Tax squeeze: as with governments everywhere, municipalities are running short of money

Montreal's riot squad had to be called out last March to deal with about 1,000 people who were trashing City Hall. Was it a riot over neo - Nazi hate mongers? A rock concert gone horribly wrong? No. It was a tax protest.

The angry taxpayers littered the Council Chamber with eggs and paper, overturned furniture, and forced the cancellation of a council meeting. The protest was over a council decision to get rid of the business tax paid by tenants of non - residential buildings. It was to be replaced by a surtax on property owners, who would then have to retrieve that money from their tenants. That doesn't look like enough to cause 1,000 people to throw a hissy - fit -- until you do the math.

In 1993, the old business taxes dropped from $375 million to $155 million. The surtax rose from $85 million to $316 million. So, the change would bring an extra $11 million into the city's coffers. Again, not big numbers in a city of more than three million people. Not big unless your name is Peter Sergakis and many others like him. Mr. Sergakis owns 50 buildings in Montreal, and the change pushed his taxes up by $800,000 in 1993. A striking example is his building that houses the Picasso Restaurant. In 1992, business and water taxes paid by the tenant added up to $4,008. In 1993, that rose an incredible 334% to $13,372.

Montreal Mayor Jean Dore says: "We're flexible. We will look at individual cases so people cannot be put in jeopardy or into bankruptcy." He went on to blame the tax increases on the provincial government. This is a familiar lament across the country. Provincial governments are running out of money. To cope they are cutting spending and among the programs affected are the grants paid to municipalities. Mayor Dore says Montreal took a $100 - million hit in 1993 as the Province of Quebec cut back its grants to his city. This follows a province - wide cut in funding to municipalities of $334 million in 1992.

Municipalities are not allowed by law to run up budget deficits, so that $100 million must be found somewhere. In Montreal's case this was through a combination of service cuts and tax increases.

Between 1988 and 1992, business taxes in Montreal were raised by 57%. This increase was too much for an estimated 3,800 firms; they couldn't pay their taxes and were forced to shut down.

It's not just business owners who are hard hit either. Homeowner Carlo Gatti was handed a $3,000 increase in his municipal taxes in 1992. A pensioner, Mr. Gatti expresses the feelings of many Montrealers: "I came from Italy with only a suitcase. I worked 34 years in a foundry. I built a house, and now that I'm retired, they want to tax me out of my home. No! I'm going to blow it up!"

Canada's municipalities came a little late to tax increasing. During the early 1980s, inflation was roaring ahead. But, Canada's municipalities were slow to crank up taxes to cover the broader rise in prices. However, since 1982 they have made up for lost cash.

For the past dozen years municipal taxes have risen faster than inflation. From 1982 to 1992, consumer prices rose by 70%, while urban taxes climbed by 113%. Take out the impact of inflation and the real increase in municipal taxes over the period is about 26%.

Little wonder then that the taxpayers are getting restless. City council meetings are now frequently the scene of angry protests. Hardpressed taxpayers are ducking more and more into an underground economy to avoid handing money over to government. That's why the people of Winnipeg liked what Susan Thompson had to say.

During the municipal election campaign of 1992, Ms. Thompson promised to freeze property taxes while also maintaining city services. Voters took the bait and made Ms. Thompson Winnipeg's mayor. She had no previous political experience.

It didn't take long for reality to set in. Mayor Thompson stuck to her pledge not to increase property taxes, but services were another matter. The cuts have come fast and the new mayor has earned the nickname "Susan Scissorhands." Along with the cuts have come user fees for services, which is just another form of taxation. Bus fares were hiked twice in two months; some libraries and swimming pools were closed down; welfare rates were cut; snow removal has been curtailed; grants to cultural groups have been slashed; and a hefty parking fee has been set at all city recreation facilities.

What Mayor Thompson has had to cope with is the dilemma that faces nearly all of Canada's cities; how far can taxes be raised in order to maintain services? Raise them high and there is a short - term payoff, but then homeowners and businesses begin shifting their economic activity to the outer ring of the cities. The suburbs, because of low densities, are more expensive to service with sewers, bus routes, water mains etc. So, in the long run, taxes end up going higher still.

Municipal leaders everywhere are having to perform a delicate balancing act that keeps their bank accounts in the black without driving citizens out.

SUGGESTED ACTIVITIES:

1. In 1978, Californians voted in favour of a rollback in their taxes; in 1988, the people of Regina voted against such a rollback. Delmar Robertson, chair of the taxation task force of the Regina Chamber of Commerce said that: "Canadians are prepared to pay a lot higher taxes than Americans are. The revolution concept does not sell well in Regina." Discuss Mr. Robertson's statement.

2. Invite a municipal politician to your class to explain the financial situation of your community.

Copyright Canada and The World Jan 1994
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