A report released by city officials overseeing the so-called “tax reform” proposal could not have been better designed to inflame urban vs. suburban strife. The one-page document, which was handed out at a Tuesday workshop for councillors, shows the effects of “tax reform” by electoral district averages.
For example, using 2007 numbers, under “tax reform” homeowners in Halifax’s south end will see an average reduction of $2,065, a 61 percent decrease, in their property tax bills, with a resulting average bill of $1,317. Homeowners in Eastern Passage, however, will see an average *increase* in their property tax bills of $347, a 35 percent increase, resulting in an average tax bill of $1,334.
The average tax bill in Eastern Passage will be $17 more than the average tax bill in the south end, even though the average tax assessment in the south end, $432,700, is more than three times higher than the average tax assessment of $129,326 in Eastern Passage.
The document is titled “Preliminary Analysis on Best Possible Tax System.” You can see it here—that is the original document, as written, but I’ve added the “change in taxes” column.
While the document suggests that taxes are going to be slashed on the peninsula and raised in the suburbs, it misses the more profound effect of “tax reform,” which is that no matter where they’re located, in general taxes on properties worth less than about $180,000 will go up, while taxes on pricier homes will go down.
Some might look at the chart and say, “Good: the peninsula is being charged less, and the suburbs more, as it should be.” But that’s not the case. It’s more true to say that wealthy people on the peninsula will pay less, while working class homeowners on the peninsula will pay more.
Consider the Bill Gates example: Bill Gates walks into a bar, orders a drink and sits with the regulars. Someone decides to cut his taxes by 80 percent, but raises all the regulars’ taxes by 20 percent. If you package the deal like the “tax reform” chart does, everyone in the bar just got a tax reduction!
This document, which was also handed out at the workshop, starts to get at the effect “tax reform” will have on differently valued properties. It shows that, on average, properties valued at less than $100,000 will see the municipal portion of their property taxes increase, on average, from $490 to $1,170—a 140 percent increase. Meanwhile, properties valued between $500,000 and $1 million will see the municipal portion of their property taxes reduced, on average, from $3,270 to $1,280— a 61 percent decrease.
That document obscures what happens in mid-valued properties, however– it shows merely that properties valued between $150,000 and $200,000 will, on average, see the municipal portion of their property taxes reduced by $60. But “on average” is the operative term— it depends on where in HRM the property sits, but, as I mentioned above, those properties valued at less than about $180,000 will see their taxes increased, while those valued at over $180,000 will see their taxes decreased.
But the proposal is much more complicated than either I or the documents suggest. There are different calculations for apartments and condos, for properties within one kilometre walking distance to a bus stop, within 7.5 kilometres to a “local recreation centre” (but not a “regional recreation centre”) and so forth. Each one of those calculations involved a judgement call by the Tax Reform Committee— a judgement that any other collection of people would likely make differently.
It’s not that the people on the Tax Reform Committee are stupid or used the wrong numbers, but rather that the creating the formula is not an exact science. The Tax Reform Committee evidently thought a one kilometre walk— not 1,002 metres, not 998 metres—is exactly the outside limit of walkability to a bus stop. Someone else might say it’s more than that, or less, or it depends on if you have to walk uphill or not. The Tax Reform Committee thought driving 7.5 kilometres to the gym is exactly the outside limit of accessibility. Someone else might consider the number of traffic lights, or the potholes en route. The Tax Reform Committee gave a 50 percent “density bonus” to apartments. Someone else might look at the situation and decide the bonus should be 47.2 percent, or 98 percent.
In the end, the various judgement calls add up to a truly arbitrary formula— an uncomfortable truth for a proposal that is sold as a rational division of service fees.
Class war
But let’s not lose sight of the overall aim of “tax reform”— which is to shift the burden of taxation off high-valued properties and onto lower-valued properties. It’ is, quite simply, class warfare by the rich.
Many people would disagree with that statement. I recently received a very thoughtful email from a proponent of “tax reform,” who points out that she lives on the peninsula and lives an eco-friendly lifestyle. “I’m really, really, really tired of subsidizing the people who live in huge homes in the suburbs and drive two cars (more when their kids grow up),” she writes. “Most of these people make more money than I do. They are a drain on our collective resources.”
Certainly, “tax reform” has been sold, in part, as a way to encourage density. More crudely, but not so much in public forums, it’s understood in some circles to be a way to shift the tax burden onto the suburbs, where “they’re not paying their fair share.”
People in the suburbs would disagree with that view, of course. But whether that sentiment is valid or not is besides the point, because in reality, under the “tax reform” proposal, the tax shift is greater within the suburbs than is the shift between urban and suburban areas.
Let me use a specific example. The house below is at 64 Oceansea Drive in Glen Margaret, on the road to Peggys Cove.
MLS describes the house as follows:
Main entry to this 5600 Sq. ft. luxury home is special in respect to both its design and its perfectly positioned oceanfront setting is through stone pillars and via a level concrete private drive. The home exudes impeccable design, fine craftsmanship and detailing plus unique and exquisite appointments such as cabinetry, moldings/trim, trayed ceilings and more. Features include as high as 10, 12, 14, and 18 ft. ceilings and a “barrel vault” dining room ceiling with hand painted exquisite motif, stunning island kitchen with abundant space, granite finishes and sunroom. Outstanding main floor family room, master suite like no other with double fireplace and den/office, separate children’s quarters, exquisite bar and games room leading to outdoor entertainment areas. Like the home, the grounds are hugged with unique quality features along 366 feet of prime protected shoreline, wharf and floating dock. This home and its surrounding is an undisputed leader in luxury!
You can buy it, if you have $1,975,000 lying around.
Assuming that the property sells at the listed price, under the existing tax system the happy new owners will pay $15,385 in municipal property taxes annually. But if “tax reform” is implemented the new homeowners will be even happier– their municipal tax bill be decreased 93 percent,to just $1,043.
Now, consider this house, 16 kilometres down the road at West Dover:
MLS describes the house as follows:
Great Starter home in ocean side community, 35 min to Halifax and 5 min from PeggyÂ’s Cove. New flooring, new windows, insulated. Great cottage or year round residence. Private with fruit trees and nice backyard. WonÂ’t last for this price. First time ever on the market.
Obviously intended for a less prosperous buyer, it lists for $115,000.
Suppose, as MLS suggests, a young family buys the house as a starter home. Under existing tax policy, the municipal portion of their tax bill will be $781. But if the “tax reform” proposal is implemented, the unlucky starter family will see their tax bill increase 33 percent, to $1,043.
Yes, you read that right: the ocean front mansion and the back-country shack will pay the exact same tax bill.
This particular example is ridiculous in its extreme, but it serves to illustrate the point: whatever arguments “tax reform” advocates have about the relative costs of city services and density, the main effect of “tax reform” will be to aid rich people at the expense of poor people.
Further, environmental justifications for “tax reform” are simply nonsense. Consider that the Glen Margaret mansion, accessible only by car, will pay just $1,043 in taxes, while the average homowner in North Dartmouth, many of whom have no need for a car, will pay $1,316 in taxes.
There’s really much, much more to say about “tax reform,” and I’ll return to again, before council takes up the matter at a regular council meeting, in December.
Related Stories
Council’s secret “public meeting” on tax reform
Tax reform — the economists speak
Tax Reform Committee’s shoddy work
This article appears in Nov 19-25, 2009.
Thank you for writing this. Feels like front page news to me.
The fact that this has not stopped yet frightens me. Do our councillors (other than Sue Uteck) actually support this?
I know of McCluskey being the only true vocal opponent, though there have to be more, don’t there?
The break down I see so far is as follows:
For:
Uteck
Sloane
Adams*Rankin
Leaning for:
Hum
Dalrymple
Lund
Mosher
Against:
McCluskey
Watts
Karsten
Barkhouse
Leaning against:
Smith
Outhit
The “leaning”s could move, so don’t hold me to them– that’s an early read. The “for”s and “against”s are strongly for or against. The rest are either all over the place or holding their cards close to the vest. I’d guess, with some evidence although he hasn’t said publicly, that Kelly is against.
*Update, 5pm 26November: Council Adams writes: “I can assure you that I am strongly opposed to the proposed tax structure. ” Sometimes I misread these things, and this appears to be one of them. I regret the error.
HRM has a spending problem, not an income problem.
Keep repeating ‘ HRM has spending…….’
To use an old saying ‘If you ask about the taxes, you cannot afford it’
This stupid proposal ignores the fact that the location of your home also affects its value; if you are close to transit in an urban setting then obviously your home is worth more than if there is no transit.
Likewise if you live in an upscale neighbourhood with a nice school full of upper middle class kids then your property will be worth more than the same property on Gottingen Street.
I guess we just need to get all the $150-200K property owners riled up.
I note the Comical Herald is just nowhere on this story, too busy worrying about some obscure Afghans.
What about the other side of the argument? The ‘rich’ are already paying higher income taxes and more HST because they spend more money.
Why should they pay more for the same access to the same services and facilities as anyone else? Property taxes are about paying for municipal services. Just because a person can afford a better property doesn’t mean that they will cost more per capita than anyone else. Providing municipal services is cheaper when population density is higher. So, it is more expensive to provide services to rural home-owners, whether they are rich or poor.
Should you pay a higher license plate fee because your car is a a brand new luxury model or less because it’s a 10 year old junker? Should you pay more for a burger and fries just because you can afford to? With all other goods and services, it’s up to the individual to choose the level and quality they want and how much they are willing to pay.
AnyOtherName– it’s the social contract: our society is structured in such a way to allow some people to become wealthy, and to keep their wealth, and in return, they return a portion of that wealth to help keep running the society that benefits them. Some wealthy people like to portray themselves as self-made individualists, more worthy than their less-wealthy fellow citizens, but in fact about half the wealth in this society is inherited (far more, if you look at wealth tied to housing), and, all the mythology of the fiercely rugged individualist is nonsense– no one at all, but especially the wealthy, could make it through the afternoon, without the assistance and protections provided by society as a whole.
Your argument reduces the relationship between citizens and their government (and therefore to each other) to merely one of purchaser of services, atomizing us from each other. It is the end of the social contract– no one gives a damn about the common good, there’s no room for shared responsibility, I won’t give a dime unless I can see something in it for me.
It pains me to even have to argue for the time-honoured concept of the social contract, as expressed in property taxes. But, that aside, consider what economist Lars Osberg told me:
http://www.thecoast.ca/halifax/tax-reform-…
[Begin cite]”In the short run, [service-based taxation] is bad for poor people,” says Osberg—because it will shift the tax burden off high-end properties and onto lower valued houses. “In the long run, it’s bad for rich people too, because suddenly there’s downward pressure on the quality of public services. Everyone ends up worse for it.”
Osberg says with a service-based taxation system, the public will demand a level of services only to the level affordable by the median wealth of the public—“it’s a great way to mobilize taxpayers to demand fewer services,” he says. “And that’s not what you want to do when you’re trying to get businesses and people to move to town.” [End cite]
Still, I appreciate your comment, and know a lot of people share your view– I have a longer response to it, which I’m working on for an article.
As I understand it, when the TRC was struck it researched the history of how property taxes came into existence, and found that it was introduced in the 1880’s on the premise that the value of one’s home was representative of a person’s wealth or ability to pay. I believe the TRC took as one of its guiding principles that home values should no longer be considered representative of one’s wealth, and instead access to municipal services would be a fairer measure of the amount of tax one pays. I personally think this is a flawed argument – generally the wealthier you are, the more your house is worth. I suspect there are relatively few exceptions to this rule (how many millionaires do you see in Dartmouth North and Bayers-Westwood?), so using one’s house as a measure of their ability to pay seems reasonable.
The issue is that municipalities in Canada are mostly restricted to property taxes for their funds. By law they cannot implement income taxes, which of course is the most accurate indicator of ability to pay, so they look for something which is the best measure of a person’s wealth. I understand the argument that those who do not access services should not have to pay for them, but by that token we should scrap Medicare and only sick people would pay for health care. The philosophy and intent behind our tax system at all three levels of government is simply not set up that way – which I personally think is a good thing, and so do the majority of Canadians, it appears.
Council asked for “Tax Reform” to be a priority in 2006 (I think), but did not really indicate what they meant by that. I suspect what they actually wanted was a way to reduce HRM’s dependency on property taxes. This did not necessarily mean replacing property taxes with another tax system that would entail the same rate of dependency. I would think they just wanted to be able to deliver lower tax rates to their constituents. Unfortunately without legislative changes from the Province allowing municipalities to collect funds in different ways (unlikely to happen), there really is not much leeway in how HRM gets its funds.
Tim, I would like to start with a standing ovation for providing excellent coverage of HRM issues such as tax reform. Aside from reading HRM council minutes, if and when they ever get posted online, this seems to be the only competent coverage. The tax reform issue, like most major issues in Canada, will probably debated in the mainstream media with few facts, many sound bites and a few scare tactics. Perhaps your coverage can provide an opening for honest debate to determine the most appropriate municipal tax system.
I believe there are a few relevent points that should be considered:
1) The combination of outdated assesments and capped assessment values has resulted in taxable assesments that undervalue most of the properties in the HRM. The only properties valued near “market value” are those that have been newly built or purchased. This is most obvious when reading the “Preliminary Analysis on Best Possible Tax System” linked to your article. For example, in District 15 the average taxable property value (presumably HRM code for capped assessed value) in 2009 is $163,700. This means that roughly half (it’s not the median) of the properties are worth less than $163,700; this certainly doesn’t align with the market prices currently posted on MLS.
The overall result is property tax rates that are higher than necessary to compensate for the undervalued properties. This tilts the tax system against anyone who has recently moved into a house assesed at the real market value and causes them to pay much higher taxes than they would if all of the assesmnets in the HRM were at fair market value. This holds true for a $120K Condo or a $1M seaside mansion.
2) Under the current system, the city collects about 5-7% more taxes each year without adjusting rates (due to new construction and valuation increases). This has resulted in a complete lack of control and accountability as council only needs to approve a small rate change each year to increase spending by 7-8% annually. Under the proposed reform the city would only see increased revenue from new construction and would need to raise rates to cover the rest. A council that needs to publicize and justify a 5%+ tax hike every year will natuarally be more accountable.
3) HRM currently pays about $6M annually for the provincial assesment system. This would appear to be a longer term savings opportunity if both the residential and commercial properties no longer required assesment. Commercial properties could simply be taxed by the sqft or some other appropriate measure.
4) When comparing the change in taxes for any individual property under tax reform, we need to ask whether the current tax bills are fair. Is it fair that a modest income family living in an undervalued house for many years only pays $400 per year (municipal portion) in taxes while another family with similar income moves into a similar house that is properly valued pays $2500? Considering that the cost of running the HRM is roughly $1300/household, one could argue that the couple with the $400 bill has had a great deal for many years while the couple with the $2500 bill have been overpaying.
5) Nova Scotians with modest to high incomes are blessed with some of the the most progressive (highest) provincial taxes in the country. New Brunswick put together a nice table that tells the story well – (http://www.gnb.ca/0160/budget/buddoc2009/Interpro…. – Compare NS taxes to Ontario, etc). Nova Scotians with decent incomes will certainly continue to pay high taxes regardless of their property tax bills.
6) The proposed reform contains a number of measures that encourage sustainable higher density development and discourage urban sprawl. Perhaps the most important of these measures is fairer treatment of apartment renters, the tax decreases on their buildings will eventually translate into rent reductions.
Overall, the proposed tax reform addresses a number of issues but is certainly far from perfect. Instead of trying to kill the reform before it can be brought to maturity,it would be encouraging to see councillors debate, ammend, and at least attempt to strike the right balance. For example, there is an enhanced low income rebate system in the proposed reform, perhaps a high income surcharge at the other end of the spectrum would also be appropriate. Also, as noted in your article, some of the factors in the formula are somewhat arbitrary and could be adjusted.
It would be nice to see a debate worthy of a city with over 250 years of (at least somewhat) domocratic history; your articles are a good place to start, keep of the coverage.
RB
Looks like Cranky picked the perfect time to buy a starter home. Eventually, Cranky will live in the country beyond HRM and never look back. Have to cut back on the heating until then…
RB– I agree that the assessment cap introduces unfairness into the system– I lived through Prop 13 in California, and saw where the cap logic leads. At least Nova Scotia hasn’t capped commercial property, like California did; unlike people, corporations rarely die, so a commercial cap essential says you’ll never raise taxes on corporations. (dollar amount through inflation, I mean) But those are provincial matters, not municipal. (Actually, any changes to the tax code will have to be approved by the province, and I can’t see any provincial government of any party agreeing to a plan that substantially increases taxes on rural properties, so “tax reform” is dead in the water, no matter what council does, imo.)
As for increasing assessment values automatically bringing in more money to city coffers, it doesn’t have to be the case. This past city budget year, council voted to for a tax structure that only increased revenues to match the Canadian municipal services inflation rate. (That rate is somewhat higher than CPI, because construction costs, which have been increasing at very higher rates, are more heavily weighted than in the overall CPI). You can (and should) argue whether or not that was pegged at the right dollar amount, and therefore the right tax rate, but I believe it was a well-intentioned measure to not let municipal expenditures get out of control. At any event, it was lower than doing nothing would have brought in.
One thing about “tax reform” advocates, which you echo, is the confusion of “wealth” and “income.” People invest in houses for a very good reason– they are great reservoirs of wealth. Historically they have tended to gain value, and for all the bitching about increased assessments, for the past decade real estate has been bringing higher returns than any retirement plan that I know of, or the stock market generally. It’s a truism: everybody wants their property values to go up, but not their property taxes. On the value side of things, increased property values means increased wealth– your house becomes an asset that can be borrowed against for retirement, to put children through school, to start a business, as protection against emergencies, etc. This wealth matters— a lot. It fundamentally defines the class structure in this country.
Backers of property taxes confuse this— purposefully, by my reckoning— by talking about “ability to pay,” as a reflection of income. The stereotypical example is the old widow living on her husband’s pension who is being priced out of her house by rising property taxes. But here’s the thing: that widow does not exist. HRM allows anyone to avoid paying property taxes by rolling the amount owed into a lien on the property (up to 75% of the assessed value of the property, and no one at all is even remotely close to meeting the limit), which is then paid off when the property is sold. Every widow keep her house, it’s not a problem. But, what backers of “tax reform” are really arguing is that other people should pay more in taxes so that the widow’s heirs will have a larger inheritance.
The city’s program to offset property tax bills with a lien, btw, also helps those facing emergency financial problems, getting laid off from their job, etc. It allows people to not worry about losing their house, and in fact, the higher the assessed value of the house, the more protection they have. That’s obvious of course– it’s why people want their property values to go up.
For the record, I ran the numbers on my house, and under “tax reform” my tax bill would be reduced by about $200 annually. I’m opposed to this.
House-keeping notes:
The numbers used in this article reflect present-day assessments, but the “tax reform” proposal as put forward in 2007. The “tax reform” proposal has already been slightly changed with regard to transit taxes, but the difference is small, and not immediately available in any case. City staff is still using the 2007 numbers, and I mirror that for consistency sake.
Also, I neglected to state above (in the comments) that councillor Russell Walker is also firmly opposed to “tax reform.” He’s been one of the most strident critics of the proposal.
Today was another day in the ‘Planning for Retirement’ exercise.
Quickly discovered that in Nova Scotia a couple over the age of 65 with an annual income of $25,000 would pay NO INCOME TAXES.
My significant other wanted to know how much we will have when she hits 65 and the two of us are retired.
Came up with a retirement income of $50,550 from RRIF, CPP,OAS & pension plan
Taxes based on current allowances would be $6,400; net income of $44,150.
Whoopee!!
Because of income splitting for pensions (thank you Mr Harper) we would thus have $3,700 a month to live on.
Sell the house, rent an apartment and then put cash into the TFSA (thank you Mr Harper) for the next several years, ($10,000 a year )and increase our income but NO increase in income taxes.
I’ll have to stop bitching about property taxes.
Tax Reform – sink it. Dumb idea.
Great, if it stops sprawl and leads to the redevelopment of some older/rundown areas on the peninsula and less commuters I’m all for it!
The last time I checked I paid income tax based on my income, gas tax based on how much gas I bought and HST based on what I purchased. I would expect my municipal taxes to be based on what I cost the municipality. It’s probably a lot cheaper for the city to take out my trash/ plow my street/ take away my sewage where I live in my high density South-end home then in some remote newly built HRM suburb. Why shouldn’t I pay less? If you feel 50% of my income going to income taxes isn’t enough then raise it higher. Don’t pretend my family of four has some magical consumption of municipal resources that is higher than a family of four on the outskirts of HRM.
Tim,
you do make good points in relation to the service based tax system, however, this is quite frustrating when you look at it from my side of the argument. I recently purchased a home on the eastern shore, off of highway 107. I am not in a subdivision, I have a well system, and my own septic field. There is not a fire hydrant in sight, I am about a 48 hour walk from the nearest sidewalk, and the nearest bus stop is approximately 30km away. I do have regular garbage pickup, however, I am not exactly high up on the list for quick snow removal. Shouldn’t the people that have access to these services pay a rate based on that accessability? I have a family member who owns a home in Eastern Passage and has everything that I do not, city sewage, city water, fire hydrant across the street, bus stop 2 doors down, and sidewalks on both sides of the street. I pay about $1500 more a year than my family member. This does not seem fair to me.
I am not saying that I agree 100% with a service based sytem, but a combination of assessment and services based systems would be ideal i think. I don’t think that my family member in Eastern Passage should be paying more than me because they have access to more services, because my home is assessed a fair bit higher than hers, but a slight shift in that direction would be a little more balanced i think. Like AnyOtherName mentioned, should a wealthier person pay more for a burger and fries than someone who is less financially stable, just because they can? Money was created based on the barter system, therefore, you trade a sum of money for a good or service of equal value, why is my family member getting her services for a discount, while I have to pay full price???