Please forgive me for doing so, but I'm going to re-post what I wrote this time last year during the perennial anger over the city's tax increases. I've made a few edits to reflect this year's situation.
-------------------------------------------
I don't get this. When we hear the yearly story about 4% tax hike, or whatever, does that mean the rate is increasing by 4% or something else? If it is the actual property tax rate that is being modified, then inflation is a non-issue. The entire point of tax rates, as opposed to a poll tax, is so that taxation is a constant function of some underlying metric of society's ability to pay. In municipal terms, I guess that means land values. Tax rates aren't meant to be adjusted for inflation. Tax rates implicitly take inflation into account by being a function of some kind of inflation sensitive wealth.
To answer the question, NO it does not mean that the tax rate is being increased by 4%. That isn't how property taxes work. It's clear that almost all of the population does not understand how municipal taxes work and this is contributing to the annual anger over tax increases.
- What the tax increase actually means is that the city is increasing their total take from taxes by 2.5% (not 4%, as explained below).
- So if the "income from taxes" section of the city's budget was $1,000,000 last year, with a 2.5% increase it will be $1,025,000 this year.
- Then MPAC (a provincial crown corporation) adds together the value of all taxed properties in the city based on their assessments. The city uses this to determine the tax rate.
- So if the total value of all property in the city (according to MPAC) was $1 billion, and with a city budget from taxes of $1,025,000 as described above, the city would have to collect $0.001025 for every dollar of assessed value in the city.
- So we would have calculated the tax rate as 0.1025% (referred to as the "mill rate").
- And therefore on a $300,000 home you would pay $307.50 in taxes.
So, property values have NO effect on how much tax revenue the city receives. And every new building that gets built brings NO new revenue to the city (but it does help keep tax bills lower by increasing the total assessed value of the city). And since the tax rate is determined by the budget (and not vice-versa), inflation must be accounted for.
Even though there have been tax increases every year of Miller's administration, with new construction and property value increases the tax rate in Toronto has DECREASED.
The residential mill rate in 1999 was 1.2137%
The residential mill rate in 2008 was 0.8749%
The residential mill rate in 2009 was 0.8548%
Like I said above, the actual increase in income from residential taxes is only 2.5%. There's an additional 1.5% tax increase on top of the 2.5% as part of a plan to shift the tax burden off of businesses and on to homeowners, bringing the total to 4%. This pro-business move was implemented during Miller's administration (not Lastman's) and he has to face the flak for it every year. But if he hadn't, people would have given him flak for not helping business... damned if you do, damned if you don't. In fact, many people gave him flak for not making the transfer larger.
So, account for inflation (~2%), and the pro-business tax transfer (1.5%) and we see that
the ACTUAL property tax increase (that is, increase in city income from property taxes) is ~0.5%. That said, this doesn't take into account any the new service fees that may be introduced, but we're discussing property taxes here.
I hope this helps make the municipal budget process more clear.
