Parkland Institute
Op-eds | June 24, 2010

Tax the bads, not the goods

Time to talk about Calgary's revenue needs

Parkland Institute

Across Canada, we are seeing a more grown-up media conversation about public revenues. Gone are the foot-stomping, the "read my lips" rhetoric, and the fear that mentioning the t-word will cause the sky to fall.

Noting federal deficit forecasts, the Parliamentary Budget Officer and other leading commentators are pointing out the need to reverse rash tax cuts.

Toronto political and business leaders are suggesting road tolls. British Columbia Premier Gordon Campbell brought in a carbon tax and easily won an election, forcing the B.C. NDP to retreat from its ill-advised "axe the tax" campaign.

This is good timing for the City of Calgary, because it is going to need to spend more money in coming years.

Calgarians want improvements to their city, better facilities and services. This is clear from public opinion polling and the imagineCalgary and Plan It Calgary processes.

And Calgary will need to spend more just to manage its population and economic growth.

Fortunately, despite the budget-slashing, tax-hating stereotype, a 2009 Ipsos survey found that only 13 per cent of Calgarians want services cut in order to reduce taxes. Three-quarters of Calgarians want current tax rates maintained (27 per cent) or increased (48 per cent).

The real question is how to pay for it?

Calgarians prefer alternatives to the time-worn property tax. This stands to reason, as property taxes are regressive; lower-income people pay a higher proportion of their income on property taxes.

What's worse, according to a 2005 Statistics Canada report, Calgary's property taxes are among the more regressive in Canada.

So what are the alternatives?

Municipal politicians often look to provincial and federal governments for support. However, those funds are often confined to photo op projects, and cost-sharing requirements can drag municipal dollars away from municipal priorities.

More important are those recession-induced deficits: provincial and federal governments aren't looking for new opportunities to hand out money.

What about cutting existing spending in order to finance emerging priorities?

Well, 20 years of cost-cutting has left little, if any, fat to cut; we could try to find massive efficiencies somewhere, but don't hold your breath.

And Calgarians have said they want civic improvements, not cuts to services.

Will public-private partnerships (P3s) and privatization free up public dollars? Once hailed as panaceas, their hype has been deflated by years of experience, auditor general reviews and other evaluations.

The reality is that no corporation is about to provide "access to capital" or absorb risk for free; citizens ultimately pay for services and facilities. And corporations bring in a range of new expenses, ranging from higher borrowing costs, to advertising and lobbying outlays, to gold-plated executive compensation.

A 2006 UBC study noted that "the evidence suggests that the benefits are often outweighed by contract costs and externalities. The reality that 'there are no free lunches' applies to P3s as much as it does to anything else."

These old ideas aren't going anywhere. Calgary needs some new thinking.

Again, Calgarians are out front of their politicians. In imagineCalgary, they suggested a range of charges and user fees and linked them to solving social and environmental challenges.

The City needs to adopt revenue instruments that help meet Calgarians' social and environmental goals.

Everyone knows that if you make something more expensive, you will have less of it. So why not add a price to pollution. Likewise, if you want more of something -- like transit -- boost the subsidies.

It comes down to taxing bads, not goods. Calgary is going to need to get its revenues from somewhere, why not use smart taxes?

The so-called "user fees" of the 1990s -- many of which were actually regressive head taxes -- left a bad taste in many people's mouths. User fee systems can and should be designed to protect lower-income people from any adverse effects of reprofiling revenue streams.

For instance, 'lifeline' utility rates allow modest to normal levels of consumption at low prices -- even for free; we want to encourage people to use water for cooking and sanitation, not discourage them.

Higher prices kick in at higher levels of consumption, which discourages wasteful use.

Why shouldn't it cost more to fill swimming pools and water estates?

Some of the revenues collected can be recycled into rebates for people with lower incomes. Social programs can be enhanced and perhaps some of the regressive property taxes reduced.

Calgary can adopt some of these changes now. For others it will need the Alberta government to lift some of its restrictions -- as was done for Toronto, Vancouver, and other cities.

Calgarians know what they want and they know it needs to be paid for.

With an election on the horizon, now is the time for a mature public conversation on smart revenue mixes and how to bring Calgarians' vision to life.

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