Saturday, September 6, 2014

Sadly, Tying Property Taxes To Inflation Is Progress

Earlier in the Mayoral campaign, with the unsurprising exception of Ford, the other four (then) "major" candidates (Chow, Stintz, Tory, Soknacki) solidified their positions on property taxes around a general consensus that such taxes should match inflation.

A number of people whose views I respect have written some thoughtful pieces on how this is bad public policy:
  • Matt Elliott argues that aggregate measures of inflation like the consumer price index can often be poor guides to what kinds of uncontrollable price increases city operating budgets may face, necessitating a larger-than-CPI tax increase just to maintain existing services. 
  • Cityslikr took Olivia Chow in particular to task over her pledge to say "around" inflation, given the real need for service improvements, many of which she is campaigning on, that won't plausibly fit within the existing city budget.
  • Marc Coward makes a similar point more generally, pointing to things like the growing unfunded TTC "state of good repair" project backlog, and the unfunded repair backlog at Toronto Community Housing.
Throw in a report like this one from U of T's Munk School municipal affairs institute which shows that Toronto's property taxes are low by any standard you wish to use, and have fallen over the past decade, and openly states Toronto "does not have a spending problem" and it's pretty clear all these people are right.  Property taxes do need to increase, and by more than inflation if we are to have the kind of city many of us tell pollsters and politicians we want.

Yet, I can't but see a political consensus that property taxes should increase every year in nominal terms to keep some kind of pace with inflation is actually progress.  The "original sin" of the amalgamated city is our first megamayor, Mel Lastman instituting a 3 year property tax rate freeze.   For those who understand how inflation works, the consumer price index for Canada increased over 7% during that same time meaning the city was (assuming its costs matched the CPI) funding programs & services that cost 7% more, while taking in no additional revenue.  Something has to give.

As the piece linked to in reference to Lastman points out, things did "give" under Miller, where we see the introduction of the vehicle registration tax and the (municipal) land transfer tax.  Perhaps Miller should have just pushed for a big "catch up" property tax increase, but in case, more revenue was badly needed.  In fact, the LTT has been so successful that it allowed Ford to irresponsibly return to Lastman era policies by freezing property taxes during his first budget, 2011.  That means, at that point, in 13 years of being a megacity, Toronto had frozen rates for nearly a third of its life.

Anecdotally I frequently encounter people who really don't get inflation (or how property tax rates work, hence pieces like this and this).  They see the dollar cost of their property tax bill go up, year after year, and see it as a burdensome increase, imagining spend-thrift politicians throwing wild parties with the "extra" cash, rather than just treading water in the ever rising tide that is inflation.  Of course, some people's incomes do not keep pace with inflation either, so it may actually be an increasing burden to them, but in the aggregate, inflationary increases should not be doing so on average.

The point is that politicians like Ford and Lastman are playing to a real constituency of people who intuitively think that property taxes should be nominally the same year after year barring some major new program like a new subway or something that would explain an increase (which politicians like Ford & Tory also try to claim they can do without a tax increase). 

In the face of all this, I can't but see a general political consensus from left to medium-right that property taxes should generally need to increase in nominal terms as some kind of progress.  I'm not clear that it represents better awareness in the general public on these topics (I doubt it), and would still look for the city to increase its revenue take from sources that automatically increase with inflation (like income taxes) so that the city's revenues are not so prone to demagoguery, but failing that, I'll take this as a good sign.

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