Saturday, July 18, 2020

What is the Rationale for the Systematic Property Tax Hike (房地税持续上涨的理由是什么)?


Abstract: In Regina, the city administration has pitched a 3.25 per cent property tax increase, which would cost the "average homeowner" an extra $67.26 a year. In Saskatoon, the property tax increase is respectively 3.7 per cent and 3.87 per cent in 2020 and 2021. This rise does not reflect the city’s services provided, nor reflect the housing market. Moreover, a property can be levied a surprisingly high property tax while the service is poor or nil. While tenants enjoy everything the City provides, they are off the hook as far as the property tax is concerned, and they enjoy an advantageous status during the pandemic as they cannot be evicted and rent increases have to be notified more than 6 months in advance. Education tax consists of a significant part of the property tax, yet education is the responsibility of the provincial government. Therefore, the education part should be removed from the municipal property taxes as that is something for all the income tax payers while this is only for property owners. Higher tax rates could crush many older, retired people living on a fixed income. With higher and higher property taxes and higher house prices, immigrants from overseas find it hardly attractive to come. Under the present tax structure, the more home improvements the higher the taxes will be, which may trigger adverse selection. It is observed that there is no increase their property taxes in 2019 and 2020 in the City of Estevan, and Toronto Mayor John Tory has vowed to limit property tax increases to the rate of inflation. Both Calgary and Vancouver have deferred the property tax payments until September 30. Most cities have a spending problem not a tax problem. A relative stable property tax rate and a fairer property tax assessment are needed, and the provincial government and management of each city need to put this on their agenda for policy review.

Key Words: property tax, home value, city services, financial planning




I. General Situation
1. Saskatoon
Saskatoon’s city council finished budget deliberations on the evening of 27 November 2019, voting through items that raise the property tax increase to 3.7 per cent and 3.87 per cent in 2020 and 2021, respectively. It was the first time the city planned for two years with one budget[i].

2. Regina
In Regina, the city administration has pitched a 3.25 per cent property tax increase, which would cost the "average homeowner" an extra $67.26 a year. The average homeowner would also pay an extra $49.68 per year for a three per cent increase in utility rates. Challenges highlighted in the report include the city's GDP only growing modestly, some parts of the economy being expected to face challenges and population growing, driven by international immigration.

II. Objections
1. CFIB
A CFIB survey revealed that 84 per cent of the province’s entrepreneurs said recent municipal property tax hikes have negatively impacted their business due to more uncertainty. “With Saskatchewan’s entrepreneurs already facing a number of significant challenges, they simply cannot afford to continue bearing the brunt of annual property tax hikes. As one business owner told us: ‘Municipalities need to control their spending and do more with less’”, said Jennifer Henshaw, CFIB’s Senior Policy Analyst, Prairie[ii].

2. SKLA
SKLA maintains that an equitable healthy and resilient rental housing industry requires legislation, regulations, and rules that protect tenants, landlords, employees, and the general public[iii].

3. Saskatchewan Chamber of Commerce
SCC maintains that the present property tax assessment system should be reformed so as to make it more cost-saving and equitable[iv].

III. Rationale for the Hike
1. Cost Recovery
In Regina’s mill rate increase of 3.25%, 2.75% is to be spent on Civic & Regina Police Service Operations including the Mosaic Stadium (0.45%) and 0.50% on Recreation Infrastructure Program[v]. In Saskatoon, the additions come from capital project items, like allocating $440,000 for bridge assessments and $250,000 for the Low Emissions Community Plan in 2020[vi].

2. Sustainable Income
According to the provincial government, traditionally, property taxes were calculated using the ad valorem basis of taxation meaning that your property taxes increase proportionately with the value of your property. Property taxes for a school division continue to be calculated using the ad valorem basis. One’s tax bill will include both municipal and school taxes[vii]. There are fewer cases that property value will go down and the mill rates will not be increased.

IV. Argument
1. Services Provided
The rationale for the tax increase should only be the increase of more services or a higher cost for providing those services. However, in Saskatoon, after tackling the Saskatoon Police Service budget, council has approved to add $120,000 to the Saskatoon Fire Department budget to hire 1.5 full time positions to help with a backlog of property maintenance complaints. Meanwhile the Council also has lowered the budget for a new central library by $20 million[viii]. While cutting on the library funds, the City increases funding on probing into home owners’ yards and encouraging reporting by a large army of next door informers. In Regina, the Mosaic Stadium is a nice project, yet should this project be funded by the home owners? The writer thinks there could be more fair and equitable ways of funding for that such as municipal bonds and user fees (with the latter preferred as it’s fairer way). All those listed above seem quite unrelated to the City’s services provided. Is the property tax hike justifiable?

2. Connection between Taxes and Location and Improvement
Property tax base value depends on the location of the property and the improvements. However, they are not related to the provision of services. The policy of levying higher taxes on higher values works against affordable rental assets and tends to degrade existing stock. Moreover, a property can be levied a surprisingly high property tax while the service is poor or nil. What will that encourage?

3. Home Price Decrease
The Saskatoon MLS® Home Price Index (HPI)—a more accurate measure of house price trends—is down 0.3% from $303,200 in March 2019 to $302,200 in March 2020[ix].

4. One-Sided Tax
Although they enjoy as well the city’s service in garbage collection, road maintenance, tenants don’t have to pay a penny of the property tax. Some may argue that the cost can be transferred. Nevertheless, landlords have to give more than 6 months notice to increase their rent, and they cannot evict their tenants during the COVID-19 epidemic. Is this a fair system?

5. Education Tax
Education tax consists of a significant part of the property tax, yet education is the responsibility of the provincial government. Therefore, the education part should be removed from the municipal property taxes as that is something for all the income tax payers while this is only for property owners.

6. Senior Low Income
Higher tax rates could crush many older, retired people living on a fixed income. While their income is fixed, their expenses including the property taxes vary, which may trigger people to default on payment. City of Regina administration says the number of people who have failed to pay their 2019 property taxes is up compared to the previous year. The list of outstanding property taxes for 1200 properties in the year 2019 spans four full pages with amounts owed for 2019 ranging from $88 to more than $117,000[x].

7. Adverse Selection
As noted before, international immigration has slowed down. With higher and higher property taxes and higher house prices, will they find it attractive to come? Also, since the assessed value will be higher with more improvements, resulting in higher property taxes, will this encourage people to engage in more renovation or not? If not, the city will not enjoy a higher tax base.

8. Good Examples
It is observed that there is no increase their property taxes in 2019 and 2020 in the City of Estevan[xi], and Toronto Mayor John Tory has vowed to limit property tax increases to the rate of inflation[xii]. In Ottawa, the Council has approved a grace period for payment of interim taxes by about a month, and it has also approved the creation of the 2020 Property Tax Hardship Deferral program for residents and businesses that have an assessed property value of up to a certain amount. The residents there will also receive some relief on their water bill[xiii]. Both Calgary and Vancouver have deferred the property tax payments until September 30[xiv].
 
V. Conclusion
Most cities have a spending problem not a tax problem. A relative stable property tax rate and a fairer property tax assessment are needed, and the provincial government and management of each city need to put this on their agenda for policy review.

(Written by Daniel Huang and Samantha Zheng)

房地税持续上涨的理由是什么？

摘要：在里贾纳，市政府已宣布提高房地税3.25％，这将使“普通房主”每年多支付67.26美元。在萨斯卡通，2020年和2021年的房地税分别增长3.7％和3.87％。这一增长既没有反映出该市提供的服务，也没有反映出住房市场的情况。此外，在服务质量差或无的情况下，可能会被征收高得惊人的房地税。租户可以享受市政府提供的一切服务，却可以不管房地税，而且在瘟疫流行期间享有优势地位，因为无法驱逐他们，并且就租金上涨必须提前六个月以上通知。教育税占财产税的很大一部分，但是教育是省政府的责任。因此，应该从市政房地税中删除教育部分，因为教育所有所得税纳税人都应负责的，而这仅适用于房产所有人。较高的税率可能会使许多靠固定收入生活的退休老人抬不起头来。随着房地税房价越来越高，来自海外的移民发现来这里吸引力不大。在目前的税收结构下，房屋装修越多，税收就越高，这可能会引发逆向选择。据观察，埃斯特万市的2019年和2020年房地税没有增加，多伦多市长约翰·托里（John Tory）誓言将财产税增加限制在通货膨胀率之内。卡尔加里市和温哥华市都将房地税的支付推迟到9月30日。大多数城市的问题是支出，不是税收。我们需要相对稳定的房地税和更公平的房产评估，为进行政策审查省政府和每个城市的管理部门都需要将其列入其议程。

关键词：房地税，房屋价值，城市服务，理财

[i] Nathaniel Dove: Property taxes in Saskatoon going up 3.7% in 2020, Global News, 27 Nov 2019, https://globalnews.ca/news/6226926/saskatoon-city-council-raises-property-taxes/.
[ii] CFIB: CFIB Urges SK Municipalities to Freeze Property Taxes in 2021, the Outlook, 21 Feb 2020, https://www.theoutlook.ca/news/around-the-province/cfib-urges-sk-municipalities-to-freeze-property-taxes-in-2021-1.24081473.
[iii] Saskatchewan Landlord Association: Advocacy - Your Voice to Government, https://www.saskatchewanlandlordassociation.ca/index.php?option=com_content&view=article&id=105&Itemid=894, as accessed on 12 July 2020.
[iv] SCC: Property Tax Assessment, please take time to read the document by clicking at the report https://saskchamber.com/isl/uploads/2019/04/Adopted-SCC-policy-resolution-Property-Assessment-Reform-April-2016.pdf, accessed on 12 July 2020.
[v] City of Regina: 2020 Budget Highlights, please take time to check the website https://www.regina.ca/city-government/budget-finance/2020-budget-highlights/, as accessed on 12 July 2020.
[vi] Nathaniel Dove: Property taxes in Saskatoon going up 3.7% in 2020, Global News, 27 Nov 2019, https://globalnews.ca/news/6226926/saskatoon-city-council-raises-property-taxes/.
[vii] Government of Saskatchewan: Municipal Property Tax Tools and Other Taxes, please check https://www.saskatchewan.ca/government/municipal-administration/taxation-and-service-fees/municipal-property-tax-tools, as accessed on 12 July 2020.
[viii] Francois Biber: City Council trims property tax increases for 2020, 2021, CTV News Saskatoon, 26 Nov 2019, please take time to read the document by clicking at the news report https://saskatoon.ctvnews.ca/city-council-trims-property-tax-increases-for-2020-2021-1.4703423?cache=yes%3FclipId%3D89830.
[ix] Saskatchewan Realtors Association: Saskatchewan Residential Real Estate Market sees little effect of COVID-19 in March, 3 Apr 2020, Please take time to read the article by clicking at the link http://saskatchewanrealtorsassociation.ca/saskatchewan-residential-real-estate-market-sees-little-effect-of-covid-19-in-march/.
[x] Jennifer Ackerman: More people failed to pay property taxes in 2019: City of Regina, Regina Leader-Post, 14 Feb 2020, please take time to read the document by clicking at the news report
https://leaderpost.com/news/local-news/more-people-failed-to-pay-property-taxes-in-2019-city-of-regina.
[xi] CFIB: CFIB Urges SK Municipalities to Freeze Property Taxes in 2021, the Outlook, 21 Feb 2020, https://www.theoutlook.ca/news/around-the-province/cfib-urges-sk-municipalities-to-freeze-property-taxes-in-2021-1.24081473.
[xiii] Josh Pringle: City provides property tax relief due to COVID-19 pandemic, CTV News, 25 Mar 2020, please take time to read the document by clicking at the following link https://ottawa.ctvnews.ca/city-provides-property-tax-relief-due-to-covid-19-pandemic-1.4867954.
[xiv] creditcardGenius Team: Coronavirus: Canada Property Tax Deferrals By City, 1 May 2020, https://creditcardgenius.ca/blog/coronavirus-property-tax-deferrals/.
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