Outdated, unfair, and broken
The most outdated, unfair, and broken part of the assessment and taxation system in NB is the Real Property Tax Act, particularly that portion that essentially enshrines tax rates for the provincial amount of taxes. They can (and have, including in both 2022 and 2023) change these from time to time, but the very fact that one finds these rates in legislation rather than allowing them to float based on budgetary needs in any given year shows just how antiquated this piece of legislation is.
Automatic tax increases
First, with legislatively enshrined rates in the Real Property Tax Act, taxes automatically increase when assessments increase unless the government changes the legislation. For 2022, assessors had to increase some assessments dramatically – some as much as 100%, both because of the strong market conditions, but also because assessors have not been able to “re-inspect” some property categories for a long time. This means that assessors have had to leave those properties chronically underassessed, sometimes for many years.
Eventually, those under-assessments have to be corrected up to market levels and, in the case of certain property types (particularly certain multi-family properties in 2022), the increases can be huge. In the absence of provincial and municipal rates that are allowed to float based on budgetary needs instead of the level of assessment, the government’s tax take (including the regressive “Cost of Assessment” rate) becomes an abominable and politically unsustainable windfall for the Province and its municipalities alike.
How floating rates work: the Alberta example
To illustrate the effect of floating rates, let’s use Alberta as an example again (Alberta gets a lot of things wrong, but not this). Say a municipality has a budgetary requirement (as determined by its Council) of $100,000 in a given year and its overall assessment is $1,000,000. It sets its tax rate at 10% ($100,000/$1,000,000). Then, the following year, it turns out that it still needs only $100,000 to meet its budgetary needs, but the overall assessment increases to $1,200,000 (a 20% increase). The municipality then sets its new tax rate at a lower 8.33% ($100,000/$1,200,000), rendering the same $100,000 to the municipality’s coffers as the year before.
Conversely, if the assessment had dropped 10% to $900,000, they would increase the tax rate to 11.11% ($100,000/$900,000) to obtain the same $100,000. Thus, the amount of tax revenue would be the same each year and is based on politically driven budgetary need, regardless of what the overall assessment is. In this system, assessors focus on the valuation, while the politicians look after taxation and spending, which is what each should be doing.
In contrast: New Brunswick
However, here in NB, the provincial rate rarely changes (think about how much additional revenue 2022’s and 2023’s increased market values would have generated for the Province if there had been no changes to the tax rate); the municipalities might tinker with their own rates a bit (some more than others), but not necessarily reduce them enough to offset the increase in taxes that the overall increase in assessment would otherwise engender. They often see assessment increases as bonus income that they can use for projects they have delayed and the fact is that there is no political cost to them for doing this because they can simply blame the higher taxes on the increased assessments (and on the assessors, of course).
As one former assessment colleague put it to me, there has simply been no “culture” in NB for lowering tax rates – at least not prior to 2022, and the talk in New Brunswick continues to be about tax rates and assessment levels rather than about budgets, where it should be.
Unconscionable public policy
This is unconscionable public policy. In a very real way, the Real Property Tax Act, with its enshrined rates and inherent limited flexibility, operates in stark contradiction to the Assessment Act, which requires that all property be assessed at its “Real and True Value”. Over the years, assessors have tended to conduct valuations with one eye on the market and another on what the taxation impact will be. This results in assessments that are often well below actual market value and, while property owners snicker a bit because they know the low assessments are to their benefit, they also have no reason to believe that assessors might actually know what they are doing.
As a result, this undermines confidence in the whole system and, between the respective impacts that the Assessment Act and the Real Property Tax Act each have, we have a system in NB that is neither fair and equitable, nor consistently accurate. How can anyone find this to be remotely acceptable, credible, or workable? Yet here we are. Next: Tax agents
This article first appeared in the Telegraph Journal in June 2023 (not available there any longer).
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