Property taxes isn't the most exciting subject, but it’s one that affects us all in various ways. It’s also a system in need of an overhaul.
Municipalities across Ontario have made public statements over the last year regarding the impact of COVID-19 on their budgets. The weaknesses of the current system have been brought to light through this crisis.
The Ontario Chamber of Commerce recently issued a report titled Better Budgets: Bolstering the Fiscal
Resilience of Ontario’s Municipalities. It lays out 14 recommendations for the Province of Ontario for overhauling the property tax system. The full report is available at occ.ca.
This pandemic has hit all levels of government in different ways, but the challenges for municipalities is that they are structured and governed by the Province, which has left them inflexible and vulnerable to market fluctuations. And the market has fluctuated.
Federal Accountability Office of Ontario figures show municipalities across Ontario are facing a budget shortfall of $4.1 billion in 2020 and an additional $2.7 billion in 2021 due to lost revenue and increased costs. Despite cost-saving measures and reserves, it’s believed municipalities don’t have the revenue to absorb the costs of this health crisis nor are they allowed to run the deficits needed to make up the difference.
Stuck between a rock and a hard place, municipalities are being forced to make some difficult budgetary decisions that likely aren’t to the benefit of the community.
Municipalities depend on attracting and retaining businesses to maintain their financial health and
sustainability. Businesses depend on municipal
investments in transportation, utilities, housing, facilities, and the local labour market.
The property tax system was meant to share the costs based on the services used. Larger properties would be used by larger families or businesses. However, there is a disconnect in the real estate market between the resale value of land from its actual economic value to the
community. A hot real estate market drives up taxes regardless of whether
municipal service costs go up.
Businesses require a level of stability to flourish,
especially when it comes to large financial considerations. The current property tax
system is unpredictable for commercial properties, with taxes varying significantly throughout a four-year
assessment increment period. Speeding up the assessment appeals process, creating more frequent assessments, or partially indexing
assessments to a
benchmark like inflation could increase confidence. Business confidence leads to more investment, which leads back to greater tax revenues for the government.
The current commercial
property tax assessment
system assigns value based on the highest and best use for the property. That means it doesn’t matter if the
current businesses on a
property happen to be a small café and a hair studio — they’re paying the taxes of a commercial office tower that the site is zoned for.
The report from the Ontario Chamber of Commerce
outlines numerous other
recommendations that impact the effectiveness of the
property tax system,
• A review of user fees, permits, licenses and fines to better reflect changes in demand
• Reforming the arbitration system for police services to include the capacity of municipalities to pay
• Improving accountability with the Municipal
• Reviewing the transfer system and cost-sharing programs
• Adhering to a pay-for-say principle when deciding what level of government is responsible for funding the service
• Having municipal
governments issue modified accrual budgets at year-end
• Identifying and
championing opportunities where municipalities can work together with shared needs and priorities
There is only one taxpayer, regardless of which
government body is collecting it — but how we are taxed is just as important as the amount.
How we are taxed ensures that we are all paying our appropriate share. It should maximize efficiency for the taxpayer. It should also make sure government
organizations have the funds and tools they need to do their job effectively.
Effective and efficient
government should always be the goal when collecting our tax dollars.
Municipal governments are by far the most hands-on in our day-to-day life. The flaws of the property tax system are going to impact the services in our community, hold back business investment, and ultimately, hold back our economic recovery.