Problematic Property Tax Why the Property Tax Fails to Measure Up and What to Do About It Casey G. Vander Ploeg Senior Policy Analyst November 2008 Western Cities Project Seizing the opportunities, and effectively addressing the challenges, facing Canada’s big cities is critical to both economic prosperity and quality of life in Canada. The Canada West Foundation’s Western Cities Project has been providing timely and accessible information about urban issues since 2000. The project is focused on six western Canadian urban areas — Vancouver, Edmonton, Calgary, Saskatoon, Regina, and Winnipeg — but it speaks to issues that affect urban areas across Canada. Funding for the Western Cities Project has been provided by the Cities of Vancouver, Edmonton, Calgary, Saskatoon, and Regina. This position paper was prepared by Canada West Foundation Senior Policy Analyst Casey G. Vander Ploeg, and is part of the Canada West Foundation’s Western Cities Project. The opinions expressed in this document are those of the author and are not necessarily those of the Canada West Foundation’s Board of Directors, advisors, or funders. Permission to use or reproduce this report is granted for personal or classroom use without fee and without formal request provided that it is properly cited. Copies may not be made or distributed for profit or commercial advantage. Copies are available for download at no charge from the Canada West Foundation website: www.cwf.ca. © 2008 Canada West Foundation www.cwf.caISBN# 1-897423-39-4 PROBLEMATIC PROPERTY TAX: Why the Property Tax Fails to Measure Up and What to Do About It EXECUTIVE SUMMARY Introduction In 2007, local government taxes in Canada were 8.9% of all taxes collected. This is much lower than the 16.7% recorded Property tax debates have raged for years. On one side of the in 1961. Over the 1961-2007 period, local taxes grew, on street are those who complain that property taxes are too high average, by 1.7% annually when adjusted for population and and the tax burden is growing too rapidly. On the other side of inflation. This is one of the lowest growth rates of any tax used the street stands the municipal administration who responds that by any government in Canada. For example, provincial personal property tax revenue does not always grow alongside the economy income tax averaged 10.2% annual growth in real per capita and incremental increases are needed. Standing in the middle of terms over the same time period. the street are mayors and councillors confronted with the nasty choice of “raising” taxes or “cutting” services. Given the perennial Setting municipal property tax against personal disposable incomes is an important measure of the tax burden, because nature of the property tax debate, the Canada West Foundation it is out of this income that the tax has to be paid. An analysis has issued this position paper. The paper examines the property of property taxes in Vancouver, Edmonton, Calgary, Saskatoon, tax from a number of different vantage points. Regina, and Winnipeg show that municipal property taxes in 2007 are at their lowest level relative to personal disposable Position income since 1990. Municipal property tax has also dwindled relative to each city’s per capita share of provincial GDP. In fact, The property tax is the only substantial tax available for local if property taxes had kept pace with provincial GDP growth, the governments in Canada, and critics of the tax are right when six cities would have collected $1.3 billion more in property tax they claim it alone is insufficient to meet the needs of today’s in 2007 alone. large modern cities. Defenders of the tax are wrong in asserting that the property tax is the only way — or even the best way — Strengths and Weaknesses to fund all of our varied civic endeavours. What is more, property taxes across the local government sector are not out of control, Historical acceptance, an immobile and stable tax base, reliable and the same can be said for property taxes in most large and predictable revenues, and high visibility are often cited as western Canadian cities as well. In fact, property taxes are positive features of the property tax. But on closer inspection, currently at some of the lowest levels seen in the past 45 years many of these advantages are not as clear and plain as many despite claims to the contrary. The property tax may have served suppose. Further, the property tax carries numerous inherent our cities well in the past but it is no longer up to the task. For disadvantages, such as a tax base that tends to expand slowly a variety of reasons — and for better or worse — the property tax and revenue that fails to keep pace with economic and population will continue to form a key part of the municipal revenue mix. growth. Of particular concern is the way in which the property But our cities should not be so singularly reliant and heavily tax is currently administered and applied. Serious equity dependent on this one tax source. The amount of property tax concerns are emerging. This hits on the efficiency of the tax and collected in our cities should be reduced and the gap filled with is negatively affecting the degree of accountability taxpayers can different tax options. expect from the tax. Essential Data Conclusion For each additional dollar paid in tax since 1961, roughly 60¢ has Property tax reform is a logical starting point in terms of a policy come in the form of more federal and provincial personal income response, but this may not be possible given the current political tax and premiums paid to federal and provincial social programs. dynamic in most cities. Even with fundamental reform, the Another 25¢ has come in the form of additional federal and inherent disadvantages of the tax will remain. The challenge and provincial sales tax. An additional 10¢ has come in the form of opportunity is to find a way forward by employing a broader range corporate income tax and miscellaneous federal and provincial of tax tools that can supplement the property tax. This reflects the taxes. Only about 5¢ out of every additional tax dollar paid since larger international experience of cities that use a wide variety of 1961 has come in the form of local government taxation. tax mechanisms to finance local services and infrastructure. n PROBLEMATIC PROPERTY TAX: Why the Property Tax Fails to Measure Up and What to Do About It TABLE OF CONTENTS Introduction ................................................................................................................................................... 1 Position ............................................................................................................................................................ 1 Outline of the Paper .................................................................................................................................. 2 Proving the Point ......................................................................................................................................... 2 Introductory Context .................................................................................................................................. 2 Direct Taxes ......................................................................................................................................... 4 Indirect Taxes ...................................................................................................................................... 4 The Property Tax .......................................................................................................................................... 6 Property Tax Burden: National NIEA Data ...................................................................................... 8 Tax Profile ............................................................................................................................................. 8 Tax Growth ........................................................................................................................................ 10 City-Specific Dataset ............................................................................................................................... 16 Property Tax Burden: City-Specific Data ....................................................................................... 22 Tax Profile .......................................................................................................................................... 22 Tax Growth ........................................................................................................................................ 22 Performance Criteria ............................................................................................................................... 23 Local Considerations .............................................................................................................................. 24 Tax Base........................................................................................................................................................ 29 Revenue Effect .......................................................................................................................................... 32 Economic Effects ...................................................................................................................................... 42 Administration ...........................................................................................................................................