Revenue neutral?
What exactly does “revenue neutral” mean and how does it apply to the property assessment and taxation system in New Brunswick?
Answer: it doesn’t. And it’s at the core of our disenchantment and frustration, whether we realize it or not.
As I stated in an interview with CBC’s Robert Jones, the absence of revenue neutrality is absolutely the biggest fiscal problem facing New Brunswick citizen-taxpayers today. I discuss this in my own writing here and here as well.
Revenue neutrality is simply this: when assessments increase a given percentage from one year to the next, the municipality then reduces the tax rate that same percentage so that the it receives the same amount of tax revenue (think of a seesaw). Thus: revenue neutral.
If the municipality does actually need more money in the subsequent year, it has to make the case for that as a budgetary need and then adjust the tax rate upward just enough to accommodate that. The municipality does not rely on an increasing assessment to do the dirty work for it.
You thought the main issue is high taxes? Well, yes, but the problem is why taxes increase when assessments do. You see, they don’t in the majority of jurisdictions in Canada, which places New Brunswick among a dubious and problematic set of outliers.
Why is revenue neutrality important?
I think we’ve all seen the answer to that in the past few years, as assessments in New Brunswick have skyrocketed due to very robust residential real estate markets and have largely dragged taxes along with them, which they should not. Why is that?
At the risk of getting into the weeds a bit on this, the answer is because assessment is an administrative function while taxation is a political one. In other words, assessors determine values via an objective combination of observation and mathematics based on market values. This is strictly a civil service function.
In what we call an ad valorem (“according to value”) taxation system, property values are simply a tangible proxy for our relative ability to pay. You have a bigger house? You should be able to pay more tax. Smaller house? Less tax. To quote an excellent City of Calgary document on this topic, “Assessment acts only as a mechanism to annually distribute taxes to each taxpayer in an equitable manner”.
Alternatively, taxes are entirely political. We elect politicians to impose a certain level of taxation for the services we desire and can throw them out of office if we are unhappy with that level.
From the same City of Calgary document: “The revenue neutral tax system makes certain that the assessment process remains a distinct and separate process from the budgetary process. Revenue neutral ensures that no new taxes will be collected due to the annual reassessment process” (emphasis added).
Which jurisdictions in Canada have revenue neutral systems?
I also draw this his list of jurisdictions with revenue neutral systems from the above City of Calgary document:
- all major municipalities in Alberta (including Edmonton, Calgary, Strathcona County, and the Wood Buffalo municipality, which includes Fort McMurray)
- all of BC
- all of Ontario
- City of Winnipeg
- City of Saskatoon
This is not an exhaustive list – these are only the jurisdictions that responded to the City of Calgary’s survey on this topic. The selfsame document states that, while the revenue neutral system is not legally required in the jurisdictions noted above, “many jurisdictions choose to use it as it provides confidence in the integrity and transparency of the property assessment and tax system”.
“Transparency of the property assessment and tax system” – sounds like a great idea, no? Jurisdictions representing a significant majority of the Canadian population seem to think so.
Assessment and taxation: never the twain should meet
No need to guess what jurisdiction close to our hearts does not have a system that provides that confidence in the integrity of the system noted above.
What we have in New Brunswick is a “rate-driven tax system”. It’s an archaic system in which increases/decreases in overall assessment value directly impact the amount of property tax a municipality collects. And it is precisely this type of system that the International Association of Assessing Officers says “fails to meet the test of open and transparent property taxation”.
And then, not only do we have this morass in which assessment and taxation are joined at the hip, we have legislation that limits the extent to which residential and non-residential tax rates may diverge. This prevents municipalities’ from being able to offset assessment increases with full tax rate decreases, even if they wanted to do so.
Not that they necessarily would, though, as most benefit from being able to blame assessment increases as a way of obtaining extra revenue without deliberating it in the budget process.
As I’ve argued elsewhere, our property assessment and property taxation legislation is poorly written. The word “tax” should never appear in assessment legislation, but it most certainly does, as assessment is the tool most often used in NB to deal with what are at their core taxation issues. Think of the “Spike Protection Mechanism”, for instance.
Rather than a revenue neutral system, this incestuous, substandard mess is precisely what we have to contend with.
To find a solution, you first have to identify the problem
Even if they’ve never even heard of the concept of “revenue neutral”, most people know damned well that something is broken in the New Brunswick assessment and taxation system.
And politicians from all three parties with MLAs in the last Legislature know it, too, sort of.
From what I’ve heard from them so far suggests that not a single one of them truly understands what is at the core of that broken system, namely a lack of revenue neutrality. Not a one, and that’s because the archaic and problematic rate-driven system is so entrenched in their – and our – thinking.
Sure, there are vacuous pledges in some of the platforms that promise an entire system revamp, but New Brunswickers have heard that promise before and saw nothing come from it. Parties this election are making the same kind of promises, but what’s the point of promising reform if you don’t know exactly what it is that is broken and requires reform?
The idea of a revenue neutral system should be on the mind of every single New Brunswicker who wants to see a fairer and more effective property assessment and taxation system in our province. Let’s all just start there.
Later this week, I’ll have a final look at where all the parties stand on this topic as we head to the polls on Monday.
Want to understand our property assessment and taxation system better and make it work to your advantage?
See my new book:
Taxing New Brunswick: An Insider’s Guide to Successfully Challenging Your NB Property Assessment (available on Amazon)