Scrutiny of government tax and spending policies remains an important hallmark of Canadian democracy. And yet, while federal and provincial government finances routinely make headlines, municipal governments often escape the fiscal spotlight. This makes it difficult for taxpayers to know how local governments spend tax dollars and whether they deliver value for money.
In a new Fraser Institute study, we compare 17 of Metro Vancouver’s 21 municipalities on indicators of government spending, revenue and debt. While the report provides insights for residents across the region, an important takeaway is the stark contrast between Vancouver and Surrey, the region’s two largest municipalities.
By a wide margin, Vancouver city hall spends more and taxes more. And Surrey city hall has kept spending relatively low, despite its population growth nearly doubling the rate of Vancouver’s over the past decade.
Surrey, with a population of about 509,000, has the smallest municipal government in the region, as measured by per person government spending on operations. In 2012, the most recent year of comparable data, Surrey spent $951 per person while Vancouver (population of roughly 667,000) spent $1,689 per person – that’s 78% more than Surrey.
Of course, to pay for all that spending, municipal governments collect revenue through property taxes, user fees, fees paid by land developers and other sources. In 2012, Vancouver collected $2,118 per person in revenue (excluding transfers from other governments) or 59% more than Surrey ($1,336 per person).
Looking specifically at general tax revenue provides a clearer picture of the tax burden faced by city residents and businesses. In 2012, Vancouver city hall collected $964 in taxes for every resident – 68% more than Surrey ($574 per person).
For property taxes, which make up the lion’s share of tax revenue, municipalities apply different rates for residents and businesses, with business rates almost always being higher. But by relying too heavily on businesses for property tax revenue, municipalities risk scaring off entrepreneurs who consider property taxes when making decisions about whether to continue operations, expand or start a business.
Once again, Surrey provides a sharp contrast to Vancouver, which draws 45% of property tax revenue from businesses compared with only 31% in Surrey. Different businesses pay different property tax rates, but the rates in Vancouver are generally higher than in Surrey. For example, Vancouver taxed heavy industry, including manufacturing and cargo-loading facilities, at a property tax rate of 32% in 2012, almost three times higher than Surrey’s rate of 11.4%, thus making Surrey more attractive for investors in this business class.
Beyond spending and revenue, a complete picture of municipal finances must touch on government debt and other liabilities. And here, Vancouver, unlike Surrey, is one of the few municipalities in the region with government liabilities greater than financial assets. In other words, Vancouver city hall is in the red, with net liabilities of $402 per person. Surrey, on the other hand, has net assets of $318 per person. As a result, interest payments to service the debt eat up a larger chunk of Vancouver’s operating spending compared with Surrey (3.6% versus 1%), leaving less money available for public services (such as police, firefighting, garbage collection, etc.).
The fiscal spotlight reveals a sharp divide between Vancouver and Surrey.
Vancouver is clearly the bigger-spending, higher-taxing, more indebted municipality. While it’s ultimately up to Vancouverites to decide if they’re happy with city hall’s fiscal choices, a comparison with Surrey at least helps them understand where their government stands. •
Charles Lammam and Hugh MacIntyre are co-authors of “Comparing Municipal Government Finances in Metro Vancouver,” available at www.fraserinstitute.org. This commentary is reprinted courtesy of Troy Media (www.troymedia.com).
