A tax tale of two cities: Vancouver and Surrey

With three levels of government delivering a wide array of services to British Columbians, paid for by an equally wide array of taxes, fees and transfers, it can be difficult for citizens to understand and assess government taxation and spending — especially at city hall.

However, a recent Fraser Institute study sheds some light on Metro Vancouver’s 17 largest municipalities (of 21 in total) by comparing government spending, revenue and debt. Many stories emerge from the data, but among the most striking is the marked difference between the region’s two largest cities, Vancouver and Surrey.

For starters, Vancouver far outspends Surrey.

In 2016 (the latest year of available data), Vancouver spent $1,944 per person, compared with Surrey’s $1,057. Put differently, Vancouver spent 84 per cent more than Surrey, which, remember, is comparable in size based on population.

In fact, Surrey is the lowest spender in Metro, and has been for a decade, despite rapid population growth (almost 29 per cent over 10 years) generating higher demand for local services. Conversely, Vancouver remained among the top three spenders regionally over the same period, without growing as quickly (under eight per cent over 10 years). Only West Vancouver ($2,583) and New Westminster ($2,225) spent more per person.

Of course, to maintain spending, municipal governments collect property taxes from homeowners and businesses, charge user fees for services such as water and civic facilities, charge for parking, and levy fees on homebuilders and property developers, to name a few revenue sources.

Altogether, Surrey collected $1,673 in revenue per person in 2016. In the rest of Metro, only Pitt Meadows — a much smaller municipality — was a lower revenue collector ($1,661).

Vancouver, on the other hand, collected $2,693 in revenue per person — 61 per cent more than Surrey.

Again, like on the spending front, West Van ($3,253) and New West ($2,786) are the only two other municipalities in the region to have collected higher revenues. A large share of municipal revenue comes from local taxes, with general tax revenue representing $675 per person in Surrey, a fraction of the $1,106 in Vancouver in 2016.

Most of this tax revenue comes from property taxes on homes and businesses. Importantly, city hall levies these taxes at different rates for different property classes such as residential, commercial and industrial, with the latter two typically paying much higher rates than homeowners.

Here too, Metro’s two largest cities diverge significantly.

Commercial properties (retail stores, hotels, etc.) in Vancouver faced a tax rate of 6.6 per cent in 2016 compared with a residential rate of 1.6 per cent, meaning many businesses faced 4.2 times the tax rate of homeowners.

And heavy industry (manufacturing, cargo loading facilities, etc.) faced a rate 21.7 times greater than residences. By contrast, Surrey businesses faced 2.9 times the tax rate of homeowners and 4.6 times for heavy industry.

Higher business tax rates (relative to residential) can be problematic, potentially deterring job creators from setting up shop or discouraging existing businesses from remaining or expanding locally.

Ultimately, it’s up to Vancouverites to decide whether they receive good value for their relatively big-spending, high-taxing municipal government at 12th and Cambie.

Nevertheless, the sharp contrast between Vancouver and Surrey, the region’s next biggest city, in both spending and revenue should give residents pause.