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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.

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