Prairie Post (West Edition)

Mu­nic­i­pal­i­ties have op­tions to cut taxes

- CON­TRIB­UTED Colin Craig is the Pres­i­dent of Se­cond­street. org, a new Cana­dian Think Tank. Franco Ter­raz­zano is the Al­berta Di­rec­tor of the Cana­dian Tax­pay­ers Fed­er­a­tion Business · Taxes · Canada News · Property Tax · Canadian Taxpayers Federation · Toronto · Ontario · OMERS · Saskatchewan · Calgary · Canadian Federation of Independent Business

In ad­di­tion to COVID-19, Canada has two ma­jor prob­lems we must grap­ple with: high un­em­ploy­ment and high govern­ment spend­ing.

While many fam­i­lies are cur­rently strug­gling with job losses or lost in­come, there are signs Canada’s econ­omy could face even more chal­lenges. A re­cent Cana­dian Fed­er­a­tion of In­de­pen­dent Business sur­vey sug­gests one in six small busi­nesses are now “se­ri­ously con­tem­plat­ing” shut­ting down for good.

One so­lu­tion to help strug­gling busi­nesses and fam­i­lies would be to cut prop­erty taxes. To do that, mu­nic­i­pal politi­cians will need to make tough de­ci­sions and re­duce spend­ing.

While mu­nic­i­pal politi­cians gasp in hor­ror, the rest of so­ci­ety should note that if mu­nic­i­pal gov­ern­ments don’t re­duce spend­ing and prop­erty taxes, they could po­ten­tially stall our econ­omy’s recovery.

Mu­nic­i­pal gov­ern­ments are heav­ily de­pen­dent on prop­erty taxes for their rev­enues. A business may see their rev­enue evap­o­rate be­fore their eyes due to lock­downs, but they could still face a hefty prop­erty tax bill. For a gym or restau­rant that is barely hang­ing on, a prop­erty tax hike, or even a freeze, could serve as the nail in the cof­fin.

For­tu­nately for mu­nic­i­pal gov­ern­ments, there are plenty of op­por­tu­ni­ties to re­duce ex­penses with­out cut­ting es­sen­tial ser­vices like polic­ing and fix­ing pot­holes. In the new re­port Cost-cut­ting op­tions for mu­nic­i­pal­i­ties, Se­cond­ and the Cana­dian Tax­pay­ers Fed­er­a­tion high­lighted 10 ini­tia­tives mu­nic­i­pal gov­ern­ments could pur­sue to re­duce ex­pen­di­tures and lower prop­erty taxes.

The most im­pact­ful de­ci­sion would be to ad­dress 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 ex­ac­er­bated this di­vide.

Out­side of govern­ment, 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 Se­cond­ couldn’t lo­cate a sin­gle ex­am­ple of any ma­jor Cana­dian city re­duc­ing pay for their union­ized em­ploy­ees.

Even a small re­duc­tion to mu­nic­i­pal salaries of, say, five per cent, could help mu­nic­i­pal gov­ern­ments save a small for­tune. Mu­nic­i­pal gov­ern­ments could pair such a de­ci­sion by grand­fa­ther­ing-in even larger wage re­duc­tions for fu­ture hires.

Govern­ment em­ployee unions will likely re­ject the idea of open­ing up ex­ist­ing con­tracts to find sav­ings. How­ever, many work­ing out­side of govern­ment had their con­tracts rene­go­ti­ated dur­ing the down­turn. It’s a far bet­ter out­come for govern­ment em­ploy­ees than the al­ter­na­tive – lay­offs.

An­other area worth ex­am­in­ing is one of the fastest grow­ing cost pres­sures for mu­nic­i­pal gov­ern­ments in Canada – em­ployee pen­sions.

Con­sider that from 2009 to 2019, the City of Toronto in­creased spend­ing by 29 per cent. Yet, at the same time the city in­creased spend­ing by 83 per cent on the city’s main pen­sion (the On­tario Mu­nic­i­pal Em­ploy­ees Re­tire­ment Sys­tem – OMERS).

Mu­nic­i­pal­i­ties could ad­dress this prob­lem in a fair man­ner for ex­ist­ing em­ploy­ees – sim­ply pro­vide new hires with far less costly re­tire­ment ben­e­fits, sim­i­lar to re­forms made by the prov­ince of Saskatchew­an in the 1970s.

A third ex­am­ple would be for gov­ern­ments to stop gam­bling tax­pay­ers’ money on sub­si­dies 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 of such a fund would be the $100 mil­lion the City of Cal­gary has set aside in the Op­por­tu­nity Cal­gary In­vest­ment Fund.

A bet­ter ap­proach to cre­ate jobs (and main­tain 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 pe­riod than nec­es­sary.

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