Monday, June 26, 2006

Assessment growth: stealth taxation

Local politicians frequently like to remind Londoners of their achievements in expanding the city's assessment base. On the face of it, this would appear to be a credit to sound financial management, but consider that those revenues from assessment growth have actually mitigated property tax rate increases of 5.9, 6.63 and 2.95 per cent from 2004 to 2006 respectively, well above the rate of inflation. For example, the city's budgeted property tax revenue for 2006 is actually five per cent higher than in 2005, of which 2.08 per cent is the result of assessment growth and 2.95 per cent comes from the rate increase. In other words, municipal spending has increased at higher rates than the property tax rate hikes would themselves suggest. Residents might be surprised, then, to credit the municipal government with sound financial management when they consider that, without assessment growth, property tax rates would have risen further still.

Yet despite the deterrent effect of preposterously increased taxes in the past few years, London still does boast of expansion in the assessment base. But contrary to the suggestion of local politicians, who by citing the fact insinuate credit for it, the growth has been no achievement of theirs — it has occurred in spite of their policies. Credit for the growth in the assessment base in London is owed mostly to:

  • the prohibitory expense of and artificial legal restrictions on development in the Toronto area;
  • the large surrounding area of annexed land around London that the city does not service but from which collects disproportionate taxes — a method of stealth taxation that will continue to be expedited through annexations and amalgamations in Ontario; and
  • a monetary policy that has created low interest rates fuelling an artificial boom in property investment, development and speculation.
Should Londoners then continue to expect an expansion of the assessment base to blunt the effects of the city's spending on their own taxes? The province may continue to step in with more artificial devices to subsidize the urban beneficiaries of promiscuous municipal program growth at the expense of rural taxpayers, but a politically acceptable limit to this strategy will eventually be met in an inevitable downturn in economic and real estate fortunes. In this event, residents must hope that the city will curtail and reduce its spending to avoid even larger future increases in property tax. How likely is this? Inevitably, government programs once begun or funded at certain levels are almost irrevocably entrenched. Councillors are hounded either by their own conscience or by an army of program dependents not to rob people of their new inheritances. When the economy slows down or the real estate boom ends, taxpayers will find both the programs and the municipal debt obligations in place, leading to demands for even higher property tax increases, in turn damaging local economic prospects even more.

The political solution to woes that the city already anticipates without telling you is found in municipal demands for greater and more diverse taxation powers and for redistributions of cash between various levels of government for the purpose of evening out the flow of blame. Looks good to one candidate or another at any given election time, but it's still an outflow of tax dollars from London residents in one form or another or redirected through different jurisdictions. The only demonstrable solution for the taxpayer is for the city to cut spending immediately.

1 Comment:

Pietr said...

Speaking as a member of the Homeless Crackhead Canadian Community, I have to say that London has no more territorial ambitions after the Sudetenland.