National Post (National Edition)

Cities should think outside the box and cut taxes

- COLIN CRAIG AND FRANCO TERRAZZANO Colin Craig is president of Second, a new Canadian think-tank. Franco Terrazzano is Alberta director for the Canadian Taxpayers Federation.

Arecent Canadian Federation of Independen­t Business survey suggests one in six small businesses is now “seriously contemplat­ing” shutting down for good.

One obvious way to help struggling businesses and families would be to cut their property taxes. To do that, municipal politician­s will need to make tough decisions and reduce spending. That's not a process they will enjoy but if they don't act, that could slow down the economy's recovery.

Most municipal government­s in Canada depend heavily on property taxes so they are naturally reluctant to cut them. As a result, a business can see its revenue evaporate because of a lockdown, but still face a hefty property tax bill. For a gym or restaurant that is barely hanging on, having to pay property tax — even at rates that may be frozen — could serve as the final nail in the coffin.

Fortunatel­y for municipal government­s, there are many ways to reduce expenses without cutting essential services, like policing, firefighti­ng or fixing potholes. In a new report, Cost-cutting options for municipali­ties, SecondStre­ and the Canadian Taxpayers Federation highlight 10 initiative­s municipal government­s could pursue to reduce expenditur­es and lower property taxes.

The most impactful decision would be to address by far the largest spending envelope at city hall: salaries and benefits. Government employees tend to earn more than those outside government doing similar work, and the pandemic has only widened this divide. Throughout the private sector, stories of pay reductions and lost income were common in 2020. Everyone from Cineplex and CFL teams to media outlets and the energy sector reported pay reductions publicly. Yet, 2020 research by SecondStre­ couldn't locate a single example of any major Canadian city reducing pay for its unionized employees. It's not actually the case that “we're all in this together.” Some of us have been in it much more than others.

Even a small reduction in municipal salaries — say, five per cent — could help municipal government­s, which could pair such a decision with grandfathe­ring-in even larger wage reductions for future hires. Government employee unions almost certainly will reject the idea of opening up existing contracts to find savings. But many Canadians working outside of government had their contracts renegotiat­ed during the downturn. It's a far better outcome for government employees than the alternativ­e, which is layoffs.

Another area worth examining is one of the fastest growing costs for municipal government­s — employee pensions. For example, between 2009 and 2019, the City of Toronto increased its pension spending by 83 per cent versus just a 29 per cent increase in its overall spending. Municipali­ties needn't cut back on existing retirement benefits but they could provide new hires with less costly benefits, along the lines of reforms Saskatchew­an made in the 1970s.

A third source of savings would be for government­s to stop gambling taxpayers' money on grants for businesses. Right now, it's not uncommon for cities to cross their fingers and hand over cheques to hand-picked businesses, hoping they will grow and create jobs. One example is the $100 million the City of Calgary has set aside for the Opportunit­y Calgary Investment Fund. A better approach to creating new jobs and maintainin­g existing ones would be for government­s to simply leave those dollars in existing, proven businesses' hands in the first place.

These are just a few examples of ways municipal government­s could reduce spending and property taxes. If they refuse to do what the rest of society has done — tighten their belts — then we can expect a longer recovery than necessary.

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