The pharaohs and kings are gone: but their taxes remain

By Walter Robinson
web posted May 26, 2003
 
Canadians love their hockey. On the other hand, they hate their
taxes. The GST, payroll taxes, income taxes really get their ire
up; none more so than property taxes. And the issue of property
taxes and the cities agenda are fundamentally intertwined.

In 2001, Canadian city budgets totaled $47 billion. Of this
amount, 83 per cent or $39 billion is generated by municipalities
themselves and the remaining 17 per cent – some $8 billion –
comes from federal and provincial transfers. Of the $39 billion in
own source provincial revenues, 63 per cent ($24.6 billion)
comes from property taxes and the remaining 37 per cent ($14.4
billion) is derived from user fees, permits, local charges and other
investment income.

Property tax classes include residential units, multi-residential
units, commercial lands, industrial lands, pipe lines, farms and
managed forests. And the proliferation of site specific sub-
classes from shopping centres to sports complexes to theme
parks is mind boggling. It is a complex system … a bureaucrat's
dream. Almost without exception, residential property taxes
across Canada are determined by multiplying the local residential
tax rate – sometimes called the mill rate – by the "assessed"
value of the property in question.

The "assessed" value is arbitrary and usually a function of a
computer model that chooses an "ideal" property in your
neighbourhood – more often than not with a white picket fence,
in-ground pool, interlocking driveway, and a host of other
improvements – and then this model home, pardon the pun,
becomes the baseline property by which all other assessment
values are derived. Then historical data of selling prices in the
neighbourhood are also factored into this mix to further drive up
assessed values.

Over the past few years, the housing market in many cities –
large and small – has boomed driving assessment values higher
and even if cities keep their tax/mill rates constant, homeowners
pay higher tax bills and local government nets more revenues.

This unfair situation is compounded by the disconnected nature
of property taxes in and of themselves. Residential property
taxes do not reflect an individual household's capacity to pay nor
do they account for this same household's consumption of local
services.

Property taxes have been around for almost 5,000 years. At one
time, property was the only proxy for one's wealth; however, as
noted above it is an extremely poor one to use in the 21st
century. And indeed property tax revolts are becoming more
commonplace … from the farm fence in Saskatchewan to ocean
views of suburban Victoria to the old neighbourhoods of
downtown Ottawa. Taxpayers are demanding an alternative
system of taxation from their local governments to raise revenues
for local key services.

So what are the alternatives? Perhaps properties should be
assessed similar to California where the assessment value can
only increase by a fixed – and small – percentage each year. Or
maybe we should move to abolish property taxes and replace
them with a municipal income tax? A variation on this idea could
be a municipal sales tax.

Other options on the table include an occupancy tax, where
taxes are based on the number and age of individuals living in the
household. Another intriguing option is the Florida model where
the tax bill is a combination of an "assessment" and a formula that
approximates the household's use of local services (pool, library,
etc.) based on demographic data.

Property tax revolts are flaring up across the country and
provincial and municipal governments better get their heads
around better and fairer systems of local taxation. The property
tax will quickly become and election issue in several jurisdictions.
A long overdue issue indeed.

Walter Robinson is federal director of the Canadian Taxpayers
Federation (www.taxpayer.com).

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