Welcome to Part II of what has turned into a two-part series based on the first half of a two-hour CBRM council budget workshop. Just me, working my magic, folks.
Those rising Nova Scotia house prices described in Part I led to a 10.8% overall increase in residential assessments across the province in 2022.
The CBRM, with its 6.31% increase, fared better than did many municipalities — like Mahone Bay (whose residential assessments were up 20.6% apparently due to the construction of a new nursing home), Lunenburg (18.8%), Lockeport (15.94%), Stewiacke (13.29%), Annapolis Royal (13.03%), Kentville (12.08%), Halifax (13.4%), , Wolfville (11.79%), Municipality of the District of East Hants (11.2%) and Berwick (11.15%).
Which is not to downplay the effect of a 6.31% increase in assessments in CBRM. Especially when you remember that property taxes are regressive — they hit the poor harder than the rich — a fact that becomes especially clear in a hot real estate market where “location” can supersede all these other factors the PVSC says feed into market value:
Source: PVSC
I realize Nova Scotia’s market is nowhere near as insane as Vancouver’s, but I’m going to use a Vancouver example to explain what I mean about “location” superseding all other factors. MacLean’s noticed this “shack” in Vancouver’s West End” in 2018:
Barclay Street home in Vancouver’s West End for sale for almost $7m https://t.co/LS0fxoUzYg pic.twitter.com/e4ybsSzEdF
— The Vancouver Sun (@VancouverSun) March 20, 2018
CAP in hand
For 2022, the PVSC considered 64,924 property accounts in CBRM with a total assessment value of $7.3 billion (up 5.5%). Within this total were 3,749 commercial accounts with a total assessment value of $1.6 billion (up 2.7%) and 61,175 residential accounts with a total assessment value of $5.7 billion (up — as noted above — 6.31%).
Of the residential accounts, 37,587, with a total assessed value of $4.8 billion, fall under the province’s Capped Assessment Program (CAP).
During last week’s budget workshop, District 3 Councilor Cyril MacDonald invoked the image of a woman in Grand Narrows, living in a rundown house she can’t afford to repair, who sees her assessment rise because the area around her has been attracting deep-pocketed buyers.
She’s exactly the type of person the CAP was intended to assist when it was introduced in 2005 (retroactive to 2001) to deal with unpredictable spikes in property assessments, particularly for waterfront property. Initially, it applied only to properties that had seen a 15% or higher increase in assessment, but this was subsequently lowered to 10% and then, in 2008, the CAP was tied to the Consumer Price Index (CPI) or inflation.
Since then — until this year, as a matter of fact — inflation has been low and the CAP, according to critics (who include the Federation of Nova Scotia Municipalities) had simply become a way of keeping property taxes down:
| Year | CAP (%) |
|---|---|
| 2022 | 5.4 |
| 2021 | 0.3 |
| 2020 | 1.0 |
| 2019 | 2.9 |
| 2018 | 0.9 |
| 2017 | 1.4 |
| 2016 | 0.3 |
| 2015 | 2.1 |
| 2014 | 0.9 |
| 2013 | 1.4 |
| 2012 | 3.9 |
| 2011 | 2.9 |
| 2010 | 0.0 |
| 2009 | 3.4 |
| 2008 | 2.3 |
| 2007 | 10.0 |
| 2006 | 10.0 |
| 2005 | 10.0 |
| 2004 | 10.0 |
| 2003 | 10.0 |
| 2002 | 15.0 |
| 2001 | 15.0 |
FNSM officials have repeatedly made the case that if you are paying lower property taxes as a result of the CAP, it is at the expense of your un-capped neighbor, who is paying more than they should be.
In 2020, the federation released a “visual tool” to help Nova Scotians understand the situation — an online map that lets you see who is overpaying and who is underpaying (and by how much) due to the CAP system.
Successive FNSM presidents have argued the CAP hurts young people hoping to buy their first homes but unable to afford uncapped property taxes and seniors looking to downsize but worried they’ll end up paying higher taxes for a smaller home.
Critics point out that the CAP tends to help high-income residents more than low-income residents and that the relief it provides can be “phantom,” because municipalities compensate for the capped assessments by raising tax rates.
And yet, many Nova Scotians remain deeply attached to the CAP (see this week’s Letter to the Editor), which this year is set at 5.4%; higher than it’s been since it was first linked to CPI.
Tax rates
This chart, from the province’s Open Data portal, shows Nova Scotia municipal tax rates from 2009/2010 to 2020/2021. (It’s interactive, you can hover your cursor over the dots and see exact rates.)
It includes rates from the province’s three regional municipalities, plus average rates for towns and rural municipalities. What is clear is that CBRM has the highest residential rates by far, although at $2.04/$100 of assessment they are actually down slightly from their peak at $2.06.
Circuit breaker?
In this 2014 paper about property tax reform, academics Harry Kitchen and Enid Slack begin by acknowledging how much people hate property taxes, then offer a possible explanation why:
Much resistance to the property tax appears to be because it is so visible or, more broadly, because its visibility and other characteristics make people particularly aware of it. Unlike the income tax, the property tax is not withheld at source. Unlike the sales tax, it is not paid in small amounts with each daily purchase. Instead, the property tax generally has to be paid directly by taxpayers in periodic lump sum payments (except when taxes are included in monthly mortgage payments). Property tax liabilities are usually sufficiently large that taxpayers have to save in advance or increase their debt to pay the taxes. Property taxes are thus more noticeable than other taxes.
But a bigger problem with property taxes (one Kitchen and Slack, I have to say, don’t seem particularly perturbed by) is that they are levied without any consideration of a person’s ability to pay.
And while there’s a low-income municipal tax exemption (worth a maximum of $225, according to the form on the CBRM website, but it’s for 2018) only those whose total household income is under the maximum income threshold as stipulated in the Federal Guaranteed Income Supplement Program qualify. (For 2022, that seems to be $25,728.)
Low-income people need to be protected from spikes in property values, but there are ways, other than the CAP, to do this. As I explained in this earlier article about the CAP, one method, proposed by the US-based Institute on Taxation and Economic Policy, focuses on property taxes as a percentage of income:
A less expensive and better-targeted approach is a “circuit breaker” tax credit, which provides targeted tax breaks to low-income and elderly taxpayers when property taxes exceed some percentage of their incomes above which they are deemed too be too costly. For these populations, circuit breakers are more inclusive, because they provide relief to all taxpayers for whom property taxes are most burdensome, and more exclusive, because they limit eligibility to taxpayers for whom “ability to pay” is clearly an issue.
Municipal income tax
An even bolder, option was proposed in this 2013 paper for the Canadian Centre for Policy Alternatives (CCPA) by Michael Bradfield, a research associate with CCPA-NS and a retired Dalhousie professor who not only used to learn the names of all the students in his huge introductory courses, he also made economics fun. (I took two courses with him back in the day.)
Like Kitchen and Slack, Bradfield begins by acknowledging that “No one is happy with the property tax”:
It is expensive to administer. The property tax is regressive – it puts a heavier burden on people with low incomes than on everyone else. Property tax rates are divisive, varying between classes of property owners – such as residential, commercial, and industrial; and between locations – urban, suburban, and rural. Rates also vary within a class, for example single residences, apartments, and condominiums. The property tax cannot reflect user costs because many local expenditures are for shared services, e.g., public transit, roads, or libraries, and the benefits cannot be identified with any particular class or type of property owner.
But unlike Kitchen and Slack, who can’t seem to see beyond the property tax (having quoted them liberally in my previous articles about the CAP I find I’m getting a bit disenchanted with them), Bradfield says reliance on it “is not inevitable.”
In Northern Europe, local governments receive less than 11 per cent of their funds from property taxes; in Sweden, it is only 2.4 per cent. In Manitoba the provincial government shares income (and other) taxes with local governments.
A provincially levied REfunded Municipal Income Tax (REMIT) could be adopted in Nova Scotia, with low administrative cost to the Province, but with the potential to dramatically reduce our reliance on property taxes.
Bradfield goes into detail about how it would work — basically, it would require “one new line on the provincial income tax form” allowing you to pay your municipal income tax along with your federal and provincial taxes, then:
The CRA could send all of these new revenues directly to the relevant local government, based on the postal codes of the tax filers.
These new revenues would allow local governments to reduce their property taxes. The new income tax revenues can also be used to reduce the capital debt of local governments or to improve and expand services. These choices would be determined by local politics.
I know this isn’t going to help CBRM council with its budget deliberations in 2022, but it does give you something to think about, doesn’t it?
