Magazine article Public Finance

Property Tax Isn't Theft

Magazine article Public Finance

Property Tax Isn't Theft

Article excerpt

The chancellor's Pre-Budget

Report is a fragile early Christmas present for council finance directors. On the one hand, it probably contains extra goodies and interest; on the other, it can mean more work putting together the pieces. The normal demands from local authorities for extra revenue support are likely to be answered by the Treasury in the wider context of Sir Michael Lyons' megainquiry into the role, functions and finance of local government.

Chief of the major political issues to be addressed are the genuine problems faced by capital-rich but cash-poor pensioners - the section of the population who prompt the biggest political predicament for local government finance. This is something with greater resonance than how to solve the perennial 'balance of funding' dilemma.

Retaining a local property tax as the basis for a large chunk of council revenue is by far and away the most fair and sensible approach. As well as offering a predictable and measurable foundation upon which revenues can be planned and collections almost guaranteed, taxing property is also a progressive and socially equitable way to raise a local levy. Yet two main changes are required.

Council tax reformers should look first at how to improve council tax benefit. For those whose routine income is too disconnected from the relative worth of the capital asset in which they reside, this benefit has traditionally been the means of sweetening the bitter pill. But it has a worse take-up than any other benefit, offering nothing to those with quite modest savings.

New technology, if properly executed, is capable of administering complex personal financial arrangements and, notwithstanding the overpayment difficulties encountered in the existing tax credit systems, the time is ripe for a 'local tax credit'.

The integration of tax and benefits is the cornerstone of a 'progressive universalist' approach, and the obvious next step is to integrate with local tax rates in a more personalised, considerate way. If a pensioner's income (or indeed anyone else's) is unable to stretch to the local property tax, it can be supported by an offset of their income tax on a phased and tailored basis.

A local tax credit would be a fairer way of helping those in this predicament, and would overcome many of the political obstacles so corrosive to council tax at present.

The second change is to improve the progressive nature of council tax. If personal income issues are taken better account of through a local tax credit, then the unfairness of the current banding structure stands out more starkly. …

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