Analysis

Winnipeg Free Press - PRINT EDITION

Business tax breaks must end

By: Lynn Fernandez

Posted: 01/18/2013 1:00 AM | Comments: 0

By now, Winnipeggers understand that the city's property tax freeze could not last forever. During the period from 1999 to 2011, the tax rate actually decreased by six per cent, whereas in other Prairie cities it increased by an average of 46.75 per cent.

If anything has given other cities a competitive advantage over Winnipeg, it's been that they have been shoring up their revenues with more responsible tax increases.

Last year's and this year's property tax increases begin to reverse the damage done. Council continues, however, to allow one component of our community to avoid pulling its weight: the business community.

The last two budgets expect property owners to contribute more than businesses. We see property taxes increase while the business tax is either frozen or eliminated for 40 per cent of businesses.

The argument in support of this favouritism is that businesses pay property taxes (contributing approximately 30 per cent to total property taxes), making the business tax "extra," and that other Canadian cities do not levy a business tax, making Winnipeg less competitive.

Edmonton eliminated the business tax but increased its commercial property tax to make up for the loss. Calgary still levies a business tax and a commercial property tax, although there's been talk that they will follow Edmonton's lead.

The point is not how one labels the taxes, it's the total amount paid. Looked at this way, Winnipeg businesses do not pay more total tax than businesses in other cities.

So how much does the city lose when it doesn't increase the business tax? The 3.87 per cent increase in the mill rate caused revenues from property taxes to increase 5.07 per cent. If we increased the revenue from the business tax an equivalent 5.07 per cent, the city would realize a $2.95-million increase in revenues.

We could give business a break by raising the revenues from the business tax by just half the rate we see the property tax revenues go up (2.53 per cent). Doing so would add $1.47 million to revenues and would put business tax revenues close to $60 million -- where they were before the business tax rate was decreased in 2004. Business would still be ahead of property owners, who are facing two tax increases in two years -- at double the rate we've increased the business tax.

But many businesses get another break: We will have to add the loss from the small-business tax credit, which takes $3.9 million from revenues.

So by not increasing business tax revenues by even half the rate of the property tax revenue increase, the city has effectively lost $1.47 million. When that is added to the loss from the tax credit, a total $5.37 million is missing from revenues.

Not only does business get a decrease in taxes relative to property owners, but businesses like the Goldeyes and True North get tax refunds. True North gets $258,300 of its business tax refunded and the Goldeyes have $41,000 of their property taxes refunded. This lowers revenue by $299,200.

When we add the loss in revenue from not increasing the business tax rate, the tax credit and the tax refunds given to high-profile Winnipeg businesses, we have a revenue loss of $5,669,200.

This budget's optics are not great. The increase in councillors' budgets is troubling, especially in light of all the organizations that had their grants cut. These groups may not have the profile of an NHL team, but they all improve the quality of life in Winnipeg, and some are dedicated to ameliorating poverty and its terrible effects, such as lack of food and shelter. By just making businesses pay their fair share, the city could ensure these organizations maintain their staff and services.

We worry about being competitive, but studies have shown tax rates are not the driving factor behind businesses' decisions about where to locate. KPMG claims businesses are much more interested in an educated workforce, infrastructure, affordable utilities, access to markets and creating cities that people want to live in. Which brings us full circle: Education, culture, social housing, recreation and infrastructure are partly paid for from tax revenues. We believe businesses want to pay their fair share; surely they understand that when they do, they are investing in a more prosperous city for us all.

Lynne Fernandez is the Errol Black chair

in labour issues at the Canadian Centre

for Policy Alternatives, Manitoba.

Republished from the Winnipeg Free Press print edition January 18, 2013 A11

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