by Marilla Stephenson

Does Halifax need tax reform, or does it need spending reform?

In any discussion about tax reform, a question of trust tends to emerge. Taxes tend to go up, rather than down. Tax changes tend to mean more revenue is collected, rather than less.

And even though costs rise with inflation and taxpayers demand more services, it’s also true that governments have danced down the yellow brick road of taxation by stealth: adding user fees and dedicated charges to fund services previously covered through general taxation.

At every corner, it seems, tax burdens are rising.

Taxpayers in the Halifax region have good reason to be skeptical of recent calls for the city to adopt an income tax model as a means to collect revenue.

That the idea is being championed from both the right and left of the political spectrum is an interesting twist on traditional political alliances. The folks in the middle, both politically and economically, stand to be the biggest losers if municipal taxes based on property assessments are replaced with income taxes.

So who is pushing this agenda?

First at bat was the Canadian Centre for Policy Alternatives, a left-wing public policy group that released a report last summer calling for municipal income taxes.

That report also requested
$158 million in new spending. While $114 million of that money was to come from ending transfers to the province to pay for “people” programs, the report then asked Halifax taxpayers to fund myriad new social programs that are clearly under provincial jurisdiction.

There was no acknowledgment that provincial taxes would have to rise to cover the uploaded costs from all 54 municipalities.

Next up was the Nova Scotia Chambers of Commerce. Its report criticized the property tax system as antiquated because tax bills bear “no relation to the demand placed on the system or the cost of the service received.”

It went on to call for municipal taxation based on “either ability to pay, demand placed on the system or benefit received.”

In reality, reconciling those principles would not be easy. Halifax already had a tax reform committee that tried, within the existing property tax model, to balance the cost of providing services with the ability to pay. The report was killed by a council unwilling to shift even a portion of costs from high-assessment neighbourhoods and thriving business districts to lower-income urban, suburban and rural communities, where there tend to be more consumption and/or service costs but less ability to pay.

When it comes down to the vote, councillors always favour the residential side of the equation and middle-class voters.

The chamber report asked that the cap on residential assessments be removed and that the province legislate the allowable gap between municipal and commercial rates at 1.5 per cent.

The same legislation exists in New Brunswick, but Nova Scotia has avoided it in an effort to protect residential ratepayers. The result is gaps in rates that average about 2.5 per cent.

The report called for property taxes to be phased out over 10 years and replaced with income tax, but it was not clear what share it expected businesses to pay.

Batting third was the report from the Atlantic Institute for Market Studies, which called for a combination of consumption and income taxes to replace property taxes. Again, the focus was on assessments, rather than the rates councils set.

AIMS also trashed the residential cap, calling for it to be lifted. There was also some fairly liberal twisting of the findings of Halifax’s tax reform committee in an effort to bolster the argument in favour of income taxes.

The AIMS report made the valid point that property assessments have risen roughly twice as much as income over a 10-year period. What it failed to note, as I outlined in Tuesday’s column, is that it is the tax rate that is applied to property assessments, more so than the assessments themselves, that determines how much tax a municipality collects. It is up to the municipalities to be responsible for the rates they apply to assessments.

The reports borrow from each other’s findings but seem woefully short of justifying how income taxes are supposed to be related to the costs of the municipal property services they are expected to pay for.

In one breath, there is a call for equal billing for the same services. In the next, those with higher income are expected to pay more, regardless of the cost of providing services to a property.

This debate seems to be spinning in circles. The biggest threat — a fuzzy allocation of tax responsibility to commercial ratepayers — seems to have been missed altogether.

Reasonable, timely changes on tax reform are needed soon, not years from now after onerous provincial political haggling. There is plenty of room for the assessment process to be improved, but land value still provides a reasonable reflection of ability to pay.

It’s also past time for the gap between commercial and residential rates to be addressed. But there is such a thing as over-correction.

Meanwhile, the fact that Halifax has the highest residential and commercial rates in Canada was all but ignored. Tax reform, or spending reform?

Driving more people out of this province with income tax hikes that would be a disincentive to our workforce, while hitting hardest at our shrinking middle class, is not the answer to municipal tax woes.

The current debate should be about the costs of property services and how those costs should be shared among users. Shifting to the fuzzy world of income taxes would do nothing to improve transparency in municipal taxation or greater accountability for councils.