Thanks to a city council vote in December, Vancouver homeowners face a 7% property tax increase this year – the highest in recent years – that city staff say will add an extra $100 to $200 to a typical homeowner’s tax bill.
Vancouverites are right to wonder about the rationale behind the hike, whether or not it’s fair, and how city council will use the extra revenue.
At the same time, Vancouverites should also understand that businesses large and small have long had to pay far higher property tax rates than what residents have faced. In 2019, businesses paid a 0.427% property tax to city hall compared with 0.134% for homeowners (those rates don’t include property taxes levied by the province or regional district).
In fact, as noted in a recent study by the Fraser Institute, the total combined municipal-provincial property tax rate on Vancouver commercial businesses was more than 3.5 times higher than residential rates last year. This ratio increases to 3.6 to one for light industry and a whopping 14.3 to one for major industry.
In short, businesses across the Lower Mainland, from the barbershop on the corner to the tanker terminal on Burrard Inlet, are freighted with far higher property tax rates than what residents must pay, again raising important questions.
Questions like, is this fair? In theory, taxes should reflect clear principles, such as “user pays,” that aim to broadly align the costs for services with those consuming them. For example, parking meters are designed (in principle) so only parkers pay the cost of providing parking. But unfortunately, where business taxes are concerned, there’s no clear connection between the taxed and their rates. It remains unclear why businesses – regardless of size and industry – face tax rates several times higher than their residential counterparts.
Moreover, on several occasions the City of Vancouver has analyzed the consumption of tax-supported local services and found that businesses, as a whole, consumed far less in city services than residents, despite contributing disproportionately to city coffers. And therein lies the problem. To ensure democratic accountability between the taxman and taxpayers, municipal and provincial governments must present a clear rationale for property tax rates. In Vancouver, such rationale proves elusive.
And clearly, tax rates make a difference. Many businesses are incapable of weathering seemingly endless property tax increases. Faced with disproportionately high tax rates, entrepreneurs must make difficult decisions such as whether and where to relocate, or whether to shut their doors permanently. In the Lower Mainland, the farther away from the metropolitan core, the smaller the gap between most residential and non-residential property tax rates. Port Moody, Abbotsford and White Rock all have tax ratios more favourable to commercial businesses than Vancouver, Burnaby and New Westminster.
To be fair, Vancouver city hall is beginning to acknowledge the profound problems with its property taxes, the city’s largest revenue source. Last summer, council approved a 2% “tax shift” over three years, from non-residential to residential property classes. However, this is but one small step towards addressing the problem, and only one of a suite of available options, which include greater dependence on user fees, where possible, for service provision (rather than higher taxes) and greater government efficiencies to stem growing municipal expenditures.
In any case, changes can’t come soon enough as the risk of inaction cannot be overstated. For example, the City of Calgary faces a near crisis due to its overreliance on property tax revenue from businesses. Due to plummeting property values in the downtown core, Calgary has lost a significant amount of commercial property tax revenue. City council is now scrambling to fill the gap through a combination of budget cuts, tax hikes and dipping into savings.
If Vancouver and other Lower Mainland cities that place greater tax strain on businesses want to avoid some variant of the drama now unfolding in Calgary, they should ask themselves whether the tax rates they charge businesses are fair. The longer-term consequences of the status quo, or something like it, could be disastrous for business owners and residents alike. •
Josef Filipowicz is a senior policy analyst at the Fraser Institute’s Centre for Municipal Studies.
