Nov 7, 2010

Big municipal tax shift a great deal for business


When Gordon Campbell announced that desperate income tax cut shortly before his resignation, heads were shaking all over B.C. Imagine what could be done to reduce child poverty or school closures with the $600 million per year the Province just gave up. That 15% income tax cut adds to the inequity of the $2 billion per year corporate sales tax cut already brought by the HST.

But when we talk taxes, less attention has been paid to the great deal that B.C. property taxpayers – particularly businesses –  are getting at the municipal level.

“Great deal?”. That certainly isn’t the message in the steady drum beat from mill owners like Catalyst Paper or  business lobbyists for the so-called “Fair Tax Coalition” in Vancouver. To hear them tell it, both municipal property tax levels and municipal spending are out of control in B.C.. But the facts tell a different story.

Two significant studies were prepared in May of 2010, which are both full of information that help explain what’s really going on.

Let’s start in Vancouver. On May 12, 2010, well known global advisory firm KPMG released their annual guide to international business costs as well as a special report on taxes. That report compared major cities around the world, each with populations of more than 2 million people. Their finding? Vancouver has the lowest business tax costs of 41 international cities! That means businesses in Vancouver have lower tax costs than businesses in New York, London, Houston, Tokyo, Los Angeles, Berlin and many more. So if business taxes in Vancouver are that low, how come the City of Vancouver is continuing  the big multi-year tax shift begun by the NPA, steadily increasing residential property taxes and cutting programs, while at the same time freezing commercial and industrial tax levels? Beats me.

The other interesting finding of the KPMG study is that Canada has the second lowest business tax costs out of ten countries they studied. Only Mexico has lower business tax costs. Countries as varied as the U.S., the U.K., Japan and Australia all have higher tax costs for business than Canada.

What about municipal spending and taxes in the rest of B.C.?

The other important study prepared last May was by Dr. Harry Kitchen of Trent University, a widely respected expert on Canadian municipal tax issues. He was asked by Metro Vancouver to study principles and best practices for financing municipal services in the Metro Vancouver region.

The report is full of important data. Amongst other things, Dr. Kitchen found:

  • municipal spending per capita in British Columbia is the lowest of all provinces
  • per capita municipal property taxes in B.C. are well below the tax levels in the other big provinces of Alberta, Quebec and Ontario and are lower than the Canadian average
  • overall municipal revenues in B.C. are lower per capita than the other big provinces of Alberta, Quebec and Ontario
  • over the decade from 1998 to 2008, municipal revenue in B.C. rose only marginally ie. by only .1% of GDP

So it isn’t only business property taxes which are low. We’re all getting a great deal at the municipal level. B.C. local governments use those comparatively low property taxes to provide many of the core services citizens expect – everything from fire and police services, to clean water, healthy sanitation, garbage and recycling collection, transit, urban planning and much more.

But year after year,  B.C. municipalities are under unrelenting pressure to reduce property taxes. The most egregious example is the industrial property tax revolt led by Catalyst Paper. This year, Catalyst has decided to pick on the small District of North Cowichan. Once again, the company has decided to pay only about one third of the legally assessed taxes it owes. Catalyst is dragging small North Cowichan before the Supreme Court of Canada to defend its tax rates, even though Catalyst lost its earlier court actions at the B.C. Supreme Court and the B.C. Court of Appeal. In Powell River, the town is facing community opposition to a deal with Catalyst in which property taxes will be capped in exchange for an annual fee to pay for privatized treatment of the town’s sewage and wastewater . In Campbell River, the Elk Falls mill was permanently closed, even though the municipality has been steadily reducing the portion of municipal taxes paid by Catalyst, reducing it from 35% of municipal revenue to 25% last year. In Port Alberni, pressure from Catalyst prompted the town to increase residential property tax rates by 23% in 2009.

None of this is necessary or justified. As noted at this year’s UBCM Convention in Whistler, there has been no independent study that shows property taxes are actually damaging business. That’s probably because they’re amongst the lowest in Canada and internationally.

British Columbians need to recognise the great deal we’re getting for the property taxes we pay. And we need to look at what other provinces are doing to diversify municipal revenue so communities are not so dependent on property taxes. In Saskatchewan, municipalities receive one percentage point of the provincial sales tax. In Ontario, municipalities have options like a personal vehicle levy, municipal land transfer taxes and the authority to charge sales tax on alcohol.

But first, we need to look at the facts and then put a stop to this big municipal tax shift.

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