Tax Land, Not Buildings

Fundamentally, most tax structures in Canada are doing the very opposite of what they ought to be doing: they tax behavior that should be encouraged and don’t tax behavior that should be discouraged. This is the opinion of Frank de Jong, former leader to the Ontario Green Party. He outlined his argument at a recent meeting in Winnipeg.

De Jong’s critique could be applied to many taxes, but municipal property tax will be the focus of this column.  Property tax in southeastern Manitoba is based on property value. This means that if a property owner does something to improve the value of his property, his taxes will go up. This is true in the case of a businessperson who begins with a bare piece of land and puts a high value commercial property on it, or of a homeowner who finishes a basement in an existing house.

But ought the property improvement to trigger an increase in taxes? The property owner has just done a good thing. He has transformed a piece of land with minimal value into an asset with substantial value. This developer ought to be applauded and rewarded for that activity; instead our system penalizes him by increasing his tax bill.

There are two reasons to own land: it may bring the owner what he wants now, whether that be revenue or enjoyment; or it may be owned in expectation of an increase in value. Our current tax structure discourages the owner from taking steps to enhance the revenue earning potential of the land. By default then, the tax system encourages the holding of the land for speculation. I am not against the holding of land for speculative reasons. It has its place, but the tax system ought not to reward speculation at the expense of development.

De Jong asserts that taxing land rather than buildings has had a demonstrated good effect on cities, suburbs and towns. This has been observed in Pennsylvania, where tax on buildings is minimal. Taxing land rather than buildings has the effect of densifying cities, thereby making them more people friendly, walkable, bicycable. There is less unused land.

Taxing land rather than buildings, is neither tax relief, nor a tax grab. It is a tax shift.

Not yet convinced? Consider the new Credit Union building we will soon see in downtown Steinbach. I am not privy to the building plans, but basically the design could be one of two: the new building could be built very much like the current building, that is, two story with the entire building devoted to the business of credit unioning. Were that to occur, all the current business space in that block of Main Street would be gone permanently, taking with it all associated pedestrian traffic – probably somewhere north of the city centre. Our current property tax system encourages that kind of development – sprawl. It has been very effective. But without a tax on the building, there would an incentive to add an additional story to the building so the ground floor space could be devoted to small businesses: walaah – a more pedestrian friendly city.

By Eric Rempel