Cities should think outside the box and cut taxes

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, SecondStreet.org 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 SecondStreet.org 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.