The provincial government's assertion that it can do nothing to stop a massive increase in property taxes for downtown residents is “misleading to the point of deception,” says Bay Ward Coun. Alex Cullen.
“The line of the province that it has given the municipality tools to stop an increase is laughable,” the long-time councillor said in an interview.
"The government has chosen a system that lets the housing market determine people’s tax loads, not other, more equitable systems.”
Cullen’s irate comments come after Ontario government officials said earlier this month that Ottawa has all the tools it needs to keep property taxes down once a provincial property value assessment freeze is lifted later this year.
City officials fear that urban property values rising faster than suburban and rural property values will result in large jumps in property taxes for downtown dwellers when the provincially controlled Municipal Property Assessment Corp. issues new assessments in September.
The predicament has fuelled a war of words between the city and the province with each calling on the other to do something to prevent a potential crisis that some observers fear will result in the “hollowing out” of downtown Ottawa.
Steve Erwin, a spokesman for Ontario Finance Minister Dwight Duncan, says the city has a number of tools with which to shift the property tax burden from downtown residents.
He says Ottawa has the power to offer targeted tax relief on residential properties owned by low-income households and seniors.
To address the discrepancy between the amount of property tax paid by urban and suburban residents, Erwin suggests lowering the overall residential property tax rate and increasing user fees for public services.
“These are measures that the municipality can take and to say that they don’t have the tools to do so is simply incorrect,” Erwin said. “But, let’s face it, city councillors don’t like increasing user fees because it’s not attractive politically.”
However, city revenue manager Ken Hughes, calls such statements “nonsense” and says the city has already used every tool available to stop large increases in urban property taxes.
“We’ve tried optional tax classes and have shifted as much of the tax burden as we could from residential to commercial and industrial properties,” he said.
“It’s the province who brought in restrictions on how municipalities could divvy up the tax burden among the classes, not the city.”
The Ontario Municipal Act requires that property tax rates for urban and rural homeowners be the same.
Under the current taxation system, the amount of property tax on a residential property is determined by market value, as assessed by MPAC. Once the provincial assessment freeze is lifted, properties will be assessed every four years and any increase in property tax will be spread over the next four-year period.
But for properties that have substantially increased in value since the freeze – as many downtown homes have – residents may find it difficult to cope with an increase, even if it is spread over four years.
Tax collected by the city is used to fund municipal services such as public transit, snow plowing and garbage collection, but the existing system does not take into account the extent to which each taxpayer uses these services.
“Property tax is the most inequitable way to generate revenue for services,” said Paul Dewar, MP for Ottawa Centre.
“There needs to be a change in what services are paid for by property taxes, but until the province and municipalities work together to find an alternative, what we’re doing is penalizing the poor and encouraging people to move out of urban centres.”
Allan Maslove, a Carleton University professor and an expert on municipal taxation, suggests city services could be funded by a new income tax instead of the current unfair property tax system.
Under this new arrangement, Revenue Canada would collect municipal income tax – in addition to existing provincial and federal taxes – and remit a certain percentage back to the city in the form of grants. Maslove points out, however, that a new system would require a province-wide change requiring an unlikely degree of consensus.
Maslove offers this consolation to urban homeowners: take solace from increasing property values, even if it means paying more taxes.
“Ultimately, if a person’s property value is going up, it means that person’s net worth is also going up.”