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PoliticsA Tax On All Our Houses

A Tax On All Our Houses

A Tax On All Our Houses

Between broken promises, higher taxes and the ongoing health care crisis, Premier Dalton McGuinty has managed to infuriate taxpayers across Ontario. Usually, the Premier has a comeback, even if it is just blaming someone else, whether it's the previous administration at Queen's Park for failing to balance the books, or Ottawa for failing to hand over "Ontario's share" of the federal surplus.

But there is one issue on which he remains uncharacteristically mum: the growing furore over residential property tax. From cottage country to the big city, property taxpayers are complaining about skyrocketing tax bills, confusing assessments, and unequal taxation burdens.

The problems stem from the structure of the province's current value assessment (CVA) system, and the downloading of social services onto the municipal property tax base. In 1996, the responsibility to fund education was removed torn local tax rolls, while cities and towns became responsible for the funding of social services, including welfare, social housing and some health care programs. Then in 1999, CVA, an assessment system based on market value, replaced the previous system of property tax.

CVA caused great tax volatility as certain types of property rose rapidly in value.-A study done by Waterfront Ratepayers After Fair Taxation reveals that, between 1999 and 2003, assessments of waterfront properties rose 30% — 50% more than those of their land-locked neighbours. In the City of Oshawa, high property taxes made headlines earlier this year when residents of a new subdivision petitioned the city over a 9.8% tax increase. In Niagara-on-the-Lake, the average local property tax bill jumped 8% last year due to rising values, prompting citizens to form a local lobby group. And in Toronto the property tax rate has climbed 20% in five years, while property assessments in some parts of the city have almost doubled in value in the same period.

Here in Ottawa, which is experiencing one of the hottest real estate markets in the country, property taxpayers are seeing red as well. The impact is particularly hard on seniors, most of whom live on fixed incomes and will not realize the value of their homes, as they do not want to sell. In Councillor Alex Cullen's Bay Ward, home values have risen 40%-60%, resulting in higher assessments for many elderly homeowners. Fumes Cullen,"The assessment system is broken — it's not accountable, not transparent, and has nothing to do with the ability to pay or value of services."

Cullen, an economist who has chaired two property tax task forces for the city, would like to see cities get a "new deal" which addresses both the problems of CVA and downloading. Options would include giving cities income and sales tax powers to pay for social services, as opposed to continuingly relying on the property tax base, which is regressive. Cullen calls it "taxation without representation," as property taxpayers have no control or vote over rising values.

But not everyone agrees. While it is unreasonable that property taxes fund income-redistribution programs, new municipal tax powers invite a fresh set of problems. Councillor Jan Harder feels city income taxes would put a greater burden on "people who for all intents and purposes live in homes that contribute the most as it is."

Municipal income taxes risk increasing the overall tax burden and would add another layer of costly bureaucracy to administer.

A fairer solution might be for Queen's Park to grant municipal block funding based a per-user formula. The province would not dictate how the funding would be spent — that would be up to the local municipality, which is in the best position to deliver the services - but the money would come from provincial income and sales taxes. Should the town or city wish to "top up" that spending (for example, by increasing social assistance payments beyond a base level), it would be free to do so — but would have to go to its local tax base for the extra money.

To reduce tax volatility, the CTF would like to see property tax increases capped at a predictable level. The goal would be to replace the existing system with one that only allows for a maximum increase, equivalent to inflation or 1 per cent, in property tax bills each year. This legislation could include provisions for municipal referenda if local politicians wanted to increase taxes further — but similar initiative provisions could also be used by taxpayers to get a property tax reduction.

Residential property values themselves would be based on a formula including lot size, hose size, and habitable square footage. Unlike CVA, properties would not fluctuate in value and any "assessment growth" would only result from the construction of new properties. Because properties would still be assessed relative to each other, changes and differences in lot and house size would retain progressive elements found in the existing system.

There are also many other ways of funding municipal services which would reduce the burden on property taxpayers. For years the CTF has advocated allocating a portion of gas taxes to a "roadway trust" to maintain municipal infrastructure. The federal government now has a working model of such a trust, which would return the taxes paid by motorists to the infrastructure they use. While the province is currently allocating gas tax funds to transit, this money will only benefit a quarter of the 400 cities and towns in Ontario. This does not address the urgent need to repair many of Ontario's roads and bridges, most of which are a municipal responsibility.

Other possible reforms include instituting more fee-for-service arrangements for water, sewage and garbage collection. Properly implemented, such changes should be revenue neutral. They would also encourage conservation and recycling. Municipalities should also engage in competitive bidding to get the best deals for taxpayers in areas such as waste management, snow clearing, and the like. And while the province needs to pay its fair share, Councillor Harder would also like to see belt-tightening at home, such as cuts to the $70 million spent each year by Ottawa on consulting contracts, and trimming the cost of the city's workforce.

Ultimately, though, the responsibility of reforming the system rests with Premier McGuinty - and he had better act soon. "By 2007, taxpayers will know who's responsible for this unjust and unfair system," says Councillor Cullen. "Woe betide any provincial government that doesn't respond to angry property taxpayers." The CTF agrees.

By: Tasha Kheiriddin

Ontario Director, Canadian Taxpayers Federation

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