Thursday, March 20, 2008

Snowing us on the budget

Snowing us on the budget

The budget forged last December was less a budget and more a series of wishes. It did not take into account money for a snowy day."
The Ottawa Citizen, Published: Thursday, March 20, 2008

It is hard to disagree with the suggestion that the taxpayers of Ottawa have been "snowed" in more ways than one recently. After detailing the bizarre tactics engaged by City Council and the Mayor to try to convince us that we really could get something for nothing, The Ottawa Citizen points us in the right direction when it concludes:
We simply need better city budgeting and a better tax system. Property taxes just don't work. They leave cities in constant shortfall. Premier Dalton McGuinty, are you listening?
Long before the dust has settled (or the snow has finally melted in early July) from this current mess we need to start a serious conversation in this city, and in all municipalities across this country, about the structural flaws endemic in our current system of municipal financing.

Canada stands out amongst OECD countries in how it expects urban centres to be financed almost exclusively by the regressive property tax system. Ontario further exacerbates the problem with its imposition of social welfare costs on this strained tax base.

Numerous expert commentators in the arcane area of municipal taxation have pointed this out to us. In Local Taxation: A Comparative Analysis Dr. Harry Kitchen, of Trent University points out that as of 2001 Canadian municipalities derived more than 91% of their total tax revenue from property taxes. In comparison, the average amongst the federal states of the OECD was 48.8% and within the unitary states it was a paltry 31.8% of municipal revenue. Drs. Enid Bird and Richard Slack of the Institute of Municipal Finance and Governance at the University of Toronto tell us that among OECD countries Canada has the highest property tax to GDP ratio in the world, at 4.1%, followed by the U.S. and Australia at 2.9% and 2.5% respectively.(1)

These commentators are not suggesting that we need to stop using property taxes to fund municipal expenditures. They are saying, however, that we need to expand our horizons so it isn't our only source of revenue. Jurisdictions the world over use have reduced their dependence on the regressive property tax system to fund municipalities. Canada, and particularly Ontario, lags far behind in this regard.

For the property taxes that we do collect the Green Party of Ontario proposes that part of the solution lies in moving toward a system that assesses land value, but not the value of buildings and improvements made to such buildings, to determine municipal tax rates. This would vastly simplify the responsibilities of MPAC, as the relative value of building improvements would not be considered in their calculations.

Such a plan would encourage development more along the lines of a municipality’s official plan. Land value is proportional not only to its quantity, but also to the scale and type of development permitted. It would create a disincentive to land speculation, as the property would be taxed according to its full potential for use, as reflected in its assessment and class.

It also would remove the disincentive of higher taxes on home improvement. A property owner is more likely to invest in best building practices, and erect a carbon neutral facility with the threat of higher taxes removed. This enhances not only the value of the building, but the community at large, with cleaner air.

Depending almost exclusively on our current regressive type of tax system understandably encourages short term reactionary thinking on the part of many voters. From year to year a significant number of property owners are justifiably outraged at the level of increase of their municipal tax bill. These increases have no relationship either to their ability to pay nor to the cost of the service being provided. They howl and scream to their councillor, the media, and who ever else will listen. Much newspaper ink is spilt as a media frenzy is created with everyone proclaiming "Our taxes are too high already! We can't afford these increases!" Newspapers are sold, talk radio screams, and local politicians get up on their hind legs and proclaim "Zero means zero!" Meanwhile, our infrastructure crumbles, the snow piles up, and the next news item insists that the feds or the province must help the cities.

What is so fascinating is that all these taxes, be they federal provincial or municipal, are paid by the same taxpayer. Why is it that we continue to believe that if our federal and/or provincial tax rates go down, that somehow, as if by magic, our municipal taxes should go down as well. One of the reasons our income taxes went down was because the higher levels of government thought they could look like tax cutting heroes by ultimately downloading costs onto the most regressive and unbalanced form of taxation, namely the municipal property tax system.

As taxpayers we all need to give our collective heads a really good shake. We have been snowed, not only by our municipal council's failure to engage in effective and meaningful budgeting, but by every politician, be they municipal, provincial or federal, who has promised us something for nothing. As taxpayers to all of these levels of government we need to demand that they start to work together immediately to re balance how our municipalities are funded. The current system was designed more than 100 hundred years ago when Canada was essentially a rural outpost with a few small developing urban areas. Things have changed dramatically since then but our method of funding municipalities, where the vast majority of us now live, has not. A substantive overhaul is urgently required.

Smart homeowners plan for proper maintenance of their homes. Smart cities should be able to as well, and look forward to making the investments needed to ensure the long term sustainability of the place we call home. Only then will we start to bring down our costs over the long term. Fiscal responsibility does not mean spending the least amount of money every year. It means spending the correct amount of money every year, so that in the long term we spend the least amount of money.

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