According to the Canadian Federation of Independent Business (CFIB), the idea of a municipal income tax is “loony,” “unworkable” and “impossible.” Someone better get on the phone to Belgium, Norway, Germany, Switzerland and Iceland and warn them. In each of those countries, income taxes or income surtaxes make up in excess of 75 per cent of municipal revenues. In Denmark, Finland, Luxembourg and Sweden, that figure is over 90 per cent.
And before we get caught up in a debate about unitary versus federal states, let’s note that even the tax-hating U.S. sees over five per cent of municipal revenues come from income taxes.
For that matter, municipal income taxes are not even unknown in the Canadian context. Before the federal government had to finance a world war or two, income taxation in Canada was largely a municipal phenomenon. Unfortunately, the feds got hooked on that revenue; and the provinces, having to split that booty two ways, quickly brought to an end the pre-existing municipal income taxes so as to avoid having to do a three-way split.
In Canada, then, it wasn’t economic or administrative difficulties that led to the abandonment of municipal income taxes; it was a political decision made to empower and enrich provinces at the expense of local communities.
A political decision could just as easily turn back that clock, and there are lots of good reasons to consider doing just that.
A mix of income taxes and user fees, as suggested in a recent paper published by my institute, would avoid many of the common “root” problems associated with property taxation.
The “lift” would no longer be automatic: If a council wants to raise taxes, it would actually have to vote to raise taxes. No more stealth taxation through value increases that can be blamed on someone else, while the rate, set by council, is “frozen.” At the same time, the almost total lack of a connection between taxes charged and services received could be eliminated (if a council could find the will) or certainly significantly reduced.
Ability to pay might also be improved with a wider tax base funded by an income surtax or by a creative use of more user fees, coupled with an income-contingent rebate on taxes collected, as was done with the GST. No more having a widow of a retired sheet-metal worker unable to pay the property taxes on an unchanged family home now worth millions because of property speculation. No more 300 per cent increase in a small business’s tax bill just because of its geographic location.
On the other side, service expectations could be dampened as well. No more need to cave to ever-increasing demands for special or “luxury” service levels like extra sidewalk clearing or subsidized rural transit. If the base model is “you want it, you pay for it,” then council can just apply the rule and move on. Certainty, predictability and accountability, all rolled into one.
A shift to income-based municipal taxation should not be used, as the federal shift was, to enrich and expand government and organized interests. It should be revenue-neutral at worst; and given the potential administrative savings, we could readily mandate that any tax shift should result in overall tax reductions for overtaxed Nova Scotians.
The elimination of annual tax assessments, the property assessment process, and then the associated assessment appeals, and private expenditures on counter appraisals and legal costs, all represent a source of real savings for government and for us, the ratepayers.
These are just a few of the potential cost savings and service efficiencies that could be achieved by a surtax and user-fee model.
There would be no need for municipalities to become either income tax experts or income auditors (the Canada Revenue Agency and provincial Department of Finance can handle that quite nicely, with their existing staff) and no reason for municipalities to forgo tax revenue from fixed assets, drawing explicit, billable services from their community.
Given the clarity and flexibility of this income-based tax model, it is perhaps unsurprising that there are so many “loons” in favour of looking closely at this approach. Naheed Nenshi has suggested it in Calgary, and similar proposals have been made in Toronto and Ottawa-Carleton. Professors Wade Locke, Enid Slack and Harry Kitchen, deep thinkers with national and international reputations, have outlined in great detail the case for abandoning a property-based system for an income-based one.
Perhaps, being “loons,” they have used the gift of flight to gain a more global perspective, and figure if income-based municipal taxation was workable here before, and continues to be workable elsewhere, then there is little reason it can’t be workable here again.
Charles Cirtwill is president of the Atlantic Institute for Market Studies, an independent economic and social policy think tank based in Atlantic Canada.