Property Tax System Unfair

By Ed Corrigan

Published in Your Village News, September 1, 2006

Nobody likes paying taxes. However, taxes are the very foundation of our system of government and without taxes our world would be very different. There would be no publically funded roads, sewers, water, schools, colleges, universities, hospitals, police, fire and ambulance services and no social assistance. Many of the services we now take for granted would be gone or radically different. Taxes, it has been said, are what we pay to have a civilized society.

We have three levels of government and all have different taxing powers. The Federal government has the strongest taxing power followed by the Provincial government. In Ontario municipal governments have no independent power of taxation. They are simply "creatures of the province"and are totally dependent on the provincial government in terms of allocation of power and funding mechanisms.

One example was after the water crisis at Walkerton Mike Harris's government passed a law which required that all municipalities have to have full cost recovery for sewer and water services including replacement. This law led to the creation of the Sewer Improvement Tax which is based on consumption and encourages conservation and tax savings. The alternative would have to increase property taxes which would not have addressed consumption issues and would increase expenses.

In Ontario municipalities are governed by the Ontario Municipal Act. Taxing powers are restricted to property taxes and fees for permits and licences, parking and fees for services like water and sewers. The property tax is the primary way of funding municipal government. However, a property tax system is a very unfair and restricted taxation system that creates distortions in how our cities function and is, in particular, unfair to those on a fixed income.

Under the current system municipal property taxes, in Ontario, subsidize provincial programs and services to the tune of over $ 3 billion per year. According to the Association of Municipalities of Ontario (AMO) the breakdown, in terms of millions, is as follows: Public Health $266.4; Ambulance $312.7; Social Assistance; $1,330.9; Senior Services $242.5; Child Care $193.4; Social Housing $879.7; for a total property tax subsidy of $3,225,600,000 for provincial programs and services.

In this short article I am not questioning each of these programs, which must be evaluated and funded on their own merits. However, is it appropriate to fund such programs from municipal property taxes and which are controlled by another level of government? According to AMO "Ontario's unique situation of requiring municipalities to subsidize provincial programs and provincial services is not good public policy and it is not economically sustainable." AMO argues that the existing relationship "has resulted directly in Ontarians paying by far the highest property taxes in Canada."

Presently municipalities pay 20% of the costs of Ontario Works. The province has down loaded ODSP onto the municipalities and costs have risen every year. Ambulance costs have also risen dramatically with the province refusing to pay its official 50% share. Other provincial mandated programs also have costs that are loaded on to the property taxpayer.

Municipalities build and maintain municipal roads and related infrastructure. Yet municipalities do not get a share of the taxes on gasoline. This is an unsustainable system to maintain our transportation infrastructure. In order to maintain our competiveness we need to have an efficient transportation system.

In the 2005 Federal budget the Paul Martin government allocated $1.9 billion (the equivalent to 5 cents-per-litre) for "environmentally sustainable infrastructure" over a five-year period. The budget transfer of money direct from Ottawa to Ontario municipalities was part of its program to reduce Green House gases and for cleaner air. London's share for 2005 and 2006 was $8,368,355. This is welcome support for public transit and to develop other forms of environmentally friendly forms of transport such as dedicated bus lanes and High Occupancy Vehicle (HVO) lanes.

This is a welcome first step. However, the federal money is not guaranteed and is provisional. What is needed is a permanent and reliable share of gas taxes to be allocated to municipalities to maintain our municipal transportation infrastructure.

Cities are the real engine of economic activity in our economy. In Ontario municipalities are handicapped by their dependence on property taxes as the primary source of funding its operations. This problem puts Ontario cities at an economic disadvantage. Higher property taxes scares away potential investors and skilled workers.

In the United States there is direct federal to municipal tax transfers. American cities get a share of gas tax revenue and assistance with public transit. US cities even have the power to implement sales taxes and hotel taxes. This tax flexibility gives US cities competitive advantages over Ontario cities and it means we lose job opportunities and business opportunities.

One example is a hotel tax. Many jurisdictions impose a hotel tax on visitors which in turn can be used to promote tourism and attract conventions to their city. In Ontario this is not allowed. We must compete with other jurisdictions who have that additional resource to attract conventions and tourism to their city. Again if we want to compete we have to rely upon property taxes. This creates an uneven playing field.

The 2006 Ontario provincial budget made a number of steps in addressing the Provincial-Municipal fiscal gap. However, the province still did not solve the underlining problem, which is the lack of long term stable funding for Ontario municipalities. One time grants and a share of provincially raised gas taxes are short term solutions. This funding needs to be locked in and distributed in a manner that recognizes municipal responsibility.

What is needed is fresh thinking at all levels of government which recognizes the role municipalities play in our society and economy. Addressing the inequalities and distortions that our reliance on the property tax as the primary method of supporting our municipalities is an important place to start.

Ed Corrigan is a London lawyer and a former City Councillor (2000-2003) and is a candidate for the newly created Ward 9 in the November 13, 2006 Municipal Election. He can be reached at his office at 519-439-4015, residence 519-652-0973. His web site is edcorrigan.ca.

August 27, 2006 version 1031 words.