It’s no secret the Halifax Regional Municipality’s tax collection model is inefficient, finicky and at times unfair.
The debate over reforming the tax code has come up time and time again and in each instance it sputters into collapse. Sometimes it can be really hard to change the status quo.
However, things are different now with a new, leaner council and mayor in favour of reform; this could be the best chance to change the way the city gets its revenue.
But what tax model makes the most sense for HRM’s citizens, businesses and the city’s coffers?
A new form of tax collection has emerged in the debate that could be the lesser of all evils and it has the support of left and right wing thinkers.
“The debate has been highlighted as being between service-based or assessment, and I think I have to clarify that’s only in North America where that conversation happens,” says Charles Cirtwill, president and CEO of the Atlantic Institute for Market Studies.
“The rest of the world is far more open about how taxes should be collected at the municipal level and, in fact, if you look everywhere, except former commonwealth countries, just about everybody is using, as a principal basis, income taxation.”
Income taxation? Yes that’s what you give the federal and provincial government every year. For the most part it’s automatic, notwithstanding a trip to H&R Block once a year.
The Way Forward: Income Taxation
It may seem strange at first to imagine the city of Halifax collecting income taxes, but countries all over the world have been using this model — including New Zealand and Finland.
It was the norm in Canada before the federal government introduced its own income tax to help finance World War I. The provinces cut off the municipalities from collecting income tax so they wouldn’t have to share it with two other entities.
Most contemporary examples of municipal income taxation use what’s known as a surtax system.
Cirtwill breaks down how it would work for us, if it were adopted in HRM.
“In the Canadian context, you tax your income the way you always do, fill out your form, put in your provincial and federal credits and you’re told how much income is actually taxable and at what amounts,” Cirtwill says.
“At that point the municipality would assign a surtax, so it would be four, five or six per cent, whatever your provincial tax owing is and that’s what they’d collect. And that tends to be the simplest and most efficient way for municipal taxes to be collected.”
It may seem like a lot coming off of your income, but this would result in no property taxes, which would be reflected in lower mortgages and, in theory, lower rates for renters.
It would also mean less stress about property value — if your area suddenly skyrockets in value, a spike like the one the North End of Halifax has been experiencing, business owners wouldn’t have to worry about a sudden increase in their tax bill.
Mayor Mike Savage, a proponent of tax reform, says he likes the idea of switching to an income tax model, but admits more study and debate is needed.
“There’s been a bit of momentum around the idea of income-based taxes municipally, as we do federally and provincially,” Savage says. “I’ve met with people about that, just to get their point of view, and you’ve got people on the political right and the political left both saying we should look at that.”
Savage says a switch to income tax would be a long-term goal rather than a quick fix, but there’s still work that can be done in the meantime.
“There’s a whole set of questions that need to be answered, but I think it’s a discussion we need to have,” he says. “It’s not something that’s done much in North America. Some other jurisdictions have looked at it, but it’s a longer-term possibility. But I like the idea.”
One way or another, Savage says that municipal taxes, in particular commercial taxes, need to be changed.
“In the short term, I think we have to look at things like de-linking commercial taxation from residential taxation and we have to look at if it should be purely assessment. How do you factor in services rendered? How do you factor in square footage?” Savage says. “We’re looking into places where taxes are going up dramatically and if we can average that out over a period of years it could lessen the burden. There are all sorts of steps in the process; we’re looking at those now and I think at some point council will have a discussion on taxation and decide where we’re going to go.”
The Business Park Perspective
Sean O’Boyle, chair of the Greater Burnside Business Association (GBBA), says he doesn’t want to advocate for one tax system over another, but says it’s important for HRM to look into reform.
“I think it’s a common refrain that the business community feels it’s either taxed to the maximum or overtaxed,” O’Boyle says. “There’s often a sense that in Burnside we don’t see a corresponding benefit to the amount we contribute to the tax coffers. That’s probably one of the most common issues I hear from people, that we’re contributing as much as Downtown Halifax or anywhere else in terms of generating tax revenue and we certainly don’t get the corresponding level of expense put back into the community.”
O’Boyle says based on discussions he’s had with fellow GBBA board members, taxation means different things to different types of businesses. A large warehouse or factory-style business will incorporate its tax-rate into a long-term business plan when determining where to locate, but a smaller retail business will focus more so on things such as traffic or available municipal services, such as transit.
In HRM, commercial taxes are significantly higher than residential and there’s a growing sense of this model needing reform. One member of the GBBA who didn’t want to be named offered this example:
“Businesses don’t get to have their garbage picked up and have to pay for their own garbage collection directly, in addition to the higher tax. Assessed values of properties have nothing to do with a business’s ability (or not) to pay tax. At the same time, taxation policy is such that the costs are spread so that everyone shares in the burden.”
The Status Quo: Assessment Taxation
Darren Fisher is the regional councilor for the Burnside area and he says something needs to be done to make commercial taxes less tumultuous.
“We don’t want to have the highs and lows that we had last year, where we had some people that experienced huge increases in their commercial taxes,” Fisher says.
Businesses can appeal their property’s assessed value if they feel it’s inaccurate. Appeals cost the municipality millions of dollars each year, an expense that would be wiped out without property tax.
“There were a lot of appeals last year because of those huge spikes,” Fisher says. “This year appeals are way down. It seems like last year was a real nightmare for some people.
“I know of a business owner last year that had a book store, they moved from a lower value building to a higher value building next door, had essentially the same square footage and their taxes doubled,” Fisher says, noting their ability to pay didn’t increase, but the value of the property did, putting a larger tax burden on them.
Fisher says the reason why most municipalities use the assessment model in North America is because it’s extremely difficult to find a system that works for everyone.
“There are people out there who say ‘I don’t want to pay for sidewalks, because I don’t have sidewalks’, but if they go to Downtown Halifax they’re using those sidewalks,” he says.
“Tim Outhit (Bedford councilor) said it perfectly the other day: ‘We all pay for things that we don’t use and we all use things that we don’t pay for.’”
Fisher notes that an income tax model is an important thing to discuss, but he says it would be difficult to win approval from the province and federal government, especially considering that HRM would be the only municipality in the country using it.
“There’s no question that property tax based on assessment is cumbersome, but I don’t know if income tax is the best way to go,” he says.
Pay As You Go: Services Taxation
Reg Rankin, regional councilor for Timberlea, which includes the Bayers Lake Business Park, has been a major proponent of tax reform, often stating a services rendered model is a way to go.
“I’ve advocated for a tax model of services rendered for residential taxes, but it’s very difficult to ascertain that for businesses,” Rankin says. “I don’t think businesses will be treated the same as residential and that’s where the multiplier comes in.”
Rankin, who brought the idea of reforming taxes to council before, which voted it down by one vote, says an uphill battle awaits anyone trying to push through major changes to the tax code.
“It’ll be hard to get tax reform rolling now because we’re planning the budget for 2013–2014 and there was a new council and mayor in October,” he says. “How long did we struggle before? I was on that committee for well over a year and got frustrated, so against that experience I don’t expect we could incorporate tax reform in this particular budget.”
Despite that, Rankin is hopeful the debate will eventually spark some real change.
“I want it to come up again, we have to make the time and start with commercial,” he says. “Now I think we have to deal with the inequities in how businesses are taxed throughout the HRM.”
If taxes change, some will pay more and some will pay less than they do now. That seems like a fact most acknowledge. However, one thing most parties admit is that something needs to change.
Cirtwill has the final word here:
“The only thing we recommend absolutely is the total elimination of property taxes because they’re inefficient, wasteful, have no connection to the services you’re seeing, no connection to your ability to pay and essentially are a drag on economic investment and business activity,” Cirtwill says.
“The elegance of the income tax model is you can ensure — not with 100 per cent certainty, but to a higher degree of probability — that those who have bills that go up can afford those bills to go up,” he says. “And the people whose bills stay the same or go down are the ones that should be going down. Either because they’re consuming fewer services or they have a lower ability to pay.”
And of course, it would give citizens a better ability to point fingers, something we can all enjoy.
“If it’s an income tax rate that council has to vote on, you know who to fire in the next election,” Cirtwill says with a laugh.
Property Taxation (current model): Each properties value is assessed and extrapolated based on square-footage. The property owner is then taxed based on that value. Many mortgages/leases include the tax in monthly payments.
This is how municipal taxation works in most municipalities in North America.
HRM invoices property tax bills to all property owners twice a year. The tax year covers the fiscal period between April 1 and March 31. The interim bill is the first installment and is mailed in March and is due the last working day in April. The final bill is mailed in September and due the last working day of October.
Darren Fisher admits that the system can be cumbersome, but notes that there’s a reason why almost all cities in North America use the property assessment model.
More information such as tax rates can be found here: http://www.halifax.ca/revenue/tax/
Services-based Taxation: Property owners pay for the services they receive. If the property has sidewalks, transit and other services within a certain range, that property owner pays for those services. If a property is not near those services, they don’t pay for all of them. Most will end up paying basic infrastructure costs such as roads, fire, police, etc. But if a transit route isn’t near the property, then that owner will not pay a transit portion of their bill.
Reg Rankin, who supports this model, notes it has only been studied for HRM at the residential level and not commercial.
It’s been argued this system would benefit those in more rural areas of HRM, such as Fall River or Timberlea, where many of those services are sparse and residents still pay for them. However, it could be a blow to the municipality’s revenue.
Income Taxation: Much like federal and provincial income tax, a municipal income tax or surtax would eliminate the need for property assessment and divvying up service areas, such as in the first two models. Individuals and businesses would be taxed based on their income or ability to pay.
This system is common in European and Asian countries and proponents of municipal income tax say it’s far less cumbersome and inefficient than other methods. If a property’s value were to suddenly drop or increase, it would not affect the yearly tax bill, which has caused contention and appeals under the current system.
A major roadblock to passing municipal income tax would be the necessity to involve the federal and provincial governments to approve a change. It’s been noted the federal and provincial governments might not like the idea or splitting income tax with another entity.
The income tax would be set at a certain rate, for example six per cent of taxable income, giving the municipality further power to adjust how much citizens and businesses pay. It would also stabilize the revenue stream, giving the municipality a better opportunity to plan ahead for future developments.
Thinkers on both the left and the right of the political spectrum support this model. However, if it were adopted, HRM would be the only municipality in Canada using it.
Mayor Mike Savage supports the idea of this model, but admits that more discussion is needed.