A Tale of Two Taxes: Property Tax Reform in Ontario by Richard M. Bird, Enid Slack, Almos Tassonyi (review)

For anyone who needs to know about the property tax in Ontario, this book is indispensable. It describes and analyzes just about anything anyone would ever want to know about what has become Ontario’s incredibly complicated system. A significant part of the story told by the three expert authors is about how a reform that was supposed to make the tax simpler and easier to understand in fact made it more opaque than ever.

In 1998, the Ontario government led by Premier Mike Harris brought in legislation that assessed all properties on the basis of their “current value.” The use of this term itself indicates the political problems with what was being done: Harris and his party had promised not to bring in assessment based on market value. But that is exactly what they did. They simply changed the name in an obvious attempt to pretend that they were not violating their election promise (p. 57).

The initial idea was that there would be a small number of categories of property and that municipal councils could set different tax rates for each category. By the time the dust had settled, there were 36 different classes and subclasses of property for tax purposes and tight restrictions on the ability of municipal councils to alter the rates (although their freedom to move toward equalizing the burden among the different classes was unfettered). There were so many provisions for phase-ins, caps, and clawbacks in order to moderate the effects of changing assessments that understanding the factors causing a particular level of tax for a particular property became almost impossible.

To complicate matters further, the province effectively took over property tax for education, creating a single provincial tax rate for residential properties, but leaving in place wide local variations in rates for business and industrial property. The tax is collected by municipalities and then funnelled to the four different types of local school boards (English public, English separate, French public, and French separate) in accordance with provincial formulas. To the authors’ great credit, they at least raise the issue—long ignored in most parts of Canada—about whether it might be desirable to allow school boards to raise some of their revenue by levying a local tax on local ratepayers (p. 143). They point out that “local education, one of the initial driving forces behind the establishment of local government in Ontario, is now funded in more or less exactly the same way as local governments were funded in the centrally planned economies of central and eastern Europe before the arrival of democracy” (p. 35). Unfortunately, however, the authors confuse matters by conflating language and religious rights relating to local school boards in their boxed description of “Separate Schools in a Public System” (p. 123).

Those who believe that Ontario municipalities have made great advances toward more autonomy in recent years will not be encouraged by the authors’ analysis. The reader is constantly learning of new provincial controls and regulations. Given that the property tax is supposed to be the local tax, it is disconcerting to read the conclusion that

the adjustments made by the provincial government have made it clear that it is the province and not the local government that has both first and the last say when it comes to property taxes. Under the present governance structure in Ontario, the strength of the local-accountability argument for property taxation has been greatly reduced, to put it mildly.

(p. 229)

The authors point out that “getting property taxes right” in Ontario is especially important because Canada “appears to be at or near the top of the international league” when it comes to property-tax revenue as a share of GDP, and such revenue in Ontario amounts to about 4.5 percent of provincial GDP (p. 3). Because property-tax burdens on non-residential...