Tory education tax plan well worth our attention

Opinion

Hey there, time traveller!
This article was published 07/09/2019 (2193 days ago), so information in it may no longer be current.

It was, by far, the most significant 2019 election campaign promise by the Progressive Conservatives. Surprisingly, it’s received scant attention.

The Tories pledged this week to phase out education property taxes over 10 years, beginning in 2023 — the year after the provincial deficit is scheduled to be eliminated. It was a bold commitment. It’s something many have called for over the years, including business groups and farm organizations. The argument is that public schools should be funded through general revenue, not property taxes.

Sharp increases in school property taxes over the years have disproportionately affected low- and middle-income earners — as well as farmers and small businesses — since realty taxes are not based on ability to pay.

It’s far more appropriate– and fairer — to fund education through progressive taxation (income and corporate are based on earnings). Government doesn’t fund health care or social services through property taxes. Why should public schools be any different?

It’s far more appropriate — and fairer — to fund education through progressive taxation (income and corporate are based on earnings). Government doesn’t fund health care or social services through property taxes. Why should public schools be any different?

Trouble is, the money raised from education property taxes is considerable. In Manitoba, it’s close to $900 million a year (net of property tax credits) between the special education levy charged by school divisions and the province’s education support levy (ESL) on non-residential properties. The question always raised is: how would government replace that?

The former NDP government eliminated a portion of education property taxes early in its mandate (then-premier Gary Doer phased out the ESL on residential properties from 2002 to 2006). There were similar questions raised at the time about where government would get the money to replace the lost revenue; the answer was from growth revenues.

Granted, it was a lot less money to forgo: $98 million in annual revenue, at the time. But there were no cuts.

It’s a misconception that reducing or eliminating a tax requires a dollar-for-dollar expense cut, or a commensurate tax increase elsewhere.

Governments plan their finances around growth revenues generated by an expanded economy. Decisions on how to spend those growing revenues can include tax reductions — as it did recently with the one-point reduction of the provincial sales tax (worth more than $300 million in annual revenues).

The Tory government cut that tax and reduced the deficit by some $600 million over the past three years. Yet, overall provincial government spending continued to rise, to a projected $17.5 billion this year from $15.9 billion in 2015-16.

Reducing the size of the deficit was achieved, in part, through cost controls and more efficient spending of existing dollars. But it was also due to growth revenues, including significant increases in federal transfer payments.

Whether Manitoba’s economic growth over the 10 years in question would be robust enough to generate sufficient revenues to phase out education property taxes is anyone’s guess.

Whether Manitoba’s economic growth over the 10 years in question would be robust enough to generate sufficient revenues to phase out education property taxes is anyone’s guess. A recession in the coming years would make it difficult, but under an average economic growth scenario, it’s doable.

Education property taxes in Manitoba have been the fastest-growing area of taxation in recent years. Rising rates and an increase in taxable properties have pushed education property tax revenues up 30 per cent — to $827 million in 2017-18 from $634 million in 2013-14 — according to the province’s public accounts.

By comparison, income taxes (including corporation income taxes) grew 16 per cent during that period, and PST revenues grew 21 per cent.

Manitoba’s 2019 budget projects education property taxes will generate $878 million this year.

Phasing out education property taxes would be a complex exercise, requiring considerable planning.

Eliminating the ESL would be relatively simple because it’s a provincial tax. But forcing school divisions to lower their tax rates each year would be far more complicated.

Property values vary widely between school divisions, as some have larger industrial bases. Provincial funding to school boards is based on a complex formula that reflects those inequities. All of those factors would have to be taken into account when devising a plan to phase out those taxes.

There’s also the question of what function school divisions would serve if stripped of taxation authority. Would they still exist and operate more like regional health authorities, which redistribute provincial funding, and act as central planners but have no taxation power? Would they be further amalgamated?

If the Tories win, setting the stage to go through with the pledge, it would be one of the biggest policy debates in Manitoba in the next decade. It’s odd it has received so little attention.

tom.brodbeck@freepress.mb.ca

Tom Brodbeck
Columnist

Tom Brodbeck is an award-winning author and columnist with over 30 years experience in print media. He joined the Free Press in 2019. Born and raised in Montreal, Tom graduated from the University of Manitoba in 1993 with a Bachelor of Arts degree in economics and commerce. Read more about Tom.

Tom provides commentary and analysis on political and related issues at the municipal, provincial and federal level. His columns are built on research and coverage of local events. The Free Press’s editing team reviews Tom’s columns before they are posted online or published in print – part of the Free Press’s tradition, since 1872, of producing reliable independent journalism. Read more about Free Press’s history and mandate, and learn how our newsroom operates.