1983 Legislative Session: 1st Session, 33rd Parliament

Hansard

The following electronic version is for informational purposes only.

The printed version remains the official version.

Official Report of

DEBATES OF THE LEGISLATIVE ASSEMBLY

( Hansard )

TUESDAY, AUGUST 30, 1983

Morning Sitting

[ Page

1127 ]

CONTENTS

Routine Proceedings

An Act to Provide No-Smoking Areas in Public Places (Bill M205). Mrs. Wallace.

Introduction and first reading –– 1127

Property Tax Reform Act (No. 1) (Bill 7). Second reading.

Mr. Blencoe –– 1127

TUESDAY, AUGUST 30, 1983

The House met at 10:21 a.m.

Prayers.

MS. SANFORD: Mr. Speaker, in front of the buildings are a

group of people who are concerned about the arms race. They are so

determined to do what they can in order to halt that arms race that

they have set up a peace camp. They are out there fasting in an attempt

to draw public attention to the madness of the nuclear arms race. This

is day four of their fast.

MR. SPEAKER: Hon. member, from time to time the Chair allows

some digression from the regular introduction period, but clearly the

member is now embarking on what can only be described as an address or

speech. I would ask that we bear in mind that this period is reserved

for introductions, and that is the sole purpose of this significant

part of the day.

The Provincial Secretary on a point of order.

HON. MR. CHABOT: On the statement being made by the member

for Comox, who suggested that these people are fasting, information has

been conveyed to me that a few of them were caught eating in the

cafeteria of the Douglas Street building.

Interjections.

MR. SPEAKER: Order, please. Hon. members, clearly we can see

what happens when introduction period becomes more than introductions.

I would ask the member for Comox to restrict her remarks specifically

to introductions.

MS. SANFORD: Mr. Speaker, I'm going to ignore the

interruption by the Provincial Secretary and mention that three

representatives from the peace group are in your gallery today. All of

them are from Parksville. I would like the House to join me in

welcoming Carolyn Fontaine, Ian MacDonald and Laurie MacBride.

Introduction of Bills

On a motion by Mrs. Wallace, Bill M205,

An Act to Provide No-Smoking

Areas in Public Places, introduced, read a first time and ordered to be

placed on orders of the day for second reading at the next sitting of

the House after today.

Orders of the Day

HON. MR. GARDOM: I ask leave to proceed to public bills and orders.

Leave granted.

HON. MR. GARDOM: Adjourned debate on second reading of Bill 7.

PROPERTY TAX REFORM ACT (NO. 1), 1983

(continued)

MR. BLENCOE: It is most unfortunate, Mr. Speaker, that after

a number of hours of trying to convince the government that certain

sections of Bill 7 are abhorrent to municipal government, and that

municipal government wants the ability to operate its programs and

infrastructure in an atmosphere of autonomy, separate from the inroads

and the heavy centralization of the provincial government, the

government appears unwilling to listen. Those municipalities have been

established and running their operations for many, many years, and have

been quite capable of running their own financial arrangements, thank

you very much. They are able to balance their books regularly. They are

able to tell their electorate that they don't run deficits. They do

their budget debates and preliminary discussions in the open, where the

media are available to scrutinize every single vote. The public and

interested groups are invited to participate in those budget processes

that have been used by municipal government for many, many years.

Municipalities are accessible and accountable, and their budgets are

public. Before they pass their budget on May 15, according to the

statutes under the Municipal Act, the communities that they serve are

fully advised of where they are going to spend their money. Residents

of municipalities know exactly where their dollars are going to go and

what programs there will be at the local level well in advance of the

final resolution that is passed in council chambers. Every single year

municipalities go through long deliberations — agonizing hours,

Mr. Speaker — in trying to achieve the difficult job of balancing their

books and avoiding deficits, which would put their residents into heavy

debt.

[10:30]

Unfortunately this provincial government is not capable of doing

that. Governments at the local level work long hours on their budgets;

many hours of staff time and elected official time go into ensuring

that their budgets are understood. They are fully scrutinized by the

honourable fourth estate and by the residents of their municipalities.

That process has been in place for many, many years. Municipal

governments are trusted. They are elected and are accountable, either

on an annual or biennial basis to their voters. They are charged with

ensuring that the budgets are honest and reflect the reality of the

financial times the municipalities are undergoing. Every single dollar

that is spent is public and is known. There is no delay in the delivery

of their budgets. By law they have to have their budgets in place by

May 15 every single year.

It's most unfortunate that there wasn't a law for the provincial

government that their budget had to be honest, upfront and clearly

delivered by a certain date, and that they couldn't avoid calling the

Legislature to debate every single dime that is spent. That's what

municipalities have to do. I believe the provincial government should

take a leaf out of the municipal book of operations. They shouldn't, in

my estimation and in the estimation of our party, undermine their

credibilitv and their ability to run their own financial arrangements

an set the tax rate according to what they think their taxpayers can

afford to pay and what they think their priorities are for their

taxpayers. That's a longstanding tradition in municipal operations.

This government is taking the privilege away from municipal government

and duly elected officials to be able to establish their own tax rate,

spending priorities and, if they so desire — if they deem it appropriate

[ Page 1128 ]

that taxes have to rise by a certain amount.... I

would remind this government that those officials are elected as the

government is elected and as we all are elected in this chamber. If the

electorate does not like what the municipality does with its tax rate

or with its particular formula for collecting taxes.... If they spend

more than the electorate feels they should be spending or set their own

policies or spend the money on things they don't deem appropriate, then

there is a process, and in constitutional democracies that process is

called the power of the vote. It is called elections. Democracy is

alive and well at the municipal level, I can assure you of that; but

democracy is being threatened by this provincial government.

This government, in its wisdom, some years ago removed direct

elections at the regional level. They are now appointments by local

councils, a retrogressive move, I believe, in terms of the right of

regional district voters in organized areas to elect their members.

That was removed by the provincial government.

HON. MR. RITCHIE: On a point of order. Mr. Speaker, for

approximately 10 hours now we have listened to irrelevant and tedious

repetition from this second member for Victoria. For the record I would

like to read the principle of this bill, which obviously the member

does not understand.

MR. SPEAKER: The member will come to his point of order. The

principle is read and it would be inappropriate to move, during a point

of order, to read the principle of a bill. The point of order by the

member, as the Chair understands it, is that the relevancy

section is

not being adhered to. Is that correct?

HON. MR. RITCHIE: This is correct, Mr. Speaker.

MR. SPEAKER: Thank you hon. member. That constitutes the point of order.

Hon. members, yesterday the Chair advised the second member for

Victoria about the relevancy factor, and asked the member to consider

very carefully his remarks in light of the standing order that calls

for relevancy in debate in second reading. I would ask the member again

to bear in mind the rules that bind us in this House during debate in

second reading. This has now repeatedly been brought to the member's

attention and I would ask the member in continuing his speech, to

insist on the relevancy section.

MR. BLENCOE: Thank you, Mr. Speaker. I will take your remarks

and do my utmost to maintain relevancy in my discussion on this bill.

My reference to what I believe is a direct assault on the autonomy of

local municipalities is part and parcel of this bill. I don't want to

go into those particular sections, because we have no time to do that.

But the principle and the ideas behind this bill are quite clearly

making inroads into municipal jurisdictions and municipal autonomy.

That is what I wish to talk about this morning, and I will continue to

do that.

The case I am trying to make early in debate this morning is that

municipal government does not require the help of the provincial

government in its financial arrangements. What the provincial

government should be doing, rather than obstructing municipalities'

ability to run their affairs on their own, is ensuring that they have

adequate revenues to make sure their operations are funded adequately

and safely. That's the issue. Rather than tinker with the system

allowing various shifts by the municipality in terms of the variable

mill rate — seeing that as the panacea is totally erroneous.... If

there is not the support from the provincial government in terms of

adequate revenues to maintain the basic infrastructures of

municipalities, towns and villages in the province of British Columbia,

then their ability to maintain and operate satisfactorily and safely is

hindered. In its wisdom this government has removed a major source of

funding from municipalities, towns and villages that allows them to

ensure their basic infrastructure is safely and adequately maintained.

Just tinkering with the semantics of how taxes are collected or

where you transfer the load, which Bill 7 does, resolves nothing in

terms of the dire revenue shortfalls that municipalities are currently

experiencing. We all recognize that governments are doing their utmost

to be aware of the financial constraints the taxpayer faces in these

difficult times. But I believe that if there is one level of government

that is aware of that particular situation, it is local government. The

process that local government goes through in terms of determining its

budget and its priorities, and how it collects the money, is an

extremely good one. Local government and its officials are the most

accessible to the electorate of any level of government.

It's most unfortunate that this government feels that civic

officials are not doing their jobs properly, or are not being

understanding of the financial constraints being faced by their

taxpayers, and deems it appropriate to make major inroads into the

traditional areas of responsibility of municipal governments. The major

job of municipalities, towns and villages is to ensure that budgets are

understood, that their fiscal policies are honest, that their budgets

are balanced and that the various votes for spending are clear and

concise; to show their revenues, estimates and spending patterns; and

to show the local electorate that they have a handle on their own

financial arrangements. That is perhaps the most important job local

government has done for hundreds of years. Their officials are elected

to do that job. That's the understanding of the local electorate. The

local councils, the aldermen and the directors of regional districts

and unorganized areas are given the mandate at election time to ensure

that municipal operations and financial operations are correct and that

they meet their electorates' requests in terms of the financial

arrangements for their jurisdictions.

Mr. Speaker, I can't overemphasize that that is a longstanding

tradition. This government, in its wisdom, feels it's appropriate to

constrain local government in its mandate to run its own financial

arrangements. That's most unfortunate. This bill has some serious

consequences for local government. In this country there are three

levels of government, all with clear and understood mandates in terms

of jurisdiction. This government has decided to centralize, under the

powers of cabinet, the opportunity to control municipal governments, to

calculate and set their tax rates, or their relationships between tax

rates; in effect, to neuter the ability of local officials to establish

their own policies and priorities. That's the major principle involved

in Bill 7.

MRS. JOHNSTON: What bill are you on?

MR. BLENCOE:

Section 6, Madam Member.

Section 6 of the bill

gives you and the cabinet the right to enter into the direct daily

operations of municipal governments in terms of tax rates,

relationships between tax rates, formulas, limits,

[ Page

1129 ]

and how much they can collect for each class of property. That has always been

done by municipal governments on their own.

I would remind the Minister of Municipal Affairs (Hon. Mr. Ritchie)

that every second year there are elections at the local level, and that

those elected officials win or lose according to what the electorate

feel they have done with the financial arrangements of their

municipality. That's direct accountability. This government is taking

away that local accountability in terms of the residents' knowledge

that the local council sets the tax rate, the formulas and the

relationships between various categories of property.

MRS. JOHNSTON: It's giving you flexibility.

[10:45]

MR. BLENCOE: On the one hand, maybe, but certain sections of this act are taking away much of their flexibility.

What worries me is that local councils will lose the ability to tell

their electorate honestly that those local councils were responsible

for having certain things happen with the financial arrangements. They

will say: "The provincial government is controlling us so much that we

don't have the opportunity to control our own financial destiny."

MRS. JOHNSTON: That's not true at all.

MR. BLENCOE: That's the absolute truth. That's what the act

gives you the power to do. Local autonomy, the ability of

municipalities, towns and villages to determine their own financial

destiny, is what we've accepted for hundreds of years in British

Columbia and in Canada. Yet this government, in its wisdom, wishes to

remove that very important aspect of municipal operations. I don't

think there is another jurisdiction in Canada that has decided to take

on such a chore.

I would remind the government that it has many problems of its own

in terms of the financial arrangements of this province. It has a

growing debt; it has some control problems in its own operations, I

think they need all the time in the world to make sure their own

financial arrangements are in good stead. I say to the government: you

don't want that chore. You're giving yourself an incredible job, one

that you don't need, and I would suggest that you just haven't got the

time to do it properly. Local governments are elected, and they work

long and hard. They can do it quite well, thank you very much.

For the government of British Columbia to be now in the position

where every single municipality, regional district, town and village is

involved in the nitty-gritty of financial arrangements at the local

level....

MR. SPEAKER: The member for Omineca on a point of order.

MR. KEMPF: Mr. Speaker, I rise on standing order 43. I've been sitting here keeping some notes, and also perusing yesterday's

Blues . This member now on his feet is making more of a mockery of this chamber

than has ever been done before. Mr. Speaker, I can give you a sheet of paper

showing the numbers of times that certain phrases or words have been uttered

in this chamber, not just in the last 10 hours but in the last 15 minutes. If

we can't keep more to the tradition of proper debate in this House than

that, I would very seriously suggest that some sort of ruling to stop this mockery

is brought down in this House.

MR. COCKE: On that point of order, Mr. Speaker, I think.... [Interruption.] I think I probably need a repair of my mike.

MR. REYNOLDS: That by-election really got you upset last night.

MR. COCKE: Yes, it did. But I don't think that has much to do with my mike.

With respect to standing order 43, where the Speaker is asked to

rule on whether or not a person is tedious and repetitious, I can show

you some quite irrelevant speeches between 1972 and 1973 that went 14

or 15 hours. I suggest the elements of new information that this member

is putting forward far outweigh many of the "filibusters" I've seen in

this chamber over the last 14 years.

MR. KEMPF: On the same point of order. Mr. Speaker, I wish to

give notice that I intend to continue to sit here this morning, this

afternoon, and however long this debate goes on, making notes. Every

time that member is tedious and repetitious I intend to rise under

standing order 43.

MR. SPEAKER: Hon. members, the

interpretation of standing

order 43 is a discretionary one in the hands of the Speaker, who has

been very patient in listening to the debate, which has gone on now for

in excess of 10 hours. Nonetheless, it is a call by the Chair that

requires a great deal of reasoning before any such step would be taken.

The tedious repetition aspect is one part of that section; the

irrelevance is another. The matter of irrelevance has been dealt with

on numerous occasions. I'm sure that the matter of repetition will also

be addressed. In the meantime, hon. members, the second member for

Victoria has the floor.

MR. BLENCOE: I'm sorry the member for Omineca believes that

there's certain repetition in my speech this morning. If the member

goes back.... I do not think that in the past I have referred to the

longstanding tradition of local government being able to run their own

financial arrangements. That's a point that I will continue to make.

MR. KEMPF: On a point of order, Mr. Speaker, the record will

show that in the last 15 minutes the words "financial arrangements"

have been uttered by that member six times. I think that's repetition.

MR. BLENCOE: Certain words?

MR. KEMPF: I think that's repetitious.

MS. BROWN: On a point of order, the record would also show

that the words "Mr. Speaker" echo through this chamber at least 100

times a day. Surely that is repetitious.

MR. KEMPF: They don't show up in the Blues or Hansard ; these words do.

MR. BLENCOE: It's our belief on this side — and I was trying to say this earlier — that the government has....

[ Page 1130 ]

AN HON. MEMBER: New debate.

MR. BLENCOE: Protect me, Mr. Speaker.

...some serious problems of its own.

MR. KEMPF: That's the second time you've said that in ten minutes.

MR. BLENCOE: That's quite true. But I think it's very

important that the public and the members over there who do not

know.... Perhaps they have not perused this bill as closely as they

might have. What they are saying is that they are going to be involved

in taking a look at the various aspects and intricacies of municipal

budgeting and financial....

MR. KEMPF: Arrangements.

MR. BLENCOE: That's correct. Have you ever looked at all the

municipal budgets, the debt servicings, the various expenditures and

revenue estimations, cost per capita and the various provisions they

have to follow in the Municipal Act? Now you're saying that you've got

the time to take on that job as well as trying to do something about

the biggest deficit in the history of this province. I don't think

you've got the time. And with respect, I don't think the record of the

government in financial matters is one that recommends it to be taking

over the job of the municipalities in running their financial affairs.

I'm going to make that point over and over again. If there's one level

of government that has shown that it is capable of running its own

financial affairs, it's local government. It's very important.

Before we adjourned the debate yesterday, I had started to give some

insights into alternatives to the present system of real property

taxation, which this government should perhaps review and consider

introducing in the province as an alternative to the real property tax.

I won't go into the inequalities. I've done that a number of times in

this House. I will again refer to a very useful document put out by the

Bureau of Municipal Research in Ontario. It's in Civic Affairs

and is entitled "Property Taxation and Land Development." It's a short

document, and I think every member should perhaps peruse it. I think it

gives some good insights into where the provincial government could be

going in terms of some real change in the taxation system for municipal

government.

There are a number of alternative tax structures that the provincial

government could take a look at. These approaches are considered

feasible alternatives or supplements to the present system and they're

fully discussed and analyzed in this document. Other tax possibilities

by this particular research bureau were dismissed initially as being

clearly inadequate or unrealistic.

[Mr. Pelton in the chair.]

For example, they took a look at local sales tax, which was rejected

because many products are already being taxed to the saturation level

by the province. Such a tax could not, then, be sufficiently productive

to support local fiscal autonomy — local autonomy, of course, being

adhered to, revered and supported in nearly every single province in

Canada. Seven changes in its tax structure do merit consideration,

according to this well-known Bureau of Municipal Research, as possible

alternatives for a local tax system. There are seven suggested here:

one is the net income taxation system, which I've already talked about

at some length; two is the gross rental tax; three is what's referred

to as the British rates taxation system; four, user charges; five, land

value increment taxation; six, site value tax; and seven, municipal

income tax, which is one I will go into at some length later in the

debate.

To effectively compare the alternatives, certain criteria were

established by the bureau. First, traditional testing criteria of any

tax policy were used, including the equity of the tax, the adequacy and

stability of its yield, and its administrative feasibility. Further,

because there were many conflicts between sound planning objectives and

the present tax policy that we have in place in all provinces, the

neutrality of each particular tax with respect to the land use planning

is an additional consideration which could not be overlooked. Thus, the

effect of each tax on land use decisions was adopted as an important

criterion.

[11:00]

Let's look at the first suggestion. I would recommend to the

government that these alternative tax structures could be the subject

of a special committee of this House, which would take a look at the

municipal real property taxation situation. I think a clear, rational

and intelligent analysis and discussion and an objective look at the

problems of municipal revenue shortfalls and tax structure would do us

all a world of good. It would indeed, I believe, be a good leaf in the

book of this Socred government. I would say they have the opportunity

to do that. They have a mandate now for the next three or four years,

and I believe that in consultation with the opposition, with chambers

of commerce, industrial property holders, tourist property holders,

residential property holders, senior citizen organizations and special

housing organizations, we in the province of British Columbia could

devise a taxation system for municipal purposes that is fair and just

and understood...

HON. A. FRASER: And repetitious.

MR. BLENCOE: ...and based upon the ability to pay at the

local level of individual property taxpayers. It may be repetitious,

but I am going to continue to say it over and over again in this

chamber whenever I get the opportunity: the property taxation system

has outlived its time. I do not know anybody who can support it in an

intelligent way. The alternative structure that I am about to suggest

today, as at least an initial discussion point for this government and

for people affected by local taxes, is the way to go: the net income

taxation system.

The first three — the net income tax, the gross rental tax and the

British rate taxation system — adopt an income rather than a capital

approach to real property value. The net income tax is assessed on the

actual net income from the sites and the improvements combined.

Consequently the property is valued on the basis of the income actually

obtained minus the expenses paid by the owner, excluding taxes. Since

capital value is approximately equal to net income capitalized at

current market interest rates, there will probably be no significant

difference in tax liability between property owners taxed according to

an annual income and those taxed according to capital value approach.

In terms of tax theory, a net income base can reasonably be

justified on the basis of equity since it is related to the owner's

ability to pay. Like the present property tax,

[ Page 1131 ]

however, a net income tax discriminates against

those who invest their wealth in realty. The adequacy of net income tax

revenues would appear to be satisfactory when compared to the yield of

the present real property tax. Most questionable may be the stability

of the yield over the business cycle. The yield should not, however, be

greatly affected by short-term fluctuations, particularly since

long-term leases are so prevalent in commercial practice. In brief, the

yield stability of a net income tax probably depends on the avoidance

of major depressions.

The most telling criticism of the taxes using an income base in

place of a capital value base are the administrative problems entailed.

I am trying to be fair; with any particular system there are problems

to be ironed out, but I think the current real property tax system is

indefensible. We have to work on some new systems.

The administration of a net income tax would only be relatively

simple for rental or business properties. Even if income tax returns

could not be used to compute this tax, the tax could feasibly be

self-assessed, although this might raise problems of evasion. In case

of owner-occupied properties, the difficulties involved could well be

insurmountable. Assessment officials would be obliged to rely on

imputed net income, which is a very difficult concept to understand and

administer. In terms of government expense, public confusion and

probable litigation — I emphasize this — the costs of this approach

appear on balance to outweigh its benefits.

With respect to land use, the net income tax appears to be neutral

in its impact. The percentage tax on profits takes a uniform percentage

no matter what the profits are derived from, whether from office

buildings or retail outlets or residential units. The property owner or

builder therefore will base his development decisions not on their tax

advantages or disadvantages, since these are the same for all

decisions, but on their overall efficiency and profitability.

Consequently new construction, redevelopment and remodelling decisions

should not be affected by anything other than the usual planning and

zoning regulations and market considerations.

That's a little insight into the net income taxation system, one

that has some merit and that could, indeed, be the subject of analysis

by a select standing committee of this House with the power to discuss

it with interested parties in the province and the opportunity to bring

into effect in the province of British Columbia in the next year or two

a taxation system for municipalities that is fair and equitable and

based more upon the ability to pay. That's what we need in the province

of British Columbia, Mr. Speaker.

Now what about the gross rental tax system? Let's take a look at

that. This is another of the income, as opposed to capital, approaches

to value. In effect, this is a tax on the consumption of real estate

services as reflected by gross rents. It is a proportional tax imposed

on an annual property value which is related, if not equal, to gross

rental from the combined uses of the site and the improvements. This

tax is common in western Europe and is used in St. John's,

Newfoundland, the only jurisdiction in Canada which does not use a

composite capital value approach.

The yield of a gross rental tax, while perhaps less stable than the

present norm, since rent is more unstable than assessed market value,

has proven to generate adequate revenue to cover municipal

expenditures. It is important to note, however, that both in Europe and

in St. John's, local taxation generally plays a far smaller role than

in most other jurisdictions.

For example, St. John's the city is not responsible for funding

education or police services, and I would remind the members that I

talked yesterday about the problems of policing costs. In time we'll

hopefully get back to that to give this government the opportunity to

peruse the options for funding municipal police forces, because I

believe that if this government is serious about helping the municipal

governments in their revenue problems, it has to address itself to the

problems of revenue in municipal operations. That's a major problem

that we are all involved in.

The yield from the gross rental tax would be stable over the

business cycle. As Mr. J. Heilbrun, in the real estate taxes and urban

housing report tabled in New York in 1966, reflected:

"During a depressed business cycle, a gross rental tax

may stimulate abandonment, but the tax yield will not be significantly

affected since tenants will move to other buildings. As a result, the

gross rents of these buildings will be increased. With respect to

owner-occupied properties, the difficulties of administration are

similar to those in the present tax structure. Faced with a lack of

reliable rental evidence, officers would have to impute the gross

rental incomes. This introduces such common problems as public

misunderstanding, subjective calculation" — which we already have with

the assessment system we have in effect now — "and a distorted

assessment lag" — which we are going to have because of Bill 22,

currently before us.

"Since the tax is assessed on a gross and not on a net

base, the difficulties of determining and auditing expenses are

eliminated. But on the other hand, the application of the tax to rented

properties would, at first glance, seem to be a simple task, provided

the municipality has access to the financial statements of the owner."

"Beyond the matter of administration lies the more basic question of equity."

I have come into this at length in terms of trying to encourage this

government to introduce the principle and concept of equity into the

taxation systems in use by municipal operations. It is the important

element that is currently missing under the real property taxation

system.

Is a tax based on gross rentals fair? Although the gross rental base

is presumably based on ability to pay, in some situations it may be

inequitable to allow the base to be market-determined. The contract

rent may not take into consideration the fact that different landlords

provide different levels of services and therefore incur different

levels of expenses, These expenses may or may not be accurately

reflected in the gross rental income. If this variance is deemed common

and substantial enough to make this consideration something more than a

philosophical nicety, the base would then have to be imputed or

self-assessed.

The gross rental tax, in my estimation and in the estimation of this

report, does not have a neutral impact on land use decisions. As the

tax is levied purely on actual gross rent, vacant property would be

totally tax-exempt. That is something the government should take a look

at, certainly in this city where we have many pieces of property

sitting idle, not being developed properly or moved on, basically

because of a taxation system which does not encourage those owners to

get on and develop those properties. Of course, we see ugly sites all

over certain municipalities because of the system that

[ Page 1132 ]

encourages property holders not to develop their sites, and they become a real eyesore to the communities they are located in.

In any case, the tax on vacant land would be low, and this would

encourage land speculation. Suboptimal use would also be encouraged,

since the tax is proportional to rental income. The speculative owner,

therefore, would tend to minimize his or her payments by putting the

land to some unproductive use. Finally, although rents would tend to

stabilize, if not fall, the quality of operation and the rate of

maintenance and remodelling would also probably decline as the owner

attempted to reduce operating costs.

I would assume that any standing or select committee charged with

taking a look and coming to a long-term solution of the tax problems

municipalities face would come to the conclusion that the gross rental

tax would not be an advantage. However, it's worth looking at because

there are certain things that may indeed be useful for consideration.

[11:15]

What about the British rate system of taxation? It's been in place

for many years. I'm sure some of us, or at least some of our parents or

grandparents, lived under that British rate system. There are many in

the province of British Columbia who could give us some insights into

the British rates taxation system. I don't know, maybe it's something

we could take a look at, but I'm saying today that there are at least

seven forms of taxation that could be seriously and intelligently

looked at as an alternative to the archaic, unfair and unjust

real-property taxation system that I think every British Columbian

wishes was removed as the basis of generating revenue for municipal

operations.

Now what about the British rates taxation system? The British rates

tax is a third alternative to the capital value approach of property

taxation. The tax is generally imposed directly on the occupier and not

the owner of the property. The base of the tax is the annual rental

value of the occupied property, minus costs of maintenance. These

deductions are not for actual expenses but are statutorily determined

according to a graduated scale. Thus the permissible deductions decline

as gross rents increase. With few exceptions, the British rates tax

operates in a similar manner to the gross rental tax. The same

considerations apply with respect to revenue productivity, since the

base is the gross rent minus statutory expenses. It's similar, I

suppose, in terms of statutory requirements, to the rentalsman act. The

Minister of Consumer and Corporate Affairs (Hon. Mr. Hewitt) is aware

of the various statutory allowances landlords can apply for as eligible

additional expenditures, and therefore can get increased rents. In the

British tax rates system there are statutory allowances for eligible

expenditures, and therefore they are exempt. As these deductions are a

percentage of the gross rent, the base cannot fall to zero, which could

happen if a net rent were used.

The yield will tend to be less stable than that of the present tax.

The current gross earning power of a piece of property is likely to be

more volatile than its capital value, because the latter is related to

all expected future returns, while the former is only related to the

current yield. Again, however, this tendency must be stabilized by

long-term leases and assessment lags. The British experience has

demonstrated that this tax system is feasible, and it is certainly one

that could be looked at as an adjunct to the current property tax

system. My colleagues and I are not saying that the property taxation

system for some particular services should not be maintained. What we

are saying is that there is certainly room for looking at a second

track of taxation at the local level, as an adjunct to property tax.

In the British rates system of taxation its administration is

simplified in the case of rented properties, because the contract rent

is an objective, although potentially inequitable, measure. For the

non-rented property, however, the tax must be subjectively determined.

Yet even where the assigned rental value of the property is not tested

by the market, since the property is never in fact rented, the large

number of rentals each year should provide sufficient comparable data

to ensure that the rental income imputed to the property is not out of

line.

Some of the land use implications are similar to those for gross

rental taxation — and I admit that — since the rental value and

therefore the tax imposed on vacant land is zero. Speculation as well

as underuse are encouraged, although this has not been proven to be a

significant problem in Britain where land is a scarce commodity. It

could reach serious and undesirable proportions in certain provinces,

and maybe in British Columbia where we still do have large tracts of

unused land, and that would have to be taken into consideration by a

select standing committee given the mandate to look at a new system of

taxation for municipal purposes.

In addition, this form of taxation would tend to discourage both

maintenance and remodelling, a serious flaw and one that would have to

be taken into consideration. First, the tax is levied on the

tenant-occupier, and that would have to be seriously thought about.

Although rents will be proportionately lower, public demand for

high-quality housing will probably be reduced. Secondly, since actual

costs and expenses are not deducted from the tax, these will be kept to

the minimum and will result in lower maintenance standards, another

serious consideration and one that the standing committee would be

charged with taking a look at.

What I'm really trying to suggest to this government is that there

are a lot of things that a select task force, or whatever you want to

call it, would have the opportunity to peruse and, I think, work on in

a non-partisan fashion on behalf of all British Columbians to try to

bring in a fair and equitable taxation system for municipal purposes.

That's the challenge, the chore that we all face, because every single

member here represents property tax payers — and they're beleaguered

property tax payers. I think that in a non-partisan fashion, in an

intelligent and rational way, we can do great service to the property

tax payers of British Columbia by, for once, saying we agree to take

this problem of taxation out of the partisan arena and put it into a

problem-solving committee where we will ask the right questions.

Mr. Speaker, we will ask the right questions. If you don't ask the

right questions about a particular problem, it doesn't matter what

solution you find. Again, although Bill 7 may be an honest attempt by

this government to try to do something for the property tax payer, in

reality it does very little. It doesn't ask the right questions. It

doesn't get to the root problem, the inadequacies and inequalities in

that taxation system. That's our chore; that's our responsibility as

legislators, because taxation unfortunately is one of the most

irritating components of living in a modern society. We have the

responsibility of ensuring that every taxation system in place is fair,

equitable and that it reflects common good, the general welfare and

equity under the law. The property taxation system has nothing to do

with equity at all. We all recognize that, and I think we all admit it.

[ Page 1133 ]

Mr. Speaker, I'm asking this government not to just leave reform at

the property level with Bill 7 and Bill 12 but to have the courage to

ask the right questions and bring to British Columbia a model taxation

system that could be followed in other jurisdictions across Canada, in

North America and even in Britain, where they currently have the

British rate system. It does have its problems and I'm not necessarily

saying that that be the one we should endorse 100 percent.

Back to the British rate system. Actual costs and expenses are not

deducted from the tax and these will be kept to a minimum and will

result in lower maintenance standards, which is a problem. During times

of economic growth, however, new construction and investment would be

attracted and properties with high profit-to-rent ratios would be taxed

relatively less. Mr. Speaker, that's my little discussion of the

British rate system. There are more ideas, but I don't want to go into

that today. We'll leave that to when the government perhaps decides

that we need a task force on the property tax problem.

How about the fourth alternative to tax structure? I would like to

also remind my colleagues in the chamber that I'm not necessarily

endorsing these; I'm just putting these out as concepts for

exploration, which I think is something we should all be trying to do

in terms of problem-solving for the people of British Columbia.

How about user charges? That's something we all hear about these

days from right-wing governments. But to be fair, I'm prepared to take

a look at user charges and all alternatives.

AN HON. MEMBER: We're always fair.

MR. BLENCOE: We're always fair on the New Democrat side. We

try to maintain truth, ideals and principles, and to uphold the

democratic process.

MR. MITCHELL: An open opposition.

MR. BLENCOE: Correct. Thank you, to the member for Esquimalt–Port Renfrew.

MR. REID: Allow somebody else to debate this bill then; that would show democracy.

MR. BLENCOE: I'll tell you what, Mr. Speaker. Here's an offer

to the government: if, under the Minister of Municipal Affairs, the

government will promise this House and the people of British Columbia

that within the next month or two they will undertake to establish a

task force on property taxation in British Columbia that will seriously

get to the root problems of this inequitable taxation system; that they

will undertake to consult the people of British Columbia and those

institutions undergoing attack in terms of unfair taxation; that they

will bring that into the House and pass it here, then we on this side

will seriously consider Bill 7 — sections of it, anyway — as a

temporary measure to try to help the beleaguered local taxpayer. We

will try to accommodate this government. We are prepared to be helpful,

because we all represent local taxpayers as well, and we all hear their

problems,

Mr. Speaker, that's an offer. We will support the sections in Bill 7

that refer directly to the variable mill rate, but we won't support

certain sections that erode local autonomy. We will support certain

sections that for the time being introduce the variable mill rate as a

temporary solution.

[Mr. Strachan in the chair.]

If the government will promise the people of British Columbia that

once and for all they are prepared to look at a task force that can

resolve the taxation problems faced by local taxpayers, we will do our

best to help you in that endeavour. We want to be fair and helpful. We

represent 50 percent of the residents of British Columbia, and we are

prepared to enter into intelligent and rational discussion in a task

force environment in order to come to the root problems, and prepared

to question the deeply ingrained unfairness in the real property

taxation system. That's an offer, Mr. Speaker, and we will stand by

that.

[11:30]

What about user charges as an alternative to real property taxation?

It's a possible supplementary or benefits tax, one used in several

European countries where the tax structure has been divided into two

parts. As Mr. Speaker and members may remember, I've already suggested

that we have a two-track system for municipal operations. The primary

tax structure finances soft services, while user charges fund hard

services. A charge is levied in much the same way as gas and hydro

charges are made in Ontario and British Columbia. The tax paid is

therefore directly related to the benefit received, since the charge is

proportionate to the services it finances. The drawbacks of a benefit

or user charge tax are the difficult problems of classification of

services and the allocation of costs. To fairly administer the charge,

a decision must first be made about whether the benefit was received by

a resident or a property owner. That's difficult, I admit. I think we

would all admit that. But again, I think we have the ability to come to

terms with many of these small problems.

[Mr. Strachan in the chair.]

Some of the best financial minds in the country live in this

province, many of them working for the province of British Columbia. I

think we should give them, along with ourselves and representatives of

municipalities, towns and villages, the opportunity to devise a fair

taxation system for municipal purposes. I think that's a tremendous

challenge, and I'm sure one where we will triumph.

This distinction between personal services and property oriented

services is not an easy one to draw. In response to the problem of

allocating costs for services provided, a well-known financier, William

Vickrey, presents a discussion of public expenditure decisions in the

urban community, in a document called General and Specific Financing of Urban Services .

Vickrey presents an interesting proposal in which cost criteria for

each hard service are established. For example, a sewage charge could

be levied on the basis of the frontage of the land, since the cost of

the sewage mains is proportionate to their length and relatively

independent of the required volume of flow. An interesting concept. I'm

not sure it's one that in the long-term we would perhaps see in place

in British Columbia, but an interesting concept, one that certainly

could he considered and discussed in a task force or select committee

of this House. Presumably, if a user charge fee were adopted in this

province, other such cost-benefit connections could be determined.

I'll leave the user charge concept for now and go to another

particular concept, the land value increment taxation system. I'm

trying to bring an international flavour to this debate, in terms of

taxation systems. I've referred to the

[ Page 1134 ]

United Kingdom and the United States; I believe

I've referred to Sweden and Germany. Now I will refer to the land value

improvement taxation that is used in both Denmark and Spain. I think

it's very important that as legislators in British Columbia we don't

isolate ourselves from other parts of the world and how they try to

resolve their taxation problems. I think we have a lot to learn from

studying other areas and other jurisdictions, so at this point I want

to give the government an insight into what happens in Denmark and

Spain. I would say they actually have two different types of

government, both utilizing the land value improvement taxation system.

In both Denmark and Spain a tax is imposed on the increase in the

market value of land. It can be either imposed annually or deferred

until the date the property is transferred in order to ease the burden

on the taxpayer. Boy, Mr. Speaker, that's the long-term challenge: to

ease the burden on the taxpayer. I refer to the local taxpayer, of

course.

The rationale behind this tax is that the increase in value is a

social product unearned by the individual owner. This unearned

increment is caused primarily by the municipal provisions of services,

and therefore at least part of the publicly given benefit should be

returned to the community. Property value increases, however, are not

wholly determined by the provision of public services. Consequently,

unless the earned and unearned portions of the increase could be

separated out it would be a difficult administrative task and many

taxpayers would be penalized.

Again, I'm indicating that it is a difficult chore to resolve this

taxation problem at the local level. But I'm trying to give the

government some insights into what happens in other jurisdictions.

There are other areas we can study. There are learned men and women in

this particular area who could give their expertise, not only in Canada

but in other countries. I hope the government is listening to some of

these other options that are available to study.

Something I particular like, an increment tax, would probably reduce

speculation, although many landlords could easily absorb the tax if the

land values appreciated significantly. It is this particular kind of

speculation, the kind we have witnessed in the last few years in this

province, which has caused some deep concern to local taxpayers. In my

estimation and in the estimation of our party, we have to try to

resolve this speculation on this unearned wealth syndrome that plagues

our local governments, because when that speculation is in force taxes

and assessments dramatically rise. I believe 98 percent of the local

taxpayers are not involved in that kind of speculation, yet are forced

to pay taxes because of those who are participating in that

unearned-wealth syndrome. That speculation has to be controlled; it has

to be tackled, because we all suffer because of it and our taxes

reflect it.

I referred yesterday to the situation on Fort Street in the city of

Victoria, where $162 a square foot was recently achieved for a

particular property. That's creating great concern for those small

businesses on that street. Many of them will not be able to stay in

business because of that speculation, and their taxes will reflect that

speculation — the unearned wealth that plagues not only this province

but plagues Canada.

Taxing this gain on real estate investments, however, would have the

effect of depressing land prices and thus encouraging development.

That's not something particularly bad, Mr. Speaker. I would say that

the land value increment taxation has some things that could be looked

at. Certainly as part of our party and critic on this particular area,

I believe we have to tackle this speculation problem that plagues us.

Most people want to remain in their homes all their lives, yet they

don't want to be hounded because of the few who force their taxes up

because of the speculation game. That's a serious plague that we all

must try to tackle.

Because this tax relies on such an unpredictable and restricted

base, its revenue yield would, of necessity, be unstable and totally

inadequate. Therefore an increment tax could only be used as part of

the total tax structure. What I've been saying for the last few days is

that it may not necessarily be a matter of totally obliterating

property tax but, indeed, it may be that the solution is to introduce

other structures so we create a two-tiered system. Therefore an

increment tax could be used as part of the total tax structure. I've

already said that.

In the supplementary role, however, it may be a useful means of

financing municipal capital improvements. That's a particularly

important topic, because, as we know, this government in its wisdom has

removed itself — a major shift by the current minister — from helping

municipalities out with such capital improvements. It is a major shift

away, from the longstanding tradition of the senior government being

the mother or the father to municipalities. It's been a family

environment but with the parents cutting themselves off from local

government and not paying their fair share of such capital

improvements. As someone who was involved for a number of years at the

local level and as chairman of finance in this beautiful city of

Victoria, I'm sure glad that I don't have to administer the books for

the city of Victoria now, given what this government is doing to the

revenues at the local level. Great hardships are being forced upon

local taxpayers and governments because of this government. They are

removing themselves from their longstanding tradition of helping in the

financial arrangements of municipal government, and in our estimation

this is something they should seriously reconsider.

Another option for all of us to think about is the concept of site

value taxation. This is a little longer one and will probably take us

to noon today, but it is an interesting one and worth reflecting upon

in this House. The alternative tax structure which is most often

proposed is site value taxation. It's the one that's talked about the

most, except for the municipal income tax concept. This tax separates

realty and improvements for the purposes of valuation and exempts the

latter. The philosophy of site value has its underpinnings in the

scholarly writings of Henry George, before the turn of the last

century. Since then the single tax debate has been carried on at a

highly emotional and somewhat dogmatic pitch. In recent years, however,

the site value tax has found renewed support in both history and

practice, and this has encouraged officials and academics once again to

give the tax serious consideration. I wish us to do that today as part

of the seven alternatives that I am presenting to this House.

[11:45]

Let's give a brief outline of the theory behind site value taxation. It's

based on the conceptual division of land and capital. Site valuists criticize

contemporary economics for

[ Page

1135 ]

combining these two distinct economy entities which they claim react totally

differently to taxation. They postulate that land is a fixed asset of original

and indestructable powers — to quote Henry George — which cannot be consumed

or created. Any increase in the value of raw land would then only be an unearned

increment, which I referred to a few minutes ago, which the community is entitled

to recoup through taxation. I believe the community is entitled to recoup through

taxation those unearned speculative moneys that affect all of us, certainly

those on fixed income being able to hold onto their homes, because there are

a select few in our society who participate in arbitrarily forcing up assessments

that do not really reflect the value of people's property in terms of what

they could get in a normal market.

The improvement, on the other hand, is the result of individual

enterprise and capital investment, which should be stimulated rather

than discouraged. Yet they claim that this is precisely what our

present property tax does. By assessing improvements a disincentive tax

is actually being levied. That is a real irritant for local taxpayers.

If a family puts on a little family room or adds a rumpus room, a study

or a place where the children can play, their assessment and taxes go

up. Someone tries to improve the family environment, a safe haven for

children and family, and gets hammered through taxation when he does

it. That is just one area that is ridiculous. There are many others,

but that is one area that is really annoying to local taxpayers, and

something that has to be resolved. Consequently, a property owner is

tempted to underuse his or her property, and allow the improvements to

deteriorate, for which he or she will be rewarded with a reduced

assessment — because they allowed things to fall down.

I have to reflect on that in this city. In the neighbourhood in

which I live, we have absentee owners and landlords who, because they

know they will get lower assessments and lower taxation, allow their

rental properties to deteriorate to the point where they are unsightly

and unsafe, and they are rewarded by lower taxes and lower assessments.

My estimation and that of my party is that landlords who do that sort

of thing should not get away with it; they should be penalized. In this

beautiful city we have certain owners who constantly do that. They come

to the local council and say: "My property is so dilapidated and

falling apart...." They're trying to convince the local council that

it's not their fault. "Please rezone my property so I can put up a

multiple dwelling" — right in the middle of a single-family

environment. They use it, but they're not penalized. That is really a

disincentive in the property taxation system which we have to try to

come to terms with.

However, it's argued that by exempting improvements from taxation,

either totally or partially, each taxpayer would be encouraged to put

his property to the most profitable use that the market will bear.

Since it would be economically unwise to underuse property in view of

the tax load it must carry, speculation and slow urban sprawl would be

replaced by rapid and orderly development. Boy, could that be done in

certain municipalities! — Surrey being one of them.

To turn to the established criteria for tax equity, does site taxation treat

persons who are apparently situated in equal circumstances in a similar fashion?

This depends on the index of taxpaying capacity which is adopted. There's

no question about that.

[Mr. Speaker in the chair.]

If the value of real property owned by a taxpayer is used as the

measure, the tax is an equitable one. However, if income is accepted as

the basis of judgment, the argument is quite different. Since the tax

places the highest relative burden on those whose property is vacant

and therefore generating no income at all, the tax becomes regressive

in nature. The question then becomes, under site value taxation, which

is the more desirable index of taxpaying capacity? For the proponents

of site value, the choice is obvious. Since a high percentage of land

value is due to population growth and public improvements, the

community is entitled to recapture this unearned profit. But the issue

remains: why single out this one particular increment for the basis of

tax capacity? A good point, but again it is one that could be looked at

in a special select committee or task force of this House. Not only

does the site value taxation penalize less intensive uses of land, such

as farms or low-rise accommodation, but it also prejudices those

persons who have just put their funds into realty rather than into

other kinds of wealth. This is especially unjustifiable for present

owners who have paid full price for the property, even though past

owners may have reaped the unearned increments in value.

James Heilbrun, in Real Estate Taxes and Urban Housing ,

which I quoted just a short while ago — published in New York in 1966 —

pointed out that the untaxing of improvements will stimulate new

construction. This may in turn increase land rent, thereby offsetting

the increased burden; but the actual extent of the offset is uncertain.

The best that the site valuists can offer to avoid these transitional

kinds of prejudices is to suggest that the tax system be adopted over a

period of years. Again, I suggest that that task force, chaired by the

Minister of Municipal Affairs (Hon. Mr. Ritchie) if he so desires,

could take a look at this concept.

What about the revenue yield from this site value? The revenue yield

from site value tax should be stable, but because realty is a fixed and

non-deteriorating base, its adequacy is questionable. Admittedly, the

revenue adequacy has been proven in South Africa and Australia where

the tax is used by some jurisdictions. I referred earlier to the land

value increment taxation used by Denmark and Spain, and now to the site

value taxation used in South Africa and Australia by some

jurisdictions. These site value areas, however, tend to be rural in

nature and are not called upon to fund urban services. Perhaps that's a

major shortfall of this particular concept. In more heavily populated

centres where this tax has been enacted, it has been found that only a

partial exemption could be given to improvements; otherwise, the base

would be too narrow.

Both Heilbrun and Netzer, who write favourably on site value

taxation, criticize it for its inability to support the services

necessary in urbanized areas. That would be a major consideration for

the task force that I am suggesting today, or have suggested before.

Certainly I'm trying to talk a little bit more about it today.

Specifically Heilbrun states that due to organization, the sum of all

public expenditures in the United States has long since outdistanced

the rest of the land. Because only the original and indestructible

nature of the soil is to be taxed in theory, the tax becomes almost

impossible to administer in practice. The purists of site-value theory

contend that the assessment of land must be made according to a

[ Page 1136 ]

standard state. The standard state of land would be

defined in physical terms, which are independent of the actual state

and use of the particular parcel of land. Even where the base state of

the land — i.e., the actual state at the time of assessment — is

inferior to the standard state due to swamps or mining or something

like that, an assessment would be made of the market value of this land

at its standard state, and tax credits would be awarded to encourage

the owner to improve the physical condition of the land up to the

standard state value. A new owner's cost of demolishing a negative

improvement would similarly be taken into account.

Presumably, man-made realty, such as land-filled areas, would be

deemed a capital improvement and therefore not taxed, and obviously the

administrative problems involved in calculations of this theoretical

value....

MR. HOWARD: On a point of order, Mr. Speaker, pursuant to the

appropriate standing order, I would like to draw to your attention that

the clock is now at 12 o'clock, noon.

MR. SPEAKER: My attention having been drawn to the clock, I recognize the government House Leader.

Hon. Mr. Neilsen moved adjournment of the House.

Motion approved.

The House adjourned at 12 p.m.

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