Tex Enemark, Special to the Sun
Published: Thursday, March 13, 2008
A tax too far
Municipalities pile the load on the business and industrial taxpayers. And nobody cares until the plant shuts down
Every year, in early March, municipal councils go through the process of setting their budgets and then deciding how to pay for what they want to do.
Or rather, how they are going to get property taxpayers to pay.
Two things make the dance more interesting this year. Last year the Metro Vancouver municipalities signed expensive new labour contracts. And this year is election year!
Municipal politicians, sensitive even in off-year tax rate-setting discussions, will not want to annoy the municipal voter any more than necessary.
The almost inevitable result will be a further increase in the property tax load piled on to the hapless folks who cannot vote -- the commercial, business and industrial taxpayers. And who gives a damn about them?
For years, British Columbia's mines, mills and factories have seen ever-increasing property taxes imposed by municipalities. For many, property taxes are now much higher than income taxes.
Complaints to the province are voiced. Statements to local papers are made about the possible impacts of such increases on new investment, expansion, modernization and jobs. But, in many cases, the story does not run.
Then folks seem surprised when the sawmill, or pulp mill, or whatever closes because it is no longer competitive.
Why is it not competitive? Because capital is taxed at such outrageous rates by municipal politicians that new investments are not affordable or justified.
The basic problem is that municipal politicians are afraid to tell residents that, if they want services, they have to pay for them.
The residential taxpayer can expect some subsidy from industry, but what some municipalities are now extracting from industry to subsidize residents is scandalous, and the highest in North America.
Let's look at one unnamed municipality. Until 1983, the province dictated that the tax rates applicable to various business classes were a fixed multiple of the residential rate. In the municipality at hand, the ratio was that major industry paid 1.45 the tax rate that residents paid.
The municipalities claimed for years that they needed greater "flexibility," and Victoria in 1983 gave in. In truth, the majority of B.C.'s municipal governments have used their new powers responsibly. But too many have not.
So, our illustrative municipality raised its residential tax rates very little, but major industry's have gone up and up. And up. The ratio doubled to 3.11 to 1 in only five years, then tripled in the next decade to 10.78 to 1, and then nearly doubled again over the past decade, to 19.85 to 1 last year.
What this means is that there is a municipal tax of nearly five per cent on the assessed capital value of a property.
Let us, for sake of illustration, spell out what this would mean if a residential taxpayer were bearing those taxes: A house assessed at $500,000 would pay almost $25,000 in taxes. That's right, $25,000. Would the owner stand for it? No. So why should industry? But the residential taxpayer pays only 1/20th of that, or about $1,250.
Does this tax difference seem fair, equitable, or wise? I argue it is none of those.
The Vancouver Sun ran a story the other day about 10,000 forestry jobs lost. Well, a mill assessed at $20 million pays, at these rates, $1 million in taxes.
Do not think this is unimportant. I suggest every municipal councillor should remember U.S. Chief Justice Marshall's dictum, "The power to tax is the power to destroy."
To its credit, the provincial government in the past few years has recognized the problem as it relates to port terminals, which were paying seven times the taxes their competitors pay in Seattle. It was big dollars and new investment had ceased.
The province acted. The result has been about $700 million in new investment, with about another $2 billion coming in the next decade, guaranteeing large job increases and a more stable regional economy.
But the problem remains for everyone else.
Well, what will this year bring in our un-named municipality, which has the highest per-household expenditures in the Lower Mainland, and no auditor-general to examine waste and mismanagement?
Will council again raise the major industry tax rate? Seems likely, given it's an election year. But what can industry do? It cannot vote. Complaining to the media does no good because, frankly, who gives a damn about industry until the plant shuts down, by which time it is years too late?
Maybe all industry can do is take out big ads in the major newspapers with a message to potential investors saying "Do Not Come to Our Town," and thereby inform others of rapacious taxes and municipal insensitivity.
Maybe it is time to take the issue of confiscatory municipal taxation to the Supreme Court of Canada. Maybe there could be a focus on municipal waste and mismanagement by offering to reward whistle-blowers.
These are only a few ideas, but you get the picture. Maybe it's time for industry to fight back.
Tex Enemark is a public policy consultant who advised the B.C. Wharf Operators Association during a seven-year struggle to have their highest-in-the-world property taxes reduced. |
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