Review of Ontario property tax system more urgent than ever after COVID-19: report – Toronto Star

A new report by the Ontario Chamber of Commerce says an overhaul of property taxes and more municipal autonomy will be key to Ontario’s recovery from COVID-19.

The report, titled “Better Budgets: Bolstering the Fiscal Resilience of Ontario’s Municipalities,” calls for a review of the province’s property tax assessment system, new provincial and federal transfers, increased financial accountability for Ontario municipalities, and 11 other recommendations.

As Ontario reopens, hopefully for the last time, the economic recovery is top of mind. The OCC’s report argues that there are long-term and short-term changes to be made that will help spur the recovery and support the province’s economic competitiveness in a post-COVID-19 world.

Co-author and OCC senior policy manager Claudia Dessanti said the report was initially supposed to come out in early 2020. The issues it addresses, especially property taxes, have been in discussion for years, she said.

But when the pandemic hit, the report had to be revised, as both the present and the future of Ontario’s economy were under pressure.

“The challenges are long standing but exacerbated by COVID,” Dessanti said.

The provincial government recently took a step in the right direction, said Dessanti: its 2020 budget saw a standardization and reduction of Business Education Tax rates effective January 2021.

But the OCC isn’t just asking for a few changes, it is recommending a complete review of the entire system, she said.

The report calls for tax assessments, which were already postponed by a year due to the pandemic, to be paused “until a more equitable and efficient property tax regime can be established.”

Among the tax-related recommendations is a call to eliminate the provincial share of non-residential property taxes to give both businesses and municipal governments some relief and “room to manoeuvre.”

“What that share does is it eats into municipalities’ ability to adjust the rate as needed to respond to pressures like COVID-19,” said Dessanti.

The report argues that an overreliance on non-residential tax revenue is a threat to the financial sustainability of a municipality: “The increasing responsibilities of municipalities demand not only a diverse mix within the tax base, but also a balance in revenue sources so residents can live and work in a community for the long term.”

The report also calls for the tax assessment system to be altered away from what’s known as “highest and best use,” or HABU. This system means that properties are assessed based on their potential value, often leaving small businesses with the property tax bill of a condo tower, for example.

“This really impacts small businesses, especially in communities that are facing a hot real estate market,” said Dessanti. “We’re looking for an approach to property tax assessments that is more dynamic and is based on both need and capacity to pay.”

Many of the recommendations in the report are long-term changes, noted Dessanti, especially the review of the property tax system. But some of them are in the shorter term and could help boost Ontario’s economic recovery from the pandemic.

For example, the report recommends reviewing and increasing transfers from the federal and provincial governments to help tide municipalities over as their businesses recover. It also recommends more frequent property tax assessments to avoid large hikes, and expediting the appeals process for assessments.

It also recommends implementing a “pay for say” principle, meaning that if a level of government has input into a particular service, it also has to help fund that service.

The report is also concerned with the autonomy of municipalities, and with collaboration among them. To increase transparency and accessibility, it recommends that municipal governments present modified accrual budgets at the end of each year, which would improve financial reporting and show how a government is faring in comparison to its original calculations.

The report’s recommendations are even more important in the context of the economic recovery from COVID-19, said Dessanti.

One recommendation addresses the Municipal Accommodation Tax created in 2017, which is meant to help grow Ontario’s tourism industry, struggling after a year and a half of the pandemic. The report recommends implementing a formal rate change process on the tax, which is currently uncapped and nonvoluntary, and also recommends improving accountability regarding how the tax funds are used to make sure they go back into the tourism industry.

The larger the city, the larger the impact on the municipal budget by COVID-19, the report states, giving Toronto as an example — the city had a $1.7-billion gap between its projected 2020 budget and the reality.

Omar Raza, senior manager at report partner KPMG, said Toronto and other Canadian cities already have some competitive advantages over top American cities, especially in terms of labour costs and taxes. The report’s recommendations regarding taxes have the potential to increase these advantages, he said.

“Tax competitiveness is a leading characteristic of the GTA marketplace,” he said.

Dessanti said with the provincial election approaching in less than a year, many voters will have property taxes top of mind.

She also hopes the recommendations regarding the tourism sector will be a policy priority.

“As policy-makers talk about recovery, tourism needs to be a focus.”

For years to come, all levels of government will face pressure to reduce debt, said Dessanti, and municipalities are concerned that means cuts for them at a time when investing in their economies will be key for the recovery.

“We really need to balance those two priorities,” said Dessanti.

Raza agreed.

“It’s two sides of the coin. There’s the business competitiveness, and then the financial sustainability of our cities,” he said.

“Both need to work hand in hand in order to create that economic growth.”