SPM is extremely poor public policy

Happy New (Taxation) Year

On your recently-received 2025 Property Assessment Notice, which Service New Brunswick (SNB) sent you, you’ll note the two values in the section entitled, “Property Assessment Information”.

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One is the “Real Property Assessment value” and the other is your “Assessment for Taxation”. Your tax will be based on the “Assessment for Taxation” value (note that Finance and Treasury Board [FTB] issues tax notices on March 1) and it’s created when SNB subtracts the “Spike Protection Mechanism” (SPM) from the “Real Property Assessment value”.

For example, our own 2025 “Real Property Assessment value” is $141,900. However, our “Assessment for Taxation” is only $124,800, which represents a 10% increase from what the “Assessment for Taxation” was last year. FTB will therefore tax us on the $124,800, not the $141,900.

(Note: don’t worry about how they do the calculations for the SPM – just make sure your 2025 “Assessment for Taxation” is no more than 10% higher than last year’s.)

What is the ‘Spike Protection Mechanism’ (SPM)?

As per Service New Brunswick’s information on last year’s Property Assessment Notice itself, “Spike Protection prevents your Assessment for Taxation from increasing more than 10% a year (excluding new construction, properties sold in the previous year, or major improvements)”.

At first glance, you might think that using the SPM to limit tax increases in a given year would be a good idea because, you know, less tax.

But is it? Well, the part about limiting tax increases in a given year is indeed a good thing, I’d argue. But using the SPM to do that? Not so much.

In fact, I think that the SPM is as monumentally stupid and counterproductive a piece of public policy as there is in NB. And there are several reasons for that.

Reason #1: SPM spreads out tax increases but does not reduce the tax burden

The first reason is that the SPM limits the amount of increase in taxes you might expect in a given year but doesn’t limit the tax burden overall. The SPM spreads the increase out over more than one year but doesn’t eliminate the overall increase itself.

As a result, your municipality (and the Province, if your property is also subject to Provincial tax) can expect to receive additional tax revenue every year whether their budget calls for it or not.

What happens, then, is that the municipality tends to tailor its budget to the expected revenue rather than doing it correctly, which is to requisition only the revenue needed and set their tax rate according to those budgetary needs. Not that municipalities don’t need more sustainable and diverse funding, but this isn’t the right way to get that additional revenue.

Reason #2: SPM creates inequities in the system

You’ll note from the SNB definition above that SPM doesn’t apply to new construction or properties with major improvements (or vacant land). What it doesn’t mention is that the SPM is also re-set when the property changes hands.

So if we take our own situation as an example again, the 10% SPM limit on the “Assessment for Taxation” means that we will see at least a 10% increase in property tax for 2025 (and more if they raise the tax rate in the rural areas of Kent County). Last year’s tax was $1,287; this year’s will be at least $1,416.

But what if we’d sold our house last year? In that case, the new owners would be looking at paying property tax based on the full value of $141,900, which equals $1,609 (assuming no change in tax rates) – a 25% increase. That’s an additional $322. What if our “Real Property Assessment value” were $250K and/or subject to Provincial tax because it’s a second property? Or, worse yet, an apartment? How many additional dollars would that be?

And worse yet, the problem compounds every year to the advantage of those who stay in a single home for an extended period. As a result, people will look at property tax values on SNB’s Property Assessment On Line and see widely divergent tax amounts for what are often very similar properties.

Why does the system subsidize long-term ownership this way and how exactly does this inequity serve the public good?

Reason #3: SPM is the wrong tool for the job

You wouldn’t use plumbing tools to fix an electrical problem, so why is NB using an assessment tool, namely SPM, to fix what is a tax problem? Nothing bad could possibly come from that, could it?

Some readers may remember California’s Proposition 13 in 1978. It’s not exactly like SPM but it was (and is) still an assessment tool being used to fix what people perceived to be a tax problem then. This is what a report from the US National Bureau of Economic Research had to say about Proposition 13:

As a consequence of Proposition 13, homeowners in California receive a property subsidy that increases the longer that they own their home. It has been described as a contributor to California’s housing crisis, as its acquisition value system (where the assessed value of property is based on the date of its acquisition rather than current market value) incentivizes long-time homeowners to hold onto their properties rather than downsize, reducing the housing supply and raising housing prices.

Other taxing jurisdictions have also tried assessment solutions similar to SPM as a way of addressing tax issues. I’m not specifically conversant with any of these but I do know that limiting assessments places ratepayer focus on assessments and assessors instead of on the politicians who actually set the tax rates, be they provincial or municipal. That’s unconscionable.

Assessments are not tax-generation or tax-suppression tools; they are tools to determine relative ability to pay, period. Problems abound when governments employ them otherwise.

So what’s the solution?

The solution is actually very simple: start by eliminating the stupid assessment-based SPM as a way of keeping a lid on tax increases. Start using actual tax solutions to address what is fundamentally a tax problem.

Adjust the tax rates so they are revenue neutral, i.e., where taxes don’t increase just because assessments do (columns on both tax rates and revenue neutrality are forthcoming).

In conjunction with that, have the taxing authority, whether it be the municipality, the Province, or both, requisition property tax funding on the basis of budgetary need rather than tailoring the budget to how much additional tax revenue is expected and then cutting the tax rate just a bit to show how much taxing authorities really care about those poor, beleaguered ratepayers.

Finally, apply the same property solution to every property, regardless of when owners built, when they purchased, or whether the assessment increased because of “major improvements”.

That’s it. Let Service New Brunswick focus on assessments, while Finance and Treasury Board focusses on taxes. Never the twain should meet.

People might then start (and only start) seeing the system as a bit fairer, rather than as the broken, archaic, and non-transparent mess that it is.

This piece was first published in the Northumberland Free Press, 2025-01-25

The ‘Spike Protection Mechanism’ does property owners no big favour

Happy New (Taxation) Year

What is the ‘Spike Protection Mechanism’ (SPM)?

Reason #1: SPM spreads out tax increases but does not reduce the tax burden

Reason #2: SPM creates inequities in the system

Reason #3: SPM is the wrong tool for the job

So what’s the solution?

Excerpt from TAXING NEW BRUNSWICK

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