OP-ED: Provincial Cutbacks Squeeze Local Taxpayers

By Doug McArthur 

July 2 marked the deadline to pay local property taxes and many homeowners are justified in asking, “Why are my taxes rising so steeply?”

Part of the answer is that local governments in British Columbia are among the least supported in Canada by provincial financing, and the amount of such support has dropped dramatically over the past ten years.

For example, the BC government provided about $5,325 million to municipal governments in 2007-2008, compared to about $8,850 million in 1997-1998. Over the same period, off-loading has been substantial and local government costs have increased markedly.

Taxpayers in Vancouver have been especially burdened. Notwithstanding unprecedented growth in the property tax base, residents experienced a tax increase of almost 8% in 2009,and there is little relief in sight.

Approximately a quarter ofthis increase was due to a shift of the tax load from businesses to residents, and city council has vowed to continue shifting the tax burden onto residential taxpayers. Furthermore, there is little likelihood of any reduction in cost pressures in the near future. Indeed with the Olympics in 2010, additional cost pressures are almost a certainty.

It is highly unlikely that residential taxpayers will be willing to accept tax increases in the 8%-10% range in coming years. The 2009 increase, at a time when inflation is below 2% and wages are generally frozen, failed to galvanize focused opposition. Arguably this was because of the unusual silence of the city’s business organizations, the usual lead voices in anti-tax campaigns. This silence was no doubt intended to reward the city for the tax shift from commercial to residential property, but it seems unlikely that it can be counted on to continue in the future.

The danger, of course, is that in the next budget cycle, tax resistance will blossom into a full-blown tax revolt in the face of rising costs. If so, councillors will find that further tax increases could very well be at the cost of their electoral survival. In an effort to bring tax increases in line with inflation, cuts in programs and services could become inevitable. The hopes and dreams of progressive citizens could be smashed by a revenue crunch that few saw coming.

There has been virtually no public discussion of this impending crisis in local government finance. The province, with its own financial crisis, has no inclination to reverse its abandonment of local government, and city councillors don't see any point in stirring up voters and employees until they absolutely have to.

This is short-sighted. It is essential that a dialogue begin between taxpayers and their elected city councils. Tax increases on the same scale as those of 2009 will almost certainly be unacceptable. Other alternatives must be explored and pursued.

The real problem is that local governments have been starved of finances over the past decade. They have been forced to rely almost exclusively on one source of revenue – the property tax base – which includes the local property tax and property-based user charges. In British Columbia, these together make up about 85% of municipal revenue, the highest proportion in Canada.

The only alternative to ever growing charges on property is to expand the tax base of municipalities.The heavy reliance on property taxes is not sustainable if local services are to survive in the form we now know them. A tax revolt cannot be disavowed as simply a matter of speculation.

Sales taxes, including fuel taxes, are an option, much as is the case in many cities in the United States. One advantage of such taxes is the burden is extended to tourists and visitors who draw on local services but contribute little to their costs. New, reformed business taxes that are fairer than property taxes are another possibility. And there are several other possibilities. 

But the important point is that we need to start talking about these matters. Cities in particular are vulnerable to a wrenching fiscal crisis if we do not turn our attention to these matters.

Doug McArthur teaches in Simon Fraser University’s Graduate Public Policy Program

OP-ED articles do not necessarily reflect the opinions of Think City. To make a submission to the OP-ED section of the Think City Minute, please email editor@thinkcity.ca for details.