Let’s have a fact-based conversation about property taxes

It would be kind of cool if we could use facts when debating public policy options in New Brunswick.

I’m not a big fan of property taxes.  I pay something like $4,500 a year on my house and it is harder for me to connect that cost to the services I receive.  The City of Moncton in recent years starting publishing a “where your tax dollars go” document that actually helped me make that connection.

But all the talk about how NBers are overtaxed in this area is hard to square with reality.  I just saw Kris Austin say the double tax on property was a main reason why investment is being held back in this province.

As someone who studies – in great detail – what is holding back investment in New Brunswick, I can tell you that this is not a main reason why investment is being held back in this province.

First for the facts.  KPMG looks at property taxes for businesses in 150+ global cities and publishes them on a per square foot basis. I have studied this data backwards and forwards and I can tell you that New Brunswick is not the lowest but neither is it anywhere the highest.  This graph gives you some examples.

Further, property taxes are on average 1% of total operating costs for the average business in the KPMG study.  Wages, the cost of real estate, even energy costs are much higher for the average business.

Now, what about the claim that the government is charging way too much in property tax?  I have heard this from people that move here from Calgary or Toronto expecting their property tax bills to go way down.   As shown below, New Brunswickers in all five income quintiles pay a lower share of their income to property taxes than Canadians as a whole.  What people conflate is property tax ‘rates’ versus property taxes ‘paid’.  Rates are higher, assessments are lower and so in the end people on average pay a little less – not a lot less – of their income to property taxes.  Remember the average household income in New Brunswick is 19% below the Canadian average so in real dollar terms, the average household pays in New Brunswick pays 29% less.  For those of you keeners out there this is partially a rural/urban issue.  The bottom line is that if you own a house Fredericton or Moncton or Bathurst you are likely not paying any more for property taxes than you would pay – on average- anywhere else in Canada.

There is one more data point that should put your mind at ease about your government gouging you with property taxes.  If you look at how much revenue government generates from property taxes – all classes – business, household, etc. on a per capita basis it is similar to the rest of Canada.  I show Saskatchewan in the chart below because I can’t find my province  by province comparison but again, NB is pretty well average.

Now, of course, you say I have avoided the biggest point – the double taxation on rental properties and on second homes/cottages.  That is what is getting Kris Austin, et. al. all in a tizzy.

Governments make policy decisions.  They ‘double’ tax rental properties which, in theory, is more of an incentive to encourage people to own homes.  In practice, apartment rental rates in New Brunswick are competitive and much lower than larger urban centres because again the impact of property taxes on the overall monthly rental cost is fairly low.  But it is clear that if government wanted to encourage more renting of apartments, houses, etc. getting rid of the double tax would help.  I’m just not sure they want that.

As for the cottage owners?  I’ll let you draw your own conclusions.

Three bottom lines:

There is no evidence that property taxes in New Brunswick are a major barrier to business investment.  They can be annoying to small business owners who – like my point above – don’t see what they are paying for.

Landlords and cottage owners also tend to be donors to political parties and can get the ear of politicians and potential politicians. However, when successive governments have looked at this – even with the pressure from landlords and cottage owners – they have not changed the system – because, one assumes – they are loathe to raise other taxes to compensate.  If you cut revenue from property taxes by 30% you would have to raise HST by another one percentage point.  What government will do that?

Finally, I am certainly not opposed to property tax reform.  Unfortunately much of the issue is related to the imbalance between urban and rural property taxes paid (yes, even adjusted for services provided) and that is politically toxic – particularly for Kris Austin’s base of support.

Property taxes, like all taxes, should be set not just as a source of revenue but based on how they impact the competitiveness of the province to attract industry and to attract and retain people.  It’s pretty well known that people accept certain taxes more than others.  Sales taxes seem to be the most accepted and property taxes seem to be the least loved.

But when we discuss these issues let’s do so with facts.

 

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4 Responses to Let’s have a fact-based conversation about property taxes

  1. Jordan OBrien says:

    David –

    I note you mention Kris Austin a few times, but Blaine Higgs was quoted recently in the TJ indicating he would abolish provincial property taxes all together at a cost of $510 million. Obviously, one can do a lot with $510 million which is the equivalent of about 3 points on the HST.

    Your thoughts on the merits of this from an economic development perspective? That is quite a choice relative to the other things that could be done with a half billion of recurring annual revenue.

  2. Mike O'Hara says:

    I dare say, in NB at least, the issue isn’t so much that there are Property taxes. The issue seems to be fiscal responsibility by government and how it goes about implementing, issuing property tax assessments and collection.

    After the fiasco of the property tax assessments of last year, I think a lot more people are distrustful that the government is behaving fairly and honestly when setting forth assessments.

    Combine that with the general insolvency that the province exists in right now, and people wonder how much is desperation to get cash by any means to try and bail out on the backs on NBers.

    And yes to your point, this all piles on top of the ‘value for dollar’ side of it. NB’ers see themselves with more and more money being assessed against them, while Government cuts back repeatedly on services that that money is supposed to be going to pay for. The money instead is being diverted to debt maintenance and to a small degree, reduction.

  3. Oliver D says:

    I think you’re minimizing the impact of the double taxation on rental properties. In Fredericton this can easily mean an extra $100/month in expenses per unit (interestingly, I looked up assessments of the last two rental properties I lived in years ago and in both cases the double taxation amounts to an extra $1000/unit/year). It’s also a disincentive for landlords to invest in renovations for their existing properties because they risk assessments jumping significantly.

    Fundamentally this is a regressive tax that impacts low income earners. Ultimately I don’t know what the solution is but moving away from the double taxation makes sense on this point alone.

  4. Larry Lynch says:

    I believe Austin’s issue is with the double taxation of business properties. Not so different from any trickle down economic policy.

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