In defence of property taxes

Michael Prentice
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Much-maligned system fair to ratepayers

“Don’t you hate taxes, especially property taxes?”
“It’s awful that senior citizens are being driven from their homes because they can’t afford to pay the property tax.”
“How dare governments charge a tax based on the value of our homes, without regard to the services we receive?”
“Our homes shoot up in value and it costs us more in property tax.”

(Stock image)

Such complaints are heard everywhere these days, because people love to hate property taxes.

Pardon me for disagreeing, but I’m 100 per cent in favour of property taxes. I don’t relish paying my property tax, but it is the fairest way I know to pay for the services we expect and demand from government.

The property tax may be the only tax that is unavoidable, unless you have the tragic misfortune to be homeless. Many renters may not know it, but they all pay property tax. It’s included in their rent. Tourists pay property tax when they rent a hotel room, buy a meal in a restaurant or pay for entertainment. The tax is hidden in the bill.

This stands in contrast to other forms of taxation that are less equitable and riddled with exemptions.

Income tax rates vary depending on income level. Higher earners are supposed to pay a higher percentage in tax, but people in that bracket often find ways to lower their effective rate.

Sales taxes may be the cruelest of all, with the poor hurt far more than the rich. (It’s true the rich spend more, but they also travel more and escape sales tax on purchases made outside Canada.)

What’s unfair about someone who can afford to live in a $1-million home paying twice as much in property tax as a person living in a $500,000 home? Think about it. Yet the well-off living in the nicest neighbourhoods are often the most vocal opponents of property taxes.

In the most desirable or fashionable neighbourhoods, property values tend to rise faster than in less salubrious districts. So people living in these nice neighbourhoods are required to pay a greater share of the property tax load. What’s wrong with that? Your home goes up $100,000 faster in value than the average home, and you begrudge paying $1,000 extra a year in property tax?

Complaints about the burden of property taxes on senior citizens appear often to come from those who are young enough to be working.

I’m a senior citizen and I’m not complaining. I believe the current generation of retired people has never had it so good. No future generation is ever likely to have the advantages of today’s seniors. This is particularly true in Ottawa, where large numbers of retirees live in homes where the mortgage has been fully paid and where the pension is fully indexed to inflation, if the homeowner was lucky enough to work for the federal government.

Many complaints about the burden of property taxes appear to be disingenuous. Frequently the criticism is unjustified.

Perhaps the most common misconception is that higher assessments mean higher property taxes. That’s just flat out wrong.

In the latest assessments, recently mailed to all Ottawa homeowners, the average value of an Ottawa home was estimated to have risen by about 25 per cent in the four years since the previous assessment. That’s exactly in line with the average increase in Ottawa housing prices in that period, as measured by the Ottawa Real Estate Board.

This means that, if your assessment increased by 25 per cent – say, $400,000 to $500,000 – your property taxes are unaffected. Your property taxes next year should increase by no more than the 2.1-per-cent hike in the cost of city services presented by Mayor Jim Watson.

The loudest complaints are being heard from those whose homes have increased in value by more than 25 per cent between 2008 and 2012. In a few cases, Ottawa home prices soared in value by 50 per cent in that four-year period. Shocking! Terrible! Putting home-buying out of the reach of many people! That’s what some Ottawa newspaper headlines said.

These biggest hikes were due to demand outstripping supply in Ottawa’s hottest inner-city neighbourhoods. Perhaps the complainers didn’t realize that these neighbourhoods were already priced way beyond the reach of most people.

But even a 50 per cent increase in assessment does not impose an intolerable burden on property owners. For one thing, the new assessments are being phased in over four years, which means the full impact will not be felt until 2016.

Even then, the annual increase in property taxes will probably be less than $1,000 a year due to the new assessments. And if that’s too much for a senior citizen or fully employed homeowner, they have three years to downsize to a smaller and/or cheaper home.

Seems fair to me.

DESCRIPTION              HOUSE A      HOUSE B         HOUSE C

2008 assessment        $400,000        $400,000       $400,000

2012 taxes            About $4,900    About $4,900    About 4,900

 

2012 assessment        $450,000       $500,000         $600,000

2016 taxes             About $4,400    About $4,900    About $5,900

(at 2012 assessment, but before tax increases in next four years)

Note: The urban residential tax rate in Ottawa this year was about $1,220 per $100,000 of assessed value. The tax rate should gradually decline over the next four years, as new, higher assessments take effect. The owner of House C will save a total of about $1,500 in property taxes over the next three years due to the delay in fully implementing the new assessments imposed by the provincial government. The owner of House A will pay a total of about $750 more in property taxes than he would if the new assessments took full effect in 2013. The owner of House B is unaffected by phased introduction of the new assessments.

Organizations: Ottawa Real Estate Board.This

Geographic location: Ottawa, Canada

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Recent comments

  • Paul O
    December 14, 2012 - 21:58

    Some services cost more in the suburbs and exurbs than they do in the core. Others cost more in the core (in part because of the age of the infrastructure there). But the cost of the services has little relationship to the value of the home, nor to the homeowner's ability to pay. The author says that an unemployed person should pay more for services just because they were fortunate enough to pay off their home when they were working. Not exactly a compelling argument: the expense of selling a home and moving to a more affordable location is far more than the added tax burden being levied, fair or not. The homeowner is in a no-win situation. The discussion really should be why homeowners are being asked to shoulder a higher burden than business owners, when the business can deduct the expense from their income taxes while a residential homeowner can not.

  • JamesL
    December 14, 2012 - 09:43

    Just curious what better services house C gets over House A that would warrant them paying more. Or a $500,000 condo downtown vs a outskirts (I live in outskirts) $500,000 home, where the condo has very low per location services use (snow, garbage removal, police services, etc.) vs the higher requirements for a rural but still Ottawa home. The latter is a choice - so should they not pay more due to their higher costs

  • Dan
    December 14, 2012 - 09:35

    Michael, At the outset you suggest that the current property tax regime is the "fairest" way to pay for city services. Consider this: - I own a four bedroom house and have two kids. I live in a neighbourhood inside the Greenbelt. - My sister owns a four bedroom house and has two kids. She lives in a suburb outside the Greenbelt. - Both families use roughly the same amount of city services. I end up paying more than my sister pays for the exact same services simply because my house has a higher market value assessment. You could argue that this is fair based on "ability to pay" basis; however, do not confuse this with charging a fair price for services provided.