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Economic crisis shines a light on property taxes

Woolwich council’s discussion this week of support for residents dealing with the coronavirus-related economic hardships underscores a larger problem faced by all municipalities: deferrals only put off the pain rather than addressing people’s ability to pay property tax.

Already somewhat regressive in that they disproportionately hurt lower-income residents, who pay more of their incomes for housing – and associated taxes – than do wealthier residents, property taxes don’t reflect people’s ability to pay.

By comparison, the income taxes that people pay will slide in proportion to the economic hit they take: lower income, lower taxes. To a certain extent that applies to sales taxes: buy less, pay less. In both cases, federal and provincial coffers take a hit, but the tax burden is lessened for those hurt most by the recession.

Both the federal and provincial government have been hit with a double whammy in that revenues are down markedly and spending has soared thanks to a variety of income-replacement and similar welfare programs. That spending is fuelled by debt.

In Ottawa, the Parliamentary Budget Officer predicts the federal budget deficit will be 252 billion in this fiscal year, a tenfold increase from the previous year. But analysis has shown that a short-term hit can be tackled post-recovery without large cuts to services or tax increases, thanks in large part to borrowing costs that currently amount to about a third of a penny on the dollar.

Whether we see sound fiscal management of the resultant debt remains to be seen, but there’s a chance to avoid too much short- and medium-term pain, barring a protracted crisis and even more borrowing, an assumption that would preclude corporate bailouts and massive handovers to municipalities, who are already angling for assistance from senior levels of government.

Municipal governments are precluded by provincial law from running deficits, and don’t have the borrowing power Ottawa does. So if they’re going to tackle the regressive nature of property taxes – say by reducing taxes commensurate with the length of the downturn for those hit hardest – the savings are going to have to come by cutting spending this year. Operating budgets are the obvious target.

To date, however, there’s been no discussion of sharing the public’s pain in that regard. It’s an ideal time to take a look at spending, determining what’s essential and what can be cut to the public’s advantage.

In Woolwich, for instance, there have been some cuts, particularly in the recreation department where facilities have been shuttered and programs cancelled. Overall, there’s a recognition that revenues are down and costs have to be adjusted accordingly. Along with low-level layoffs, measures under consideration include putting off some planned spending for this year.  The discussion hasn’t extended to waiving property taxes, which would require deeper cuts.

While municipalities have been requesting more financial assistance from Ottawa and Queen’s Park, transfers have typically been going down – in a related vein, local shares of gasoline taxes will reflect a drop in demand – and the financial bind up the food chain is likely to lead to more of that.  The scenario we can expect to see goes like this: the federal government cuts transfer payments to the provinces as it brings its own spending under control; the provinces make their own cuts to cope with decreased revenues, necessitating cuts to the municipalities; municipalities find far fewer grants and supports coming from Queen’s Park, they’re forced to find savings in their budgets – perhaps by trimming the fat they’ve accumulated over the last few years.

Some hard choices may have to be made. The sooner that conversation starts, the easier it may be to set priorities.

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