The Education Property Tax Reduction Act will increase income inequality in Manitoba and will not help those impacted by COVID. Property taxes are levied proportionally to wealth in real estate, and so when properly administered can be an effective, progressive and fair way to bring in revenue for public services.
The provincial government is rushing this act through the legislative process in an attempt to quickly provide financial benefit to property owners in hopes of distracting from its unpopular agenda of education reform and failed COVID-19 public health policy. However, this tax cut is poorly targeted, with the majority of benefits going to wealthier property owners. Meanwhile, low and moderate income renters are left out from any benefits of this cut, and will be left paying only higher costs as a result.
Passing this Act means a loss of approximately $384 million ($192 x two years) dollars of income for the Manitoba government annually by 2022. If the government follows through on its planned full phase out of education property taxes, it will mean a loss of nearly $900 million annually. This is being financed by deficit financing and will result in service cuts at a time when economists agree governments should invest public dollars strategically to address the COVID recession. Instead the Manitoba government will institute changes to make the Education Property Tax more progressive for seniors, low income homeowners and moderate income local farmers.
Homeowners not amongst the group worse hit by COVID.
The average home in Winnipeg is valued at $302,300. An average household income of $52,000/ year or $25 an hour is required to pay a mortgage on this home (assuming they have the down payment, land transfer tax and legal fees saved). As this chart below shows, most of those earning $24/ hour and up have recovered from COVID as of last June, 2020. It is the low income earners below $25 that have yet to recover. Please see this chart:
‘Tax’ is not a Four Letter Word
The current government mindset vetoes increases in taxes for needed public services (for example frozen funding for non-profit child care centres or below inflation and enrollment rate funding of K – 12 Education) while favouring large tax cuts.
Cutting this tax for all residential and farmland property owners is a costly, wide-sweeping measure that most Manitobans do not want. In Manitoba’s own pre-budget 2021 survey, lowering taxes came in dead last among the pre-determined, six major budget priority areas. The vast majority of respondents to the Engage MB budget consultation survey in January and February indicated that improving the health care system (95%), improving education and child care (85%), financial support for people and businesses affected by COVID (82%), increasing mental health and addictions support (81%), and investing in infrastructure (78%) were priorities. The current education property tax should be improved through targeted policy tools for those on fixed low incomes.
Manitoba Government Revenues falling
Jesse Hajer and Lynne Fernandez find that MB government revenue has fallen below 23% of GDP, from above 25% in 2005/06(p. 9 of this new report) . This has resulted in huge cuts to the public sector and front line services.
Manitoba has already substantially cut taxes. From 2000 - 2015 personal income tax cuts cumulatively added up to $881 million annually of revenue lost (Budget 2015 p. 38-39). This does not include business tax cuts, for example Manitoba eliminated taxes on small corporations below $500,000. We are the only province to have zero tax for small corps. The current Manitoba government continues to cut taxes, thereby reducing revenues for MB: PST reduction to 7% is a loss of $325 million/ year, the indexation of the BPE and tax brackets and other tax changes result in less revenue for public services.
Manitoba instead requires progressive taxation for targeted public investments to Build Back Better from COVID. This includes addressing the negative impacts on low wage, front line workers, addressing income equality, poverty, the “she-cession” and the climate crisis.
Manitoba Education Funding falling
Since 2016, provincial funding for K-12 education has declined in real dollars by 7.6% on a compounded basis. School programs and electives are being cut and under this trajectory deeper cuts will be required next year. At the same time as the education sector is being cut, $192 million dollar rebate cheques are being issued to residential and farmland property tax owners in 2021. Estimated need for education funding is 3% growth per year, approximately $75 million per year: 2% inflation, 1% enrollment growth.
Manitoba Education Property Tax
Property taxes are approximately 30% of MB Education budget. Provincial contribution, including teacher’s retirement allowances, capital support and education property tax credit are approximately 70% (2018/19 FRAME report).
Property taxes are related to wealth and are an acceptable way to bring in money to general revenue. Seven out of ten provinces still levy an education property tax (BC, AB, SK, MB, ON, QC, NS). Manitoba is the only one that allows for local school board authority to do so.
A comprehensive review of education property taxes and nine case studies in the US found targeted relief for property taxpayers is the preferred option when tax revolts erupt or when property owners push for property tax relief. “Those who have tried to reduce property taxes and improve school performance at the same time have not met with much success,” says Daphne Kenyon of the Lincoln Institute. From a government perspective, property taxes are more resilient during economic downturns when other taxes (sales, income) are more volatile. This creates predictability.
Farmland education property tax
Farmland property tax is a small proportion of the education property tax at 7.5% of revenue($64 million out of $850 million) in 2018/19. Farmers bought assessed land which carries the tax. It is the cost of doing farm business, says farmer Ian Robson.
Farmland value is related to farmland concentration. A recent report published by our office “Concentration Matters: Farmland Inequality on the Prairies” finds that Manitoba has 54% less farmers now (14,791) than in 1966 (39,747). This chart shows how the land is becoming concentrated over time:
The larger the farm, the larger the revenue and equity. Currently there is a special rebate of 80% up to $5,000 in education property tax on farmland. Manitoba is not capping the new 25% rebate and some farmers will be getting thousands of dollars in rebates. This is similar to landlords of multiple properties who will also be getting thousands of dollars of rebates.
Education property taxes in rural areas pays for local public education. When this revenue declines, less services are offered, good jobs are lost and rural depopulation increases. Notably Bill 64 “The Education Modernization Act” is being criticized by rural Manitobans as they fear it will lead to rural school closures and rural decline. Manitoba should not “throw the baby out with the bathwater” to deal with rising farmland costs.
Seniors and low income homeowners
Seven per cent of senior homeowners are in “core housing need”, meaning their housing is not affordable, suitable or adequate (Statistics Canada 2016 Census)
Currently the $400 Education Property Tax Credit (EPTC) is available to seniors or those on fixed income who earn less than $40,000 a year. This is above the $700 credit accorded to all Manitoba households, for a total of $1,100. Instead of cutting the education property tax, the moderate income line for low, fixed income seniors should be reviewed and a progressive, income tested tax credit tied to the cost of living should be put in place.
Another option is seniors on fixed income and low income homeowners should be supported through a new income tested program (ie Home Assist - like Rent Assist but for homeowners).
Impacts on Renters
While their landlords will benefit from reduced education property taxes, renters will lose out on a reduced education property tax credit which is decreasing from $700 to $350 by 2022. This change will cost renters $175 per household this year and $350 next year. To compensate for the reduced education property tax credit, Manitoba is not permitting rent increases for two years. to compensate renters for a reduced education property tax credit. There is no plan or guaranteed protection for future rent increases after 2022this two years.
At best, renters will break even from these combined changes, but receive none of the so-called “tax relief” being offered homeowners. There is also no guarantee landlords will not continue to get above guideline rent increases., tenants will lose out from the decreased tax credit from $700 to $525 a year. “Of the 310 requests to boost rent higher than the 2.4 per cent ceiling in the 2019-20 fiscal year, the branch approved every one — which impacted more than 20,000 units and increased rents 30 – 50 per cent. “CBC Manitoba April 7, 2021.
Regarding the market adjusting to the lower cost and passing this along to tenants: some private market landlords have a captured market. Vacancy rates vary by unit type, cost and neighbourhood. Some families do not wish to move as they have attachment to an area, do not wish to move their child’s school etc. There are costs to moving. There is a power imbalance between landlords and tenants. These are some of the many reasons to question that the market will adjust in favour of tenants. Instead, a progressive property tax credit that adjusts to income and inflation should be in place.
Retain education property tax for education and universal child care system
Education property taxes are needed to fund the education system and to meet the need to address the “she-session” caused by COVID via building a universal child care system in Manitoba.
Research proves public investment in child care pays for itself through increased female labour force participation tax paid and consumption taxes (Fortin).
The Federal Budget 2021 pledges to reduce child care fees by 50% in 2022 and to $10 a day by 2025. For Manitoba this would mean that parents of preschoolers would be fairly close to the $10 a day in 2022 as these fees are already relatively affordable. Manitoba should match federal dollars for needed expansion to Manitoba’s child care system and boost female labour force participation, which in turn boosts GDP.
Manitoba has the 10th lowest coverage of licensed child care in Canada - there are only licensed child care spaces for 18% of Manitoba children - capital is needed to build and staff spaces. Research shows child care workers should be treated like the educators they are. Currently child care workers are primarily female, many racialized, underpaid (the average ECE has 12.5 years of experience and earns $18.38 per hour; the average CCA has 6.3 years of experience and earns $12.93), lack benefits, pension.
27% of licensed child care centres cannot recruit employees with the qualifications required by the Community Child Care Standards Act.
The Manitoba government should retain the education property tax for needed income for education and childcare and institute mitigating measures to deal with the impacts on low income and fixed income senior homeowners and renters.
 See Himelfarb, A. Himelfarb, J (2014) ‘Tax is Not a Four Letter word: A Different Take on Taxes in Canada’ Wilfred Laurier Press.