The need to redistribute the tax base

I am finding it increasingly strange that the federal government can be reaping windfall budget surpluses while the two other levels of government across this country are, for the most part, finding it harder and harder to balance the books. Take New Brunswick for example. The provincial government has run a deficit for three straight years and is having to cut hospitals and hospital beds as well as other government expenditures just to barely break even – or to run small deficits. And local governments also have to run a very tight ship. The province has cut funding to municipalities in recent years – although I see that there may be some new money in the upcoming year.

Why should such a high percentage of the total tax burden that we pay go to the level of government that has the least direct impact on government services spending? Health care, education, garbage removal, highway upkeep – almost all of the services that we associate with the government are managed by provincial and local governments – and yet more and more of our tax revenues are going to the Federal level of government for them to dole out in however they see fit.

Municipal governments in Canada are squeezed the most. For the most part, municipalities can only charge property taxes and, in some cases, a limited business or hospitality tax. They can also charge fees for services such as water. However, these limited tax base and tax authority makes it very hard to fund needed services – which brings me around to the theme of this blog – such as local economic development. I recently found a study put together that looked at the impact of tax revenues on the federal, provincial and local level in that region. It was shocking to see that while federal and provincial revenues were up dramatically, local tax revenues, in real terms, were actually declining.

It’s little wonder then, that United States municipalities are generally far more focused on economic development than Canadian urban areas. The average U.S. city will spend two to three times as much on economic development as their Canadian counterparts. This may be, in part, because U.S. municipalities have more options related to economic development incentives than do Canadian municipalities such as the ability to offer tax breaks and industrial bonds. Further, U.S. municipalities receive more direct benefit from economic development through tax sharing and other mechanisms and therefore have a greater incentive to focus on economic development.

It’s time to find mechanisms for local municipalities to free up funding for economic development. The provincial government record on economic development is spotty at best and their priorities will almost never be the same as any one local municipality.


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