as a policy option to try to cool down what is happening, particularly in the Dublin area?

Mr. John Hogan

The considerations of the Department are informed by the projections given to it by the Revenue Commissioners and the views of the economics team within the Department on how the commercial property market is unfolding. We are informed by the inputs from the sector, including its indications of its development over the next number of years. On the basis of what has been provided to us by Revenue we believe that it is sustainable into 2018 and beyond. How far beyond remains a matter of conjecture at this stage and we will be keeping a very close eye on this, particularly mindful of continued reflections as to where the market is going and the risks that may be and have been identified by ourselves in terms of the implications of this for the revenue yield and the overall property market.

Most of my questions have been answered. On the review announced today by the Minister, will there be formal terms of reference?

Mr. John Hogan

The Minister's statement outlines the broad order of what we will be looking at.

It sets out the overall direction of the review.

Mr. John Hogan

Yes.

The key line in the Minister's statement is that the review will be informed by the desirability of achieving relative stability both over the short and longer term in local property tax, LPT, payments of liable persons. Am I correct that the objective is to keep the LPT bill broadly the same? How would Mr. Hogan define "relative stability"?

Mr. John Hogan

This notion of relative stability has been at the centre of how this tax has been created over the past number of years. The intention has been to create that stability over the short and longer term. There has been stability over the past six years in that the actual level of tax in that period has not moved. It is incumbent on us to review our learnings from the LPT over the past number of years, acknowledging that there is a very high compliance rate with it. It has a very strong contribution to make in terms of the funding of local services. Property tax is internationally recognised in the OECD hierarchy as being very positive in terms of promoting growth in jobs and so on. It is very difficult for me to be drawn at this stage on the outcomes of our deliberations over the next few months.

I take it there is a recognition that doing nothing is not an option because that would not deliver relative stability in view of the property price increases we have seen.

Mr. John Hogan

The revaluation date of 2019 in time terms is still some way off. People need to understand that it will not affect them in 2019. It will be from 2020 onwards that this kicks in, which provides us with an opportunity to review the recommendations of the last Thornhill group report to see what additional options or amendments could be introduced in terms of how the tax is administered.

From my reading of it, the focus is on maintenance of relative stability taking into account the recommendations of the Thornhill group which have not been implemented. As such, the suggestion of LPT being based on square footage and site value would not appear to be within the scope of my understanding of the statement made today.

Mr. John Hogan

That would be a policy issue for the Minister to give the group wider guidance on. As I mentioned earlier, there was extensive analysis in the original Thornhill report of the particular options around the introduction of a local property tax, LPT. I am not sure that we need to be revisiting those options at this stage.

On the currently exempt properties, all new and previously unused properties bought since January 2013 to October 2019 are exempt and similarly any property - in other words, not only new property - purchased in 2013 are exempt. The current estimate in respect of new and previously unused properties is of the order of €62,000. What is the cut-off point in this regard?

Mr. John Hogan

November of last year.

If one divides the €470 million in LPT receipts by 1.9 million properties, the average LPT bill is approximately €250, which means the estimated additional revenue if this exemption is not renewed will be between €15 million and €20 million.

Mr. John Hogan

The Deputy is correct.

On deferrals, while the number of exemptions is stable, the number of deferrals increased substantially in 2017. If my reading of the table provided to us by the Parliamentary Budget Office is correct, the sub-category, being those below the income threshold of €46,000 to under €60,000, increased from 48,000 to 62,000. That is a fairly substantial spike in the number of deferral applications under the heading of households below the qualifying income threshold. Would Mr. Hogan like to comment on that?

Mr. John Hogan

The issue of deferrals is one that we will be looking at in the context of the deliberations of the group. Does my colleague, Mr. Nolan, have any more insight on the issue?

Mr. Kevin Nolan

Not really. It is a really a question which would be better posed to our colleagues in Revenue who would have the data in front of them. I know there is also a cumulative aspect to the thing. Persons who have deferred in previous years will probably be deferring for later years as well. That may go some part of the way towards explaining it but I think the most useful thing we can do is to forward that question to Revenue.

It was 41,000 homes in 2014, 41,000 again in 2015, 48,000 in 2016 and then 62,000 in 2017, so there was a significant jump. We will explore that further. I have one final question on the issue of stamp duty. There were a few questions on this from Deputy Pearse Doherty. As it is a transaction-based tax and an extra €376 million has been factored into the budget from the 4% increase, is there any concern at a policy level within the Department of Finance that spending commitments or tax reductions are being built on a foundation that includes a significant increase in a transaction-based tax? That sum of almost €400 million is a key part of the budgetary arithmetic and it is transaction-based. That was one of the key criticisms of fiscal and budgetary policy in the lead up to the crisis. It was on a different scale but it is the same principle.

Mr. John Hogan

In the context of assisting the Minister in framing his budget, in light of all of our experience with transaction-based taxes in recent history, we are clearly mindful of the dangers posed by them. We are, however, assured by the analysis of our colleagues in Revenue and, looking at what we are seeing in the industry at the moment, there is a feeling in the Department that this is sustainable and that the Minister has a strong basis to include it in his budgetary arithmetic.

I thank Mr. Hogan. We are concluded. Unless Deputy Colm Brophy wants to resume the chair I will conclude.

No, I will leave it to Deputy McGrath.

I thank Mr. Hogan and the other officials from the Department for attending and I acknowledge their contribution to the discussion. It will help the committee to prepare ex ante and ex post scrutiny reports on the topics discussed. As there is no further business that concludes our proceedings for today. We will meet the Minister, Deputy Paschal Donohoe, to discuss the rainy day fund on 31 January.

The select committee adjourned at 5.55 p.m. until 2 p.m. on Wednesday, 24 January 2018.
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