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Ireland's political and cultural magazine
46 February/March 2024 February/March 2024 47
During the Great Recession, 22% of total
government spending cuts were to local
government budgets
I
reland is one of the most centralised
countries in Europe. As a result, our local
authorities are pitifully weak.
Across the EU, the average proportion of
taxes collected locally is 18% of total
government revenue. In Ireland the fi gure is 3%.
Less than 10% of Ireland’s total government
budget is spent at the local level, much lower
than the 25% EU average.
While local authorities have been relatively
powerless for many years, the last recession had
a particularly harsh impact: 22% of total
government spending cuts were to local
government budgets. Research from NUI Galway
shows that Ireland experienced the largest
reduction in local government expenditure in the
European Union from 2008-2015.
One result of excessive centralisation is that
our capital is not fi t for purpose. That is the
default view among business leaders as well as
many councillors and citizens.
In 2022, the Dublin Citizens’ Assembly voted
in favour of creating a new role for an elected
mayor with wide-ranging responsibilities and
powers including that to raise taxes. Press
reports have suggested that the citizens of
Dublin may get to vote on the matter as soon as
June this year.
Meanwhile, many commentators have
expressed their support for the mayoral reform,
with the provision that it must come with
appropriate decentralised powers and
responsibilities. Of these, ensuring that the
mayor’s budget powers and processes are fair
and transparent is critical. As highlighted at the
Citizens’ Assembly, in local government, “fi nance
follows function”.
What does that mean in practice?
In recent years, many developed countries
have decentralised public services in an e ort to
promote e ciency and accountability.
Decentralisation has often occurred in local
spending, but less often in local revenue
processes. In other words, many local
governments still remain dependent on handouts
from central government. In theory, this grant-
based relationship could cause ine ciencies or
overspending. While there are some examples of
this happening in developing and authoritarian
countries, evidence of this in the EU and other
developed countries is lacking.
Indeed there are two reasons why
intergovernmental grants from national to local
governments aren’t just necessary, but desirable.
First, some of the government’s biggest
MAYOR MAY NOT
To make the proposed elected Mayor of Dublin
work for Ireland: focus on the fi nances
By Sebastian Tozer
revenue raisers – like Income, VAT and
Corporation. Tax – are more e ciently and
progressively collected by central government.
Second, one of the main arguments for
decentralisation is that it can improve
accountability as Councillors are closer to their
voters.
Of course, those same Councillors are not
accountable to voters outside their jurisdiction.
But what happens when the Dublin economy
spills over — as it long has, a ecting neighbouring
counties, and disbalancing regional development
as a whole? Politicians in the capital have no
incentive to maximise (or minimise) these
spillovers, because they are not accountable to
voters outside the city.
So there is a case for national government to
step in for the wider benefi t of the entire country.
While intergovernmental grants are a necessity
for local government to function, like many grant
programmes they have the potential to distort
POLITICS
46 February/March 2024 February/March 2024 47
incentives for both the funder and funded – in this
case, the Department of Finance and the mayor’s
oce. For the Dublin reform to work, the Dublin-
Dáil budget relationship needs to be transparent
and as safe as possible from such distortions.
The capital’s four Councils are the most fiscally-
independent authorities in Ireland. They are less
reliant on central government grants than other
parts of the country are, although those grants
still make up about a third of Dublin’s budgets.
The rest of the city’s revenue comes from
business taxes, which are comparatively high;
goods and services provision, such as transport
revenue; and Council rents etc which are less
subsidised than international peers’. Dublin
Councils have historically preferred to focus on
these as their main revenue sources, minimising
property taxes because they directly aect edgy
voters.
Moreover, when property taxes were
introduced during the years of austerity, they
were accompanied by an equalisation fund that
centralised property-tax revenue and
redistributed it across the country. Dublin
Councillors disliked the equalisation-fund
mechanism because Dublin was a net loser.
In 2023, the equalisation fund was reformed,
with Councils now retaining 100% of any property
taxes they collect. However, at the same time, the
Council’s central-government grant funding was
cut to roughly the same amount as the previous
equalisation fund take of 20%; at the time, Dublin
Council executives complained that the central
government gave no explanation or reasoning.
While the decision ultimately made little
dierence to local or national budgets, it has
made the system less transparent and less
predictable, maintaining Councillors’
disincentive to raise local revenues. This helps
us to understand why three of Dublin’s four local
authorities have just voted for the maximum
discount allowable for Residential Property Tax
in 2024. Of course this will have a knock-on
eect on the provision of services for Dubliners
next year.
The current system clearly suffers from
negative distortions. The mayoral reform oers
an opportunity to reset. So what should we do?
• First, standardise the equalisation fund.
Given Ireland’s profound regional disparities,
equalisation is a good and fair idea that is
beneficial for everyone. Furthermore, when power
is as centralised as it is in Ireland, equalisation is
a political reality, whether Dublin Councillors like
it or not (as they discovered in 2023).
The legitimate criticism isn’t that the system is
unfair on Dublin. It’s that the system is opaque
and unpredictable. Getting the Dublin-Dáil
relationship correct means creating a system
where mayors can trust that if they raise or lower
taxes, they increase or decrease their fair and
expected share of revenue.
Researchers in NUI Galway have come up with
a new, formula-based, objective, equalisation
model that removes some of the politics and
negative incentives in the tax-setting process.
Like any equalisation fund, there are still
winners and losers. However, the real benefit of
the model for Dublin is improving institutional
transparency and predictability.
• Second, agree transparent fiscal contracts
between Dublin and the Dáil.
Beyond the equalisation fund, the central
government still has little transparency in how it
allocates its funds, and as we have seen, this
funding can be removed with hardly any
explanation.
However, a Dublin mayor wouldn’t be
powerless either, particularly given the spillover
eects that Dublin has on the rest of Ireland. For
example, responding to budgetary pressures,
Dublin Councillors have advocated a hotel bed-
tax. While this could raise revenues without
hurting Dublin voters, it might ultimately have a
negative impact on the national economy and
tourism, which is a driver for inclusive, regional
growth – and the largest indigenous industry in
Ireland.
It’s also worth noting that not all spillovers are
costs. As major drivers of the national economy,
the IFSC and other Dublin business zones would
be underfunded only if local government ALONE
supported them.
If the intergovernmental relationship breaks
down –and local governments are forced to rely
on their own funds – they will naturally look to
spillovers first, before taxing voters or reducing
services. To manage these power dynamics,
fiscal contracts between local and central
governments need to be backed up with
transparency and understood by voters. Such
contracts have worked well in the EU and other
developed countries.
• Third, maximise funding outside of the
intergovernmental relationship, particularly
international and climate finance.
While the first two reforms are about splitting
the revenue pie, a good mayor will also make the
pie bigger. In response to climate change, many
city mayors are becoming catalysts for
international finance. Initiatives such as the
OECD Champion Mayors, C40 Cities, and the EU’s
CIVITAS are new forums that can support local
finance and improve co-operation on international
challenges such as climate mitigation.
In 2009, when local budgets were cut in Ireland
and globally, then-Deputy-Mayor of Paris Anne
Hidalgo plugged the city’s budgetary gap
through a €500m deal with the European
Investment Bank for the City’s tramway. In 2023,
Athens Mayor Kostas Bakoyannis credited EU
funding for the city’s local budget reaching €1bn
for the first time ever. UN special envoy on Climate
Michael Bloomberg recently launched the
Breathe Cities initiative, a global programme of
over $30 million for cities dealing with pollution.
The four Dublin Councils missed these
opportunities in the austerity years and are still
not seizing them today. Under four separate
Councils, with a lack of real leadership, any
potential applications that are made will be over-
complex and likely to be unsuccessful. A Dublin
mayor, working with central government
departments, could change this.
The mayoral reform is an ambitious project. If
successful, it would give Dublin the authority and
the leadership the capital deserves. It also could
pave the way for greater decentralisation across
the country. However, ultimately all local
governments need to work with central
government to deliver for citizens. Ensuring the
Dublin-Dáil relationship is protected and
transparent is critical.
Dublin has been denied a powerful mayor for
many years. Despite the democratic mandate
given by the Citizens Assembly to hold a plebiscite
on the issue, there are still serious concerns that
this will be stalled further by Leinster House
politics.
“The citizens assembly was supposed to lead
to Oireachtas committee meetings before the
plebiscite. They haven’t happened yet, so any talk
of a plebiscite is premature”, according to Aodh
Quinlivan of University College Cork. “At this
point, it’s unclear if the mayor will have any real
authority, or even if the mayor will represent one
or all of the local authorities”.
In a mature democracy, this is simply not good
enough. It’s time to put aside petty squabbling,
and to grasp the opportunity that awaits. This
mayoral reform could be the blueprint for
decentralising the rest of the country,
fundamentally changing how Irish people
interact with their public services. Getting the
Dublin-Dáil tax system correct is one of the
critical first steps.
At this point, it’s unclear
if the mayor will have any
real authority, or even if the
mayor will represent one or
all of the local authorities
Dublin’s disgrceful motto: The obedience
of the citizenry is the joy of the city.
It is not.
