Outdated, unfair, and broken
The most outdated, unfair, and broken part of the assessment and taxation system in NB is the Real Property Tax Act, particularly that portion of the Act that enshrines the rate for the provincial portion of taxes.
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(Note that all properties are subject to the provincial portion of tax but owner-occupants are eligible for the Residential Property Tax Credit on their primary residence, which means that they waive the provincial portion for those.)
The provincial government can, and has, changed this rate from time to time (particularly in response to skyrocketing assessed values in the past few years), but the very fact that this rate is enshrined in legislation rather than allowed to float based on budgetary need is the crux of the problem here.
Automatic tax increases
The most important thing to understand about the legislatively enshrined rate in the Real Property Tax Act is that provincial taxes automatically increase when assessments increase unless the government changes the legislation. And changing provincial legislation anywhere in Canada is no mean feat.
For 2022, when I was working in Assessment, we found ourselves having to increase assessments dramatically – some as much as 100% – both because of the strong market conditions, but also because assessors had not been able to “re-inspect” some property categories for a long time. This meant that assessors had to leave those properties chronically underassessed, sometimes for many years.
Eventually, assessors had to raise those under-assessments up to market levels and, in the case of certain property types (particularly certain multi-family properties in 2022), this meant significant increases in a one-year period. In the absence of a reduced provincial rate, the government’s tax take (including the regressive “Cost of Assessment” rate) would have become a massive unbudgeted windfall.
Now, if the Real Property Tax Act were changed to allow the tax rate to float based on budgetary needs, there would have been no requirement for a legislated rate reduction. The rate would simply have been automatically set anew for what the government needed for its operations in that tax year. So how exactly does that work?
How floating rates work: the Alberta example
To illustrate the effect of how floating rates in a revised Real Property Tax Act would work, let’s use Alberta as an example (Alberta gets a lot of things wrong, but not this).
Say a municipality there has a budgetary requirement (as determined by its Council) of $100K in a given year and its overall assessment is $1 million. It then sets its tax rate at 10% ($100K/$1 million).
Then, the following year, it turns out that it still needs only $100K to operate, but the overall assessment increases to $1.2 million (a 20% increase). The municipality then sets its new tax rate at a lower 8.33% ($100K/$1.2 million), rendering the same $100,000 to the municipality’s coffers as the year before.
Conversely, if the assessment had dropped 10% to $900K (and this did actually happen during my time on Council), the municipality would increase the tax rate to 11.11% ($100K/$900K) to obtain the same $100,000. Thus, the amount of tax revenue would be the same each year (in this example) and would be based on politically-driven budgetary need, regardless of what the overall assessment is.
Assessments and tax rates wouldn’t even rate a mention prior to the conversation about budgets.
Within this revenue neutral system of which a revised Real Property Tax Act would be a part, assessors would focus on the valuation, while the politicians would look after taxation and spending, which is exactly what each should be doing.
In contrast: New Brunswick
However, here in NB, the provincial rate rarely changes. As I said above, 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 legislated reductions to the provincial tax rate those years. Yikes.
The municipalities, for their part, 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. Municipalities 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).
(Note: that all having been said, municipalities run into some restrictions in the Real Property Tax Act, which limit what they can do with residential tax rates relative to non-residential rates. This is also part of the Act that the government should change but I’ll devote a separate NFP column to that in the weeks to come. In the meantime, you can read about this on my blog.)
Unconscionable public policy
As one former assessment colleague put it to me, there has simply been no “culture” in NB for budget-based decision-making (although there was some mention of it in 2009). At both the provincial and municipal levels, the talk in New Brunswick continues to be about tax rates and assessment levels rather than about budgets, where it should be.
This “culture” of not wanting to lower tax rates is unconscionable public policy because the Real Property Tax Act, with its enshrined rates and inherent limited rate flexibility, works in active opposition to the Assessment Act, which requires that all property be assessed at its “Real and True Value”. How so?
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 is bad because it results in assessments that are often well below actual market value. 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.
Systemic reform has to start with the applicable legislation
The Assessment Act and the Real Property Tax Act are the places to start when talking about property tax reform in New Brunswick.
With regard to the Real Property Tax Act, enshrined provincial rates, the restrictive relationship between residential and non-residential rates, and the whole “culture” of taxes automatically increasing when assessments do simply have to go.
Anything less than that when it comes to systemic reform will be nothing but window dressing and leave taxpayers feeling that the system is no less broken and unfair than it was before.
This piece was first published in the Northumberland Free Press, 2024-12-14