Property Tax Reform and the Myth of Double Taxation

If you are a homeowner in New Brunswick, you need to be concerned about a public campaign to influence politicians and decision-makers in this election. It is a campaign aimed directly at our wallets and it appears to be getting some traction among candidates and parties in this election.

You may have seen the lawn signs in front of various apartment blocks and rental properties around New Brunswick advocating that we “Axe the Double Tenant Tax.” Many New Brunswickers see these signs and are sympathetic. After all, as fair and reasonable people, we naturally bristle at the thought of someone having to pay more than their fair share of taxes, especially those who don’t have the income or resources to own their own homes. But in this case, the landlords and rental property owners behind this campaign are taking direct aim at the Residential Property Tax Rebate that all New Brunswick homeowners receive.

First, we need to set this issue in context. Unlike other provinces, New Brunswick uses property taxes as a source of provincial revenue. This is the result of the municipal reforms under the Equal Opportunity Program, which saw health, education and social assistance move from the municipal level to the provincial level. Naturally, the revenues that supported these programs at the municipal level were also transferred to the Province, with the result that we have both the Province and the municipality receiving property tax revenues.

Property taxation is made even more complex by the fact that one-third of our population and two-thirds of our geography has no municipal government at all. These areas, Local Service Districts and unincorporated areas, are governed directly by the Province and property taxes are used to provide services. 

With this in context, we need to address the obvious problems with how our Property Tax program is run.

The first is that voters and taxpayers do not have a clear understanding of how property tax is calculated or who is responsible for setting rates. This lack of clarity allows officials at both levels of government to “pass the buck” when it comes being accountable and responsible. 

Municipal politicians, who set the tax rates, say it is a provincial problem because the Province, through Service New Brunswick, is responsible for the assessment process. Provincial politicians say that municipal politicians are “free riders” who can boast about holding the line on tax rates while getting increased revenues as property assessments rise.

Regardless of how the politicians may see it, property owners get the bill, see that their taxes are going up, and are furious. With no understanding of the relationship between assessments and tax rates, and no one taking responsibility for the administration of this program, it is easy to see why New Brunswickers are frustrated with this system. It also makes us easy targets for those who want to exploit this frustration to their own ends.

This is where the current campaign by landlords to “Axe the Double Tennant Tax” comes in and why New Brunswick homeowners need to be worried.

Those who own rental properties claim that they are the victims of “double taxation.” They point to the fact that they have to pay property taxes to both the Province and the Municipality as evidence of this “inequitable” situation. If landlords pay more taxes on their properties than do homeowners, it is not because someone decided that rental property owners should pay more. It is because the powers that be decided that homeowners should pay less.

Currently, the Province of New Brunswick provides a Residential Property Tax Rebate to people who own and live in their own homes. This measure benefits every homeowner, including those who own revenue properties, and contributes to the higher than average level of homeownership in this Province (75% compared to 66% nationally). Home ownership is something to be encouraged. It provides stability to our communities and neighbourhoods. It allows people to build equity and create wealth for themselves.

When landlords say they want equitable taxation, what they are really saying is either give us the same tax treatment as residential homeowners or get rid of the Residential Property Tax Rebate. They are trying use the general frustration with the Property Tax system among New Brunswickers to convince politicians to deprive homeowners of a significant financial benefit.

To gain the support of their tenants (the owners call it a “Tenant Tax” after all), these property owners claim that they would use any tax reduction to reduce rents. Given that most landlords and rental property owners fail to comply with provincial regulations on the use of security deposits, this promise is nothing more than a cruel and manipulative joke.

Moving ahead, it is clear that New Brunswick homeowners do not want their politicians to abandon the Residential Property Tax Rebate. But this situation points to a larger question - how do we move ahead on property tax reform?

Most of the political parties, including the two frontrunners, have committed to a process on Property Tax reform. We need to set out some basic principles regarding property tax to ensure that this reform results in taxation that is equitable, encourages home ownership, and supports responsible fiscal management by the municipalities and the Provincial Government.

1.       Retaining market value as the basic element of the assessment system

As anyone who has looked into this process knows, any way of assessing the value of a property has its flaws. It is just that market value is the least flawed of these various approaches. Market value does tend to fluctuate but it is at least determined by objective measures rather than subjective or arbitrary ones.

For example, houses were once taxed on the number of windows they had. This was based on the assumption that wealthier people would have more windows than less wealthy people. This just led to gloomier houses.

There is the same problem using the square footage of the house or the overall size of the property. Market value is the best tool we currently have at hand.

2.       Make tax rates, not assessments, the prime driver of property tax changes

As a home owner, I am happy to hear that my house, my main investment, is increasing in value. However, just because it increases in value doesn’t mean that the municipality should automatically get additional revenue. In principle, an automatic process like this, which grants revenue without a vote or debate, is inherently undemocratic. We should be very clear on this point - if municipalities want to get additional revenue on an unimproved property beyond the rate of inflation, they should be required to include it in their municipal budgets and vote on it. This same principal would apply to the provincial government.

3.       Bring clarity to the relationship between assessments and tax rates

As noted above, the lack of clarity is used by politicians at both levels to pass the buck. Informed voters force politicians and decision-makers to make better decisions. Municipalities and Service New Brunswick should work together to end this self-serving confusion.

4.       Reduce the disparity in taxation levels between incorporated and unincorporated areas

Property taxes need to reflect the services that are provided to the community.  However, the inequity between unincorporated areas and incorporated areas encourages urban sprawl, ribbon development and poor land use policy. There is an urgent need to reform local governance in our Province that includes the inequities in our dysfunctional property tax system.

5.       Keep property tax breaks limited and specific

Encouraging home ownership is a valid goal for our society. Providing a tax break to homeowners, as opposed to other kinds of property, is a broadly-based, sustainable tax benefit that enjoys clear support. But we need to be cautious about other property tax breaks, especially those based on arbitrary measures rather than objective ones.

For example, a property tax benefit based on age is arbitrary while a benefit based on income is objective. Therefore, a property tax benefit for people within an age group makes less sense than one based on income – which is why there is a property tax break for low-income New Brunswickers.

By keeping the property tax system broadly-based, we can more equitably share the collective tax burden. If we start granting property tax breaks without thinking of the overall consequences – including shifting the burden onto the remaining payers – we will not make progress.

As homeowners, and even as tenants, we need to better understand the property tax options that are before us. We should reject the myth of “double taxation” that some are trying to promote.

Based on the five principles outlined above, we can achieve a property tax system that will work for New Brunswick.

- 30 -

Originally published in The Telegraph Journal