Cap Property Taxes to Limit Municipal Spending

Canadian Taxpayers Association December 18, 2007
Federal and many provincial politicians have successfully lowered taxes and balanced their books. But taxpayers are losing many of these gains because some municipalities are raising taxes at alarming rates. The problem is the creation of spending wish lists before the consideration of available revenues. One solution is to cap property taxes, providing predictability for local government and certainty for local ratepayers.

The role of municipal government is determined by provincial legislation. Municipalities are responsible for a variety of services such as: fire and police, garbage disposal, by-law enforcement, water and sewerage, recreation programs and services, animal control, libraries, traffic control and infrastructure, zoning and building regulations, and city parks. Where does most municipal revenue come from to do all this? Property taxes.

Unfortunately for property owners however, the local budgeting process is backwards. For a municipal government - spending, not revenue - determines the tax burden. Instead of looking first at revenue then making spending decisions, they decide how much they want to spend first to determine how much tax revenue has to be collected to cover it. It would be like a provincial government creating a list of everything it wanted to spend money on and then applying whatever tax rate(s) were necessary to balance the budget. Imagine if sales and income tax rates swung wildly each year. It's time to turn this process around.

So it's no surprise then that property taxes are on the rise across the province. In Vancouver, residential property taxes may rise by 6% in 2008 to fund more Olympic spending and big union pay increases. Promoters of municipal spending sprees might argue that Vancouver has to look good for the Olympics, but increases are not isolated to Vancouver.

Residential property taxes may go up by 6% in Kelowna in 2008 as well. About half of the property tax increase in Kelowna is because of the construction of the $44 million Aquatic Centre. This is reminiscent of the $37.6 million expenditure on the Tournament Capital Centre in Kamloops. Because of that project, the municipal government in Kamloops can't find the money to build a $40 million wastewater treatment plant. Property taxes are only going up by 2.5% in Kamloops this year, but surprise surprise, it's an election year.

Without some type of constraint, municipal governments have no incentive to rein in spending on prestige projects or limit demands from special interest groups. They might be able to dip into reserves one year, but taxes will still have to go up at some point. Budgeting in the real world is about limitations. No one creates a household budget with new vehicles, vacations and maid service and then determines what salary their employer must pay them each year to make it all work. Taxpaying households have a limited budget to work with each year, and so should municipal governments.

A property tax cap would limit municipal spending and allow a fixed annual increase – tied to the cost of living – and that’s it. If politicians wanted more, they could hold a referendum and indeed, many such referendums succeed if ratepayers determine the spending appropriate. A tax cap would provide predictability for both homeowners and local government alike. It would also give local politicians the tools to say ‘no’ to incessant demands to increase spending with every proposal that crosses their desks. Finally, it turns local budgeting right-side-up by putting taxpayers in control rather than spend-happy local councils.