Regressive Property Surcharge – The Georgia Straight

B.C. property surtax undermines cities and affordability

By Elizabeth Murphy, The Georgia Straight, June 14, 2018

The province of British Columbia introduced a property tax surcharge that is a substantial encroachment onto the municipal tax base. It is precedent-setting in how it is proposed to be applied and will make life less affordable for both owners and renters. The government needs to reconsider this.

Property taxes are the main source of revenue to cover municipal services. But rather than B.C. using its own provincial tax base, such as the progressive top bracket of income taxes, it has chosen to impose a new surcharge on property taxes. Although this is called a “school tax”, it is not about funding schools since it just goes to general revenue and is not based on a mill rate. It is a provincial tax grab of the municipal tax base.

Although the surcharge is currently proposed to only affect properties over $3 million, it has been strategically set at this rate to reduce opposition, while pressure is already building from some academics to adjust the threshold to $1 million. That would affect the entire city and most of the region.

Once a precedent is implemented, it would be much easier to expand the criteria to capture more properties. Property values have increased across the board, not just at the high end.

So while an ideological war on the “rich” is portrayed, the reality is that most average people will eventually be affected, including those who may not be affected initially.

The problem with property taxes is that they are not based on the ability to pay, so in that respect are regressive. Many of those affected are low income or average earners, who will be forced into debt or to sell. Deferral is a form of debt that requires a charge on land title to the benefit of the province, and not everyone will qualify.

For example, rentals of three units and less do not qualify for deferral, unlike a principal residence. So all of the owners of houses that have been converted into two or three rental units—or sometimes more, if unauthorized—will be forced to absorb that tax increase through rents, add debt if qualified by the bank to do so, or sell.

Tenants will be priced out and displaced. This will affect tens of thousands of rental units across the city. Only rental buildings of four legal non-strata units and more would be exempted.

For principal residences owned by those under 55 years old, or without children under 18 years, they will not qualify for deferral either. If they are already maxed out on debt financing, they too will have to sell.

Assessed value has no relationship to the amount of equity in the property. Many principal residences that could be covered by deferral, will be carrying high mortgages or reverse mortgages or lines of credit where banks may not allow deferral, regardless.

Deferral programs may also not be available or further restricted in the future. It cannot be depended upon in the long term.

But the main issue is that taxes should not be designed to be unaffordable so that most of those affected would need to go into debt to pay them. This is regressive tax policy. And it is against Canadian tax policy to tax unrealized capital gains.

City of Vancouver property taxes are already the highest in Canada for detached properties, which are those that are most typical across Canadian cities.

And the City of Vancouver removed three-year across-the-board averaging of assessed values in 2016, in favour of only targeted averaging affecting 10 percent of “hot” properties that increase above the average. This means that property taxes have gone up for 90 percent of property owners on top of the base annual increases.

Vancouver already pays a disproportionate amount of current school taxes, which also go into general revenue. Revenues collected from Vancouver cover 111 percent of the Vancouver school district budget, while the provincial average is only 46 percent. This means Vancouver is subsidizing the rest of B.C.

So even though Vancouver and the Metro area already pay more than its share of school taxes and subsidizes the rest of the province, B.C. is proposing to add this “school tax” surcharge. It will further increase the Metro Vancouver area’s share where most of the properties that would be affected by the surcharge are located.

A number of municipalities have raised concerns with the Ministry of Finance, including the District of North Vancouver, West Vancouver, Richmond, and Surrey. But where is the City of Vancouver’s mayor? So far, missing in action, at least publicly.

Counc. Adriane Carr said that discussions among councillors in Metro Vancouver have raised concerns. She questions why the province is using property taxes to fund schools and other provincial responsibilities and says that school funding should come from provincial revenue sources. Otherwise, it affects the ability of municipalities to raise the revenues needed for municipal services.

However, we have seen this before. In the 1990s, a “Luxury Tax” was proposed on properties above $500,000 by then NDP minister of finance Glen Clark. It threatened the seat of then minister of  municipal affairs Darlene Marzari. If that had not been withdrawn, through inflation it would have eventually applied to all properties across the city and region, including most condos.

Former NDP premier Mike Harcourt is now urging the government to take a “second look” at the latest surcharge on property taxes, like he had to do in the 1990s.

“All of the taxes being loaded onto property undermines the municipal tax base and makes life less affordable for everyone. It is regressive since it is not related to the ability to pay. The province should be using its own more progressive income tax base,” Harcourt said. “Expanding school and housing programs is the right thing to do, but increasing property taxes is the wrong way to do it.”

Marzari says this current proposal is “the encroachment of provincial jurisdiction into municipal authority and the direct percentage ‘take’ of cash from the assessed value rather than using a traditional mill rate to fulfill the civic budget. It will tax people out of their homes and threatens the NDP’s narrow majority backed by the B.C. Greens, especially for (Attorney General) David Eby’s riding.”

But like the 1990s, university professors with an ideological agenda are influencing government policy. However, now this is also being influenced by the development industry to its advantage.

Property taxes have a huge impact on homeowners who have to pay them year after year. But for speculators and developers, it is less of an issue since they only hold property for a short period of time and it is a cost of doing business that can be written off of income taxes.

The real agenda of the surtax is neighbourhood clearing.

In Bob Rennie’s 2016 annual address to the Urban Development Institute (UDI) titled “We Have to Change the Narrative”, he went on to commend a new “Yes-in-my-back-yard” (YIMBY) movement coming out of San Francisco that supported rezonings and claimed to represent millennials. He also pointed out the billions of dollars of equity that seniors have in real estate that could be soon available for reinvestment.

Simultaneously there were similar groups popping up here in Vancouver, such as Abundant Housing and Generation Squeeze, that claim to represent the millennials and housing affordability.

Generation Squeeze is funded by UDI and Wesgroup developers. The kinds of new housing that are being promoted will not likely be affordable to millennials.

This surtax is supported by Generation Squeeze, encouraging millennials to “squeeze back”. Squeezing seniors out will not help millennials nor make things more affordable. It will only benefit speculators. But the nastiness being incited against seniors is disgraceful. It is institutionalized bullying hiding behind academic independence.

Davidoff has tweeted his support, saying “I really hope that this tax encourages high end homeowners to rethink opposition to upzoning, I’m interested to see if there is such an impact.” Clearly, one can see the real outcome here: developer profits.

However, rezoning inflates land values and unit prices that have been fuelling the affordability crisis. We have seen this throughout Vancouver.

Wherever there have been planning processes leading to upzoning, property values have inflated more than the average. And the older, more affordable buildings are demolished, displacing people.

“Hot” residential properties that inflated beyond average concentrated in rezoned areas, according to a 2016 City of Vancouver report.City of Vancouver

“Hot” commercial  properties that inflated beyond average concentrated in rezoned areas., according to a 2016 City of Vancouver report.City of Vancouver

There are better alternatives to raise needed provincial revenue. Financial analysis confirms that the $250 million that the budget expects to raise from the surcharge could instead be raised by the top income-tax bracket for only a 0.25 percent increase.

This would mean someone making a net income of less than $150,000 per year would pay nothing. Someone earning net income of $250,000 per year would only pay $250 ($100,000 at 0.25%). Now that is affordable with the ability to pay, unlike this regressive property surcharge that would tax people out of their homes and affect renters too.

This has been raised at the community meetings with MLA David Eby in his two meetings with Vancouver-Point Grey constituents on the issue. He committed to taking this alternative to Finance Minister Carole James and caucus.

There is a tax revolt building that threatens the slim majority of one seat keeping the NDP-Green government in power. Many who previously backed the NDP in the last election have withdrawn their support over this tax. The B.C. Liberals are gaining momentum as people talk about the possibility of recall in November that could bring the government down.

At the West Point Grey meeting on May 27, there were 900 people in attendance. All but three speakers spoke against the surcharge. One of the three was Patti Bacchus. It is easy for people like Bacchus, who comes from wealthy Balfour Properties family funding, to criticize others who are of less means and yet are more greatly impacted.

Protests will continue until either this surcharge is withdrawn or the government is brought down. Policy based on ideology always leads to mistakes. This property surcharge is one of them.

Elizabeth Murphy is a private sector project manager and was formerly a property development officer for the City of Vancouver’s housing and properties department and for B.C. Housing. Contact her at info@elizabethmurphy.ca

Copyright Elizabeth Murphy 2018 all rights reserved. 

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