SoSaturnistic: reflections on the Executive’s new tax reforms

an editorial by SoSaturnistic

In recent days I had the pleasure of introducing the new Site Value Taxation Bill to Stormont to actually implement the longstanding commitment by political parties to start shifting the burden of taxation towards the unimproved value of a given property’s site and away from improvements on those sites. It represents the culmination of an ambition stated by many Finance Ministers prior to me and is the resolution of a personal pledge made during the past Assembly election on behalf of the Social Democratic and Labour Party to see that this Assembly mandate would truly be the one to have this tax rolled out at both the level of the Executive and that of councils.

Within my party, the idea for bringing forward this tax change was latent when it became apparent that the previous Executive was not going to implement this oft-repeated promise despite the keen interest for it from the then leader of the Alliance Party, u/CountBrandenburg. The rates system is no joke and for the casual observer it may even seem somewhat alien, so with this in mind it is understandable that past Executives have been unwilling to touch it.

Yet despite all this, the idea gained a new significance when the previous Executive’s budget delivered the same subpar levels of investment for basic public services like health, education, and the justice system that has been seen for the past several years; this was a point highlighted by both myself and by the erstwhile Green Party at the time. In the context of such lacklustre investment and an inequitable block grant foisted upon us by the major London-based parties, it became necessary to develop creative and innovative ways to find the revenue and savings to ensure that our society can continue to enjoy high-quality public services in the years ahead while ensuring that there was still fairness within the tax system.

With income taxes and other conventional forms of progressive taxation almost entirely reserved to the Westminster government, site value-based rates stood out as one of the few vehicles for ensuring that our social needs could be met within the constraints of the current devolution settlement. Deprivation indicators are much more strongly negatively correlated with the site value of a property than they are with the basis of the current rates system. This ensures that there is a stronger element of fairness in the one substantial tax under the control of the Assembly should regional rates be transformed into a site value rate system.

A fairer tax, this one is also much more economically efficient than the current system of rates as it taxes the fixed supply of land rather than the value of improvements, which can be modified in terms of supply. It is for this reason that at the turn of the last century whole mass movements of people worked to see this tax implemented to grant relief and social security to a wider range of people; across Ireland, the struggle for radical land reform was associated with such movements. While the prominence of these “Georgists” has fallen away with time, their fundamental policy has lived on and is now supported by a number of prominent contemporary economists which span the ideological spectrum. The idea that a redistributive tax exists which also fails to generate economic welfare losses in the short-run is powerful.

It’s all well and good to talk of theory of course, but in terms of practical impact the tax change becomes much more impactful. For two-thirds of households, a revenue-neutral shift will leave ratepayers better off than the status quo according to an analysis from NICVA. This is of substantial benefit to households who have long had to bear the burden of a broken domestic rating system. When it comes to non-domestic activities, manufacturing is an area of interest; the current system of rates creates a number of inefficient and complex industrial reliefs. By adopting a site value-based rating system, we move beyond the need of such reliefs and ensure that plant machinery is simply not rated. This will make it easier for manufacturers to switch to more highly-valued and more clean equipment for their industrial processes while also facilitating employment in this sector of our economy.

This tax is no panacea of course. It will not magically solve the problems that exist in society. Yet I believe that, on balance, this change will do a lot of good not only in its economic and social effects but in terms of building trust with the public. It is no secret that Stormont has struggled with public disaffection from time to time, so perhaps delivering a long-held promise will be a good step towards rebuilding and reshaping the bonds between the public and their elected officials.