Your Reading List

Editor’s Take: Funding fairness

Few would argue the education tax system Manitoba’s had for the past few decades was a model for the future.

It was a complex patchwork of competing interests and duplicated efforts. It saw one level of government set the tax rate, another collect it on its behalf, and the province turning around and refunding a proportion.

If one set out to design a system with maximum inefficiency, it would be tough to do much better than time and happenstance created in Manitoba.

That being said, at least most of us were familiar with the Byzantine nature of the system, and many things had been designed around it.

Whenever wholesale change is sought, it’s a complex thing, and there will be unintended consequences.

The province’s efforts to reform the system certainly hit some of the key points — or will once it’s fully in place, a few years down the road.

The goal is to fund education out of provincial tax revenue, replacing property taxes as a funding mechanism.

For farmers, faced with rising land prices, which translate into rising tax bills, that’s good news.

It’s similarly good news for longtime homeowners, who have also seen their tax bills rise along with their home values.

It might be tempting to think that taxing those higher-value assets is a fair way to proceed — but that ignores the important “ability to pay” question, as KAP president Bill Campbell pointed out to reporter Geralyn Wichers.

As Campbell notes, rising land values aren’t a one-for-one reflection of farm income, and in a bad year a farm can have no income and the taxes still have to be paid.

Those longtime homeowners can also find themselves on the receiving end of this. Many of them are living in homes that were bought and paid for decades ago, but have fixed incomes. As prices and taxes rise, they’re forced to choose if they can afford to stay in their homes, as Premier Brian Pallister pointed out.

Critics point out that many ‘wealthy’ landowners and homeowners are going to get a substantial tax break under the new system. And whether that’s true depends on what happens with personal income tax rates.

Baked into this funding reform cake is the expectation that provincial income tax will pay the bills, rather than property taxes.

If that happens, that’s fundamentally a fairer way to approach the funding model. Income taxes are generally ‘progressive’ taxes, that rise as incomes rise, meaning those who can afford to pay do.

But if income taxes don’t rise in proportion to the reduction coming from property taxes, it’s not entirely clear where the money will come from.

Critics fret that’s going to mean education cuts, though in a province that just gave teachers a tax credit for spending their own earnings equipping their classrooms, it’s not entirely clear where that room to reduce will be found.

Another thorny point is going to be the effect on the lowest-income Manitobans, who are typically renters, rather than homeowners. For many years they’ve received up to $700 at tax time, provided they could furnish rent receipts.

Under this system they’ll lose one-quarter of that rebate this year ($175) rising to one-half next year (totalling $350) and can ultimately expect to lose the entire rebate.

In a properly functioning marketplace, one might expect those savings would be passed back to renters by landlords competing for business.

However, as one increasingly alarmed economist after another has stated recently, Canada’s real estate marketplace — and by extension Manitoba’s — is the antithesis of properly functioning.

That real estate frenzy also applies to renters, who have seen rental rates rise in Manitoba at double-digit rates for years.

In that atmosphere, it’s hard to imagine a scenario that involves rents falling proportionally to the reduction in property taxes.

The provincial budget also included a two-year freeze on rent increases, but critics say that’s likely just ineffectual window dressing.

Finance Minister Scott Fielding told CBC News there was “… kind of a directive… “ that the Residential Tenancies Branch needed to take the tax reduction into account when setting rents.

However, that body has also been noted for consistently siding with landlords requesting rent increases above the designated annual amount.

In late 2020 the opposition NDP claimed that 100 per cent of rent increase requests outside of the 2020 limit of 2.4 per cent were approved.

Ensuring urban renters get a fair deal might seem like a stretch to Manitoba farmers, but it might be key to keeping the better deal they’ve just got.

Doing so would also be an opportunity for farmers to align themselves with a powerful force in society and proactively address concerns about fairness.

About the author

Editor

Gord Gilmour

Gord Gilmour is Editor of the Manitoba Co-operator.

Comments

explore

Stories from our other publications