Big cities should look after their own tax revenues
Premier Jason Kenney has signalled he intends to hold a referendum on federal equalization during the 2020 municipal elections. Rather than bellyaching about the inconvenience of it all, Edmonton and Calgary should propose a referendum of their own to keep all their property tax income.
Edmonton doesn't have as much of a grievance as Calgary yet, but I predict they will soon. When provincial governments get into trouble, one of the ways they try to address it is to reduce transfers to other levels of government. The provincial government is in a pile of trouble with a $24 billion expected deficit. In the interest of self preservation, Calgary and Edmonton should lead the charge on a swap — agree to end all provincial transfers in exchange for keeping the provincial portion of the property tax.
When Premier Ralph Klein changed the funding model for schools to a per student model in 1994, the “education tax” became a relic. It goes into general revenues now.
It's a bizarrely inefficient way for the province to generate tax revenues. We're told it's more efficient for Ottawa to collect personal and corporate income taxes on our behalf and simply forward us our share. We have the reverse happening at the municipal level: more than 350 municipalities with individual tax departments collect and rebate taxes to the province.
That's quite an army of public servants deployed to collect what amounted to $2.455 billion in 2019-20. If cities are going to expend all the effort of collecting those taxes, and if council members are going to have to shoulder all the abuse from taxpayers when they deliver the tax bill, they should at least get the benefit of keeping it all. But there is a better reason to make the shift now. It will give Alberta's two largest cities the ability to have certainty well into the future as they plan major projects.
There have been a few times that Calgary and Edmonton had a chance to change the tax structure — when Lyle Oberg ran for the Progressive Conservative leadership in 2006 and when Gary Mar ran in 2011. Both proposed transferring the education portion of the property tax to cities. What happened instead was Premier Ed Stelmach created the Municipal Sustainability Initiative with the initial promise that it would be set equivalent to the amount the province received in education property taxes, which at the time was $1.2 billion.
Maybe you can see where I am going with this. This year, the amount of property taxes the province generated was up to $2.455 billion and the amount of money promised in the Municipal Sustainability Initiative transfer is only $993 million.
It is clear as day what is going to happen if we project forward another 10 years. The transfers to municipalities will keep going down and the amount of money generated through property taxes will keep going up. Fool me twice …
There is a reason Edmonton and Calgary never pressed this issue very hard in the past. They were playing the windfall lottery just like everybody else. Because the two cities have the lion's share of voters they probably believed their lobbying prowess would garner them more than their fair share of grants. No doubt that used to work.
If you look at each city's annual report, back in 2008 Edmonton collected $290 million in property taxes for the province and received $500 million in combined provincial operating and capital grants. That was $210 million to the good. In 2019, however, they collected $488 million in provincial property taxes and received $490 million in grants. Pretty much a wash.
Calgary has seen a major change in fortunes. They collected $549 million in property taxes for the province in 2008 and received $611 million in combined operating and capital grants. That was a benefit of $62 million. In 2019, however, they collected $797 million in provincial property taxes and received $652 million in grants.
If you want to put it in terms that the province will appreciate, that is an equalization payment of $145 million coming out of the pockets of Calgary taxpayers for the province to spend wherever it chooses.
Calgary and Edmonton are big enough to take care of their own affairs and shouldn't have to beg back their own money from the provincial government to pay for core needs. If we are going to vote to put an end to equalization, let's end it at the municipal level too.