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Tuesday, September 27, 2022
Op-ed: Let’s improveCanadian competitiveness through tax renewal and updated process

Gary Zalepa

NOTL Regional Councillor

With over seven years working on municipal councils, I have come to the conclusion that Canada’s method for funding all levels of government needs major structural change.

Taxation models created almost 100 years ago are no longer serving our needs and are negatively impacting delivery of government services and infrastructure development.

Our current funding model for municipalities, based on property taxes, including a disjointed collection of transfer payments, grants and tax credits, that have devolved into a series of handouts, is impossible to understand, accountable to few, and it’s effectiveness is questionable.

The current reality is not sustainable financially nor politically, and is weakening our domestic competitiveness.

It is an accepted truth that municipalities are hubs for modern economic growth and job creation. But ours struggle to fund and deliver priority services. Like world class education, health care, affordable housing, poverty reduction, all essential to attracting quality labour.

These services, along with public infrastructure, roads, water systems and sewers are needed to accommodate population growth and the necessary labour expansion that this country needs. Let’s address these challenges and unlock Canada’s economic competitiveness, by fully engaging the municipal powers of economic growth.

Over the last century, government service delivery has evolved with our federation. Societal needs have changed as well. Today’s public service offering is sophisticated.

Let’s take public health and social services as examples. Deliverables are dictated constitutionally by the province, national standards set by the feds but service is delivered by the municipality.

If that is not disjointed, further, they are funded in combination by federal transfer payments (if available), provincial income and sales taxes, and municipal property taxes (with some exceptions for the City of Toronto).

This reality, a hodgepodge combining grants/handouts is dysfunctional and lacks long-term, strategic thinking. It all leads to improper resource allocation, inconsistent service delivery, and more concerning, a politicization of funding priority services.

For example, a municipality has various capital infrastructure needs, managing hundreds and thousands of public assets from bridges to water plants to various public buildings.

In our history, federal and provincial funding accounted for, in some cases over 75 per cent of the capital costs to construct many of these assets. Fast-forward to today and many of these assets are past their life expectancy and municipalities are having to fund replacements using property tax revenue, development-related charges, debt and unpredictable federal/provincial grant programs, such as the Ontario Community Infrastructure Fund.

(As noted in a Jan. 30 story in The Lake Report, that provincial fund is providing NOTL with more than $800,000 for infrastructure repairs, part of some $200 million being distributed to 424 municipalities.)

Property tax revenue, with its artificial, misleading definition of market value, does not follow the natural economic cycle. It does not track with growth or inflation, nor does it spread funding over the broad society.

Property taxes are not appropriate tools to fund municipalities’ modern day responsibilities. As an illustration, consider the cost of one ambulance. Costs include vehicle acquisition, maintenance, insurance, fuel, staff, etc. These costs adjust every year through economic cycles. If the revenue to pay for them does not match, very quickly you negatively impact service delivery. Complicate this dilemma further by reducing/removing a provincial grant or federal transfer payments. I think you get the picture.

What can be done?

Adjust tax policy so that specific government services are funded by assigned tax revenue tools. Achieve enhanced service effectiveness, through stable funding and improved accountability. Eliminate the finger-pointing of the past, where each level of government blames the other, and improve the public value received for taxes paid.

Tax restructuring at all three levels is required to meet that goal. A combination of policy adjustments could include:

* Minimum tax-free income provincially and federally, set just above the poverty level (Ontario’s LIFT Program, as an example).

* Shift funding from property tax to sales tax for those services deemed most appropriate and create a clear apportionment of revenues between the province and municipalities, with assigned targets and objectives.

* A federal and provincial income tax change, to a flat rate model, with no deductions.

By developing a sustainable revenue model for the entire federation, one that brings all levels of government into a more constructive/equal relationship, Canada can then best compete on the modern global stage, improving our competitiveness, providing services our citizens require and raising the quality of life collectively for us all.

Gary Zalepa is regional councillor for NOTL and chair of the Region of Niagara budget committee.