Municipal taxation needs reforming

March 22, 2005

Tax increases are always controversial, but this year some Nova Scotians are particularly cranky about paying taxes and for good reason. 

I’m not talking about the predictable ideological clamouring for income tax cuts.  What has really got some taxpayers angry this year is the increase in municipal taxes due to rising property assessments.  They have a point, but unfortunately the solution to this problem is beyond the control of municipalities.  

Decreasing municipal expenditures will not solve the problem.  Not unless we want crumbling roads, less garbage collection and longer waits for buses.  

In a large country like Canada, the most effective place to deliver services is often the lowest level of government, but the most effective level to collect money to pay for those services is the highest level of government.  The higher levels are supposed to help the lower levels.  It’s called fiscal federalism.

But the federal government bailed out of its fiscal mess during the 90s by cutting expenditures far too quickly and downloading financial responsibilities for some programs to provincial and municipal governments. 

The impact of these cuts is being felt first hand in municipalities.  Programs such as affordable housing are in need of investment and physical infrastructure has to be repaired.  Along with addressing normal wear and tear, increased economic activity is straining infrastructure such as roads and public transport.  Funds are also needed to address new challenges such as dealing with garbage and sewage in an environmentally sustainable manner. 

Municipal governments are in a bind. They have been dealing with the impact of the federal and provincial under funding of programs, but receive little direct financial benefit from the economic growth that has improved the financial position of other levels of government.

Municipalities are dependent on increases in the market value of taxpayers’ properties and transfers from other levels of government.   The increase in property assessments comes as a welcome relief for municipal coffers because it allows politicians to pay expanding costs and restore services without an explicit tax increase. 

And herein lie the legitimate concerns of some homeowners.  Unlike income taxes, property taxes do not correspond with our ability to pay.  Homeowners pay the same amount of tax on a home assessed at, say, $150,000 whether they are earning $30,000 or $150,000 a year.  Like other regressive taxes, property taxes hit low and fixed income folks the hardest.  So while incomes may not be growing, property taxes certainly have been. 

There are other concerns about property taxes.  They contribute to less diversity within communities.  Citizens unable to keep up with the tax increases are pushed out of areas with high assessments and folks who can’t afford the assessments can’t move in.  

Increasing municipal taxes makes rental accommodation less affordable as landlords pass on the increased property taxes to tenants.  It also contributes to urban sprawl as citizens seek more affordable housing in areas with lower assessment, outside the urban core. 

Property taxation also contributes to greater inequality among municipalities.  Local governments where housing costs and assessments are increasing are able to generate more revenue.  But other municipalities with small or no assessment increases, but where the need may be greater, are unable raise as much revenue and provide the same level of services.

A real solution is to implement tax reform at the municipal level that focuses on shifting from property-based to income-based taxation.  Progressive income tax ensures that citizens contribute to maintaining public services based on their ability to pay.  Income taxes already contribute to the local governments through grants and transfers.  But the reliance on federal and provincial transfers is limiting the ability of municipal governments to take initiatives to deal with the challenges they are facing. 

Federal and provincial government investment, relative to economic activity, is at historically low levels.   The corporate tax cuts contained in the last budget suggest that the federal government is intent upon further decreasing its ability to invest in municipalities. 

Is it any wonder that both homeowners and municipal governments are cranky?  Local governments are not able to meet legitimate demands for services from citizens, federal and provincial governments are unwilling to provide the stable funding needed and some homeowners are faced with tax bills they just can’t afford. 

The recent Halifax Regional Municipality’s property tax rebate is a temporary stop gap measure at best. The long term solution lies in reforming how municipal governments fund their activities.  Tying taxation by local government to the ability of citizens to pay would go a long way toward enabling municipalities to service their citizens, and getting homeowners and civic officials on the same page.  The income tax system is still the best way of accomplishing this.

In combination with municipalities decreasing property taxes, the federal and provincial government should be raising more from progressive corporate and personal income taxes and transferring those funds to the municipalities. 

John Jacobs is director of the Nova Scotia office of the Canadian Centre for Policy Alternatives (, an independent public policy research institute.