The Canada West Foundation released a report titled Problematic Property Tax: Why the Property Tax Fails to Measure Up and What to Do About It. The study tracks local government taxes in Canada over the past 50 years and details the municipal taxes collected from 1990-2007 in Vancouver, Edmonton, Calgary, Saskatoon, Regina, and Winnipeg. The report goes on to assess the advantages and disadvantages of the property tax, and concludes that not only does the property tax need reform, but the amount of property tax collected should be reduced and replaced with other forms of taxation that are more equitable and efficient.
“There is a strong misperception in communities right across Canada that property taxes are out of control, that the burden is too high, and the burden is growing too fast,” said Casey Vander Ploeg, Canada West Foundation Senior Policy Analyst and author of the study. “But historical and current data just don’t bear this out. Local government tax collections, measured as a percent of GDP, are at one of the lowest levels seen since 1961. But federal and provincial taxes have certainly grown.”
From 1961-2007, the total amount of taxes collected by local governments in Canada grew, on average, by only 1.7 per cent annually when adjusted for population and inflation. Property tax is the slowest growing tax source currently in use.
For each additional dollar paid in tax since 1961, roughly 60¢ has come in the form of more federal and provincial personal income tax and premiums to EI and CPP. Another 25¢ has come from more federal and provincial sales taxes. Another 10¢ has come from corporate tax and other federal and provincial taxes. Only about 5¢ of every extra dollar paid in tax has come from additional local government tax.
“Canadians who feel that they are over-taxed should not be pointing the finger at their local city hall,” added Vander Ploeg. “The focus should shift to the real culprits, which is the direct taxation of income that accrues entirely to federal and provincial governments. Putting the blame on the property tax as leading to an ever increasing tax burden for the average Canadian is, frankly, misplaced.”
The study also looks at the matter of operating and capital grants, and found that these have recently grown, but have still to recover to levels seen in 1990. The report concludes that there are a number of advantages with local governments using the property tax, but the tax has some serious disadvantages that are becoming more problematic to handle, especially for large cities. The report examines the property tax against such issues like urban sprawl, growth in bedroom communities, and the tax’s potential to create wasteful spending patterns.
“The property tax just doesn’t tend to produce an amount of revenue that grows along with the economy or the local population,” said Vander Ploeg. “In order to get adequate revenue, the rate of tax has to be increased. But the property tax is highly visible, it does not reflect a person’s ability-to-pay, and there are inequities in the tax. So, it’s no surprise that people strongly resist.”
In the end, the singular reliance on this one tax source is shorting cities of the revenue they should be getting due to the growth they have seen. “When it comes to growth, federal and provincial governments get the goldmine while cities get the shaft,” said Vander Ploeg.
The report concludes that the property tax should be reformed, and goes on to catalogue some of the more important suggestions that have recently come forward. These include removing intentional inequities in the tax, correcting unintentional inequities, and exploring a split-rate property tax.
“Tax reform has always been tough sledding,” said Vander Ploeg. “Further, simply reforming the property tax may not be enough.” As such, the report argues that the amount of property tax that cities collect should be reduced significantly, with the lost revenue replaced by other types of taxes that hold more promise. “It can be structured to be completely revenue neutral, or even act as a modest tax cut over the short-term,” pointed out Vander Ploeg. “The idea is NOT to dramatically increase taxes. That would be very counterproductive, whether the economy is going well or whether it is slowing down. The idea is to simply get some b
etter taxes into play, and do it in a way that is a win-win-win for taxpayers, cities, and their respective provincial governments.”
The report is part of the Canada West Foundation’s Western Cities Project. Funding support for the Western Cities Project has been provided by the Cities of Vancouver, Calgary, Edmonton, Regina and Saskatoon. A copy of Problematic Property Tax: Why the Property Tax Fails to Measure Up and What to Do About it can be obtained on the Canada West Foundation website at http://www.cwf.ca/V2/files/PROBLEMATIC.pdf