Millions of euro in local property tax income from wealthy areas will no longer be used to bail out poorer communities under new Government plans.

Taoiseach Leo Varadkar said the existing system is not working and there is “a better way” of using the money generated from the property tax.

Mr Varadkar said that, under current rules, all property tax is pooled nationally and used to pay for services in local authorities across the country.

However, under new plans that are set to spark anger in worse-off areas, the Taoiseach said he wants to ring-fence resources for the areas they come from, meaning wealthy locations will keep their money while poorer communities will see a drop-off in funds.

“We are certainly looking at reforming the property tax to ensure that all of the money you pay goes to your local authority,” he said.

“In urban local authorities and a few of the wealthier counties, about 20% [of property tax income] gets diverted to less well-off counties, and we think there is a better way to do that.

“There would still need to be an equalisation fund to make sure those less well-off counties, particularly those down the western seaboard, don’t lose out.

“But I think people would prefer to see the actual tax they pay going to their own local authority.”

The Taoiseach stressed that the potential property tax move will have to go hand-in-hand with a replacement funding system for poorer areas to ensure they do not see a dramatic fall in their budget levels.

However, while the move is likely to be welcomed by people living in wealthier areas who want to benefit from their own taxes, it is expected to cause unrest in other locations and lead to fresh claims of a two-tier economic recovery.

In the same interview, Mr Varadkar said he wants to end the five-year-old loophole which has allowed anyone who has bought a house since 2013 to avoid paying property tax.

While saying he does not want to see “anyone facing a significant increase in their property tax”, the Taoiseach said the exemption for homes bought since 2013 is “not fair”, and that it must be tackled next year.

“The main thing we want to avoid is anyone facing a significant increase in their property tax because we just don’t want that to happen,” he said.

“I know people feel that because house prices have gone up a lot in the last four or five years that it means their property tax will go up by that amount. We are going to make sure that doesn’t happen.

“We want to make sure that the amount of revenue collected by the local authorities from property tax is roughly the same and that would mean making sure nobody faces a sudden increase in their property tax. That would not occur until 2020 at the earliest in any case.

“One thing we can do, though, and we will have to consider this in the new year, is removing the exemption from homes that were bought since 2013. Anyone who bought a home in 2013, 2014, 2015 does not pay property tax.

“That is not fair because they benefit from the same local services as everyone else.

“That was done for a particular reason in 2013 to encourage increased housing supply but that is now going in the right direction. So we need to consider that and it will bring in extra money for local authorities.”