Wall needs to finish job of property tax reform
Premier Brad Wall’s proposal to convert the provincial education property tax to infrastructure use is a good idea. Using the conversion to raise the tax, however, needs second thought.
Property tax is already under siege at the local level. Mill rates in many communities are climbing, and steeply. It is ironic for the provincial government to consider adding to the problem.
Only four years ago, Premier Wall’s government cut the tax with a groundbreaking reform that moved the bulk of school costs off property, and gave municipalities revenues equivalent to one-fifth of the five-per cent provincial sales tax. The reform brought an inflow of hundreds of millions to reduce property taxes.
Unfortunately, the reform was incomplete. It halted the rise of school property tax, but stopped short of capping off or limiting the municipal portion. Municipal councils are moving into the vacated tax space, neutralizing the reform.
Property is a capital investment. Capital taxes don’t apply to income from property, but they apply to its value. Thus they subtract from the economy’s asset base — like spending your nest egg instead of the interest it earns, or killing the chicken instead of gathering its eggs.
That is why political parties of all stripes rolled back taxes on financial capital. It is why property taxes, at the very least, should not be raised.
There are other reasons. Property taxes make housing less affordable: The more that is taken for tax, the less that is available for principal. Taxes penalize property improvement, because updating your home increases your taxes. Assessments lag real life, distorting the market.
Despite its dysfunction, property tax remains the second largest source of public funds in Saskatchewan at roughly $1.5 billion, exceeded only by personal income tax. The take rises reliably every year. A tax this size and this stable isn’t going away quickly.
The realistic target is reform. Dedicating the education property tax to capital investment would be a landmark reform, for several reasons, starting with breaking the logjam. Municipal capital finances need rethinking. Municipalities seem stuck asking for “more.”
We need to consider new ideas and come up with “different.” By converting the school property tax the government can create something very different: A visible, predictable pool of funds, available every year, dedicated to infrastructure. The earmarked money could be put to innovative use — ideally, something more than traditional shared-cost grants — that encourages municipalities to plan the annual funding they need to stay abreast of capital needs.
Regularity is key. We hear much about the so-called infrastructure deficit. While growth gets the blame, much of the deficit is created by deferred upkeep and replacement — costs that should be funded year by year in step with depreciation as capital equipment and facilities wear out.
Senior governments are part of the problem. They often fund capital support programs with time-limited pots of money that create opportunistic, short-term thinking, or lead local governments to go cap-in-hand to seek a special handout. This win-the-lottery model needs to give way to consistent planning, which a provincial capital fund could encourage.
The transparency of a dedicated capital fund would increase taxpayer confidence that their money is going to a useful purpose. Studies show greater willingness to pay for clear causes than for increases flowing into the perceived black hole of general revenue, or taxes raised under one guise being siphoned off for other purposes.
Finally, converting the education property tax to infrastructure will sever the remaining link of property to school costs. Property was never a good basis to fund schools. It’s time to finish that part of the job started in 2010, and get on with the job of laying down a solid financial foundation for continued growth.