Source: Vancouver Sun
Section: Editorial Page
Vancouver city council took a tiny step in the right direction last week when it began the long overdue process of rebalancing the tax burden borne by businesses and residents. The shift of roughly $10 million of tax liability from business owners to homeowners means a commercial enterprise will pay at a rate 5.63 times higher than the residential rate, down from 6.15 times higher. There's a long way to go before Vancouver's tax rate differential is comparable to the average of 3.9 times higher in other Lower Mainland municipalities, but it still took political courage to do the right thing.
The problem that had to be fixed was that business owners paid $2.42 for every $1 of city services they consumed while residents paid 56 cents for every $1 consumed. Put another way, Vancouver residents used $388 million in services in 2006, according to a study by MMK Consulting, but the city collected only $217 million through residential property taxes. Vancouver businesses used $111 million in services, but paid $292 million in property taxes.
This was clearly unfair even accounting for the fact that commercial businesses generate revenue from their premises and property tax is an operating expense that may be deducted from income. The tax burden puts in jeopardy the many small businesses -- green grocers, barber shops, dry cleaners, convenience stores and restaurants -- needed to ensure communities are sustainable, supposedly one of council's preoccupations.
The business community wasn't demanding tax cuts. It asked only for a freeze. Even with that request granted, Vancouver's business-to-resident property tax ratio remains among the highest in the country. The Fair Tax Coalition has suggested that future tax rates be based on the cost of services consumed. The city's tax commission, which recommended the tax shift this year, is expected to present a report in June, but it's not known whether it will support that idea.
The shift means residents will shoulder all of the 3.98-per-cent tax increase council had previously approved, effectively doubling the hike to an average of eight per cent. But amounts actually paid will vary dramatically. Examples provided by the city finance director showed that the owner of a house with an assessed value of $3.7 million would pay an additional $25.83 a month in property taxes as a result of the business tax freeze while the owner of a $740,000 home would pay about $5.25 a month more.
As homeowners begin to appreciate the real cost of delivering city services -- that is, when business stops subsidizing the services residents consume -- there will be a backlash. As there should be. There will be calls for accountability, fiscal prudence and tax relief. Residents will demand to know why city hall employees enjoy free parking at taxpayers' expense, if junkets abroad deliver value for money and how much more city hall's "fair trade" coffee costs compared with regular brew. They'll want assurances that their tax dollars are not being wasted and they'll ask hard questions about tax increases that exceed the rate of inflation and population growth.
They might even start with this year's tax increase. Had council chosen to hold the line on spending, there would have been no increase for either business or residents. Councillors rejected that option.
The move to rebalance the tax burden promises more than fairness in sharing the cost of services; it just might lead to a little more discipline in how local politicians spend taxpayers' money.