Central Bank economists have defended property taxes such as Local Property Tax and Residential Zoned Land Tax as stabilisers that reduce house price volatility.

An economic note, Recurrent Property Taxes and House Price Risks, makes the case that recurrent property taxes can play a positive role in promoting more stable growth in house prices over time, complementing the role of macroprudential policy such as mortgage borrowing restrictions in promoting wider financial stability.

Revenue from property taxes, as a proportion of national income, is lower in Ireland (0.2%) than the OECD average (0.8%), according to CBI economists Martin O'Brien, David Staunton and Michael Wosser.

Their paper notes that unlike revenues from income tax and corporation tax, which fluctuate with the economy, revenues from recurrent property taxes tend to remain stable due to frequent revaluation of properties and the use of valuation bands for calculating tax liability. 

The authors suggest this means that such taxes would provide a stable source of income that is less likely to be affected by the economic cycle, assisting governments that might otherwise be challenged by constrained growth and public finances that may already be under pressure.

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The government last year increased the scope of Local Property Tax to include homes built since 2013 while making changes to some of the bands in a move that was expected to raise a further €500m.

LPT as a share of tax revenue has been between 0.5% and 0.7% since 2014, during which time property prices have more than doubled, due to the fact that LPT, until this year, was calculated on the basis of May 2013 valuations, made just two months after a crisis-era low.

A reduction in the LPT rate and the change in valuation bands will offset the increase in overall yield from the changes in valuations, but the value of LPT receipts is still expected to increase in 2022.