FAIR MUNICIPAL FINANCE ACT, 1997 / LOI DE 1997 SUR LE FINANCEMENT ÉQUITABLE DES MUNICIPALITÉS
WINDSOR AND DISTRICT CHAMBER OF COMMERCE
STEEVES AND ROZEMA ENTERPRISES
SARNIA/LAMBTON PROPERTY ASSOCIATION
KENT FEDERATION OF AGRICULTURE
CONTENTS
Wednesday 16 April 1997
Fair Municipal Finance Act, 1997, Bill 106, Mr Eves /
Loi de 1997 sur le financement équitable des municipalités, Projet de loi 106, M. Eves
City of London
Mr Grant Hopcroft
Mr Darcy McKeough
Mr Ralph Robinson
Windsor and District Chamber of Commerce
Mr Tim Fuerth
Steeves and Rozema Enterprises
Mr John Rozema
Sharen Realty
Mr Bob Sharen
Sarnia/Lambton Property Management Association
Mr Andrew Falby
Kent Federation of Agriculture
Mr Ron Cox
Mr Dave Derynck
Mr Erie Woltz; Mr Gerard Charette
Mr Michael Childs
Mr Arnold Broeders
Honey Electric
Mr Reg MacDonald
Rol-land Farms
Mr Hank Vander Pol
STANDING COMMITTEE ON FINANCE AND ECONOMIC AFFAIRS
Chair / Président: Mr TedChudleigh (Halton North / -Nord PC)
Vice-Chair / Vice-Président: Mr TimHudak (Niagara South / -Sud PC)
Ms IsabelBassett (St Andrew-St Patrick PC)
Mr JimBrown (Scarborough West / -Ouest PC)
Mr TedChudleigh (Halton North / -Nord PC)
Mr JosephCordiano (Lawrence L)
Mr Douglas B. Ford (Etobicoke-Humber PC)
Mr TimHudak (Niagara South / -Sud PC)
Mr MonteKwinter (Wilson Heights L)
Mr TonyMartin (Sault Ste Marie ND)
Mr GerryMartiniuk (Cambridge PC)
Mr GerryPhillips (Scarborough-Agincourt L)
Mr GillesPouliot (Lake Nipigon / Lac-Nipigon ND)
Mr E. J. DouglasRollins (Quinte PC)
Mr JosephSpina (Brampton North / -Nord PC)
Mr WayneWettlaufer (Kitchener PC)
Substitutions/ Membres remplaçants:
Mr JackCarroll (Chatham-Kent PC)
Mr PatHoy (Essex-Kent L)
Clerk / Greffier: Mr Franco Carrozza
Staff / Personnel: Ms Alison Drummond, research officer,
Legislative Research Service
The committee met at 0900 in the J. G. Taylor Community Centre, Chatham.
FAIR MUNICIPAL FINANCE ACT, 1997 / LOI DE 1997 SUR LE FINANCEMENT ÉQUITABLE DES MUNICIPALITÉS
Consideration of Bill 106, An Act respecting the financing of local government / Projet de loi 106, Loi concernant le financement des administrations locales.
CITY OF LONDON
The Chair (Mr Ted Chudleigh): I'll call the meeting to order. Welcome to Chatham, everyone, and thank you for being on time and prompt. We'll start today with Mr Hopcroft from the city of London. We have 20 minutes to spend together, if you'd like to make a presentation. We will fill any remaining time with questions. Please proceed.
Mr Grant Hopcroft: Thank you very much, Mr Chair. My name is Grant Hopcroft. I'm the deputy mayor of the city of London and I'm presenting a brief this morning on behalf of the city of London. I'd like to begin by recognizing the efforts of the province to consult with municipalities, both through the Who Does What process and through these committee hearings.
We support the confidence and the recognition this bill reflects in terms of the ability of local governments in Ontario to efficiently and effectively manage tax policy. We support the initiatives the province has introduced through this bill to review and update property assessment to a current basis. This is fundamental to establishing a fair property tax process in Ontario.
We acknowledge the effort the province has taken to address this task and encourage the Minister of Finance to dedicate all necessary resources to complete the initial reassessment as well as establishing an effective process for an ongoing future maintenance of the system.
The quality of the reassessment process is most critical to the integrity of the entire tax system and a substantial portion of our revenue base as municipalities. So while we are supportive of this bill, we have identified a few administrative and technical concerns that must be considered. We are pleased to not only discuss our concerns but to provide some suggestions where we believe technical changes or amendments might be required.
First of all, on the issue of reassessment, we are in favour of an assessment system using current property values which is kept up to date. Current and fair assessments are the foundation of a fair tax system. London has been reassessed three times in the last 17 years. I have personally, during my term on council, been through two of them and we have considerable experience in implementing required changes. Each reassessment requires its own dedication of administrative effort, and reassessing the entire province is a significant task. To update assessments to 1996 values, as well as creating a new structure by 1998 using multiple tax rates, will require a dedication of resources by the province. The analyses required to determine and support tax rates will not be available until April 1998. The minister has promised assistance with these analyses, as well as a preliminary roll in the fall of 1997.
The quality of the preliminary roll may well be limited because of the restricted time ministry staff will have to determine the values of each property in the province and, clearly, major changes will occur between the time that preliminary roll is provided and the final roll is returned.
The province must ensure that the current assessment system is maintained while the reassessment program is under way. Municipalities cannot afford any revenue losses resulting from a diversion of provincial resources to reassessment or from loss of assessment appeals. We need assurances that current and ongoing assessment change is reflected in supplementary rolls and in the final return for 1998. We support yearly updates to the assessment roll following the transition period and we support rolling averages as a means of reducing dramatic shifts.
Bill 106 will eliminate the business occupancy tax from the tax base, and we support this elimination. We recognize that significant administrative efficiencies and financial savings relating to tax collection should occur, but we believe that there are certain problems that need to be addressed.
In 1996, our business occupancy tax totalled $42 million for municipal and education purposes in the city. In 1998, we will have no alternative but to recover those taxes from one or more classes of property. If any classes other than commercial-industrial are burdened with the lost revenue, then taxpayers may view the tax change as a tax shift. One therefore assumes commercial and industrial property owners may have an amount equal to the business occupancy tax included on their 1998 property tax bill. I understand from preliminary discussions that is the intention.
If the revenue from the previous business occupancy tax is recovered from commercial and industrial owners, we foresee several issues. First of all is the transition with respect to commercial leases. The second, and the one I'll elaborate on, is non-profit corporations. Under existing legislation, non-profits have no liability for business occupancy tax, and conversion of business occupancy tax to commercial property tax may have the result of requiring non-profits to pay a new tax component in their commercial property tax bill.
The next issue is the average business tax rates versus specific business tax rates. Of course, when the BOT is transferred, it will be transferred at the existing municipal average business occupancy tax rate. Currently, there are several different classes which bear tax at different rates. Without provisions for smaller businesses, there may be a negative impact as a result of those shifts in the conversion.
Probably one of the most significant concerns we have as a community is with respect to vacant commercial properties. Under the current system of taxation, vacant commercial property is taxed at a mill rate 15% lower than occupied commercial property. In addition, vacant commercial property is not subject to business occupancy tax. Our preliminary calculations suggest a significant increase to property taxes payable for a typical vacant commercial property if the proposed method is approved. This is not an insignificant portion of the assessment base of many communities.
It is our understanding the government has recognized potential problems relating to taxation of vacant commercial property and we ask you to consider the impact of the approach that is under consideration. If vacant commercial property is put in the residential class, there will be a distortion of historical patterns of property-related taxation in the province. Right now in London vacant commercial property is taxed at a market value rate which is 75% greater than the residential class. Vacant industrial property in London is taxed at a rate which is 127% greater than the residential class. Putting vacant commercial and industrial properties in the residential class will create a windfall for those property owners based on historical patterns of taxation. In our opinion, one possible solution to the issue would be to maintain a lower tax rate for unoccupied commercial buildings.
If I could move on with the issue of consistency and uniformity throughout the province, there hasn't been much consistency with respect to base years utilized and the relative valuation of classes in different municipalities. On its surface, the proposed legislation appears to address this significant issue. We have concerns, however, that in practice, depending on the wording of regulations, the Fair Municipal Finance Act may not achieve the desired consistency for property taxation in the province.
On property tax classes, the bill proposes to implement a property-class-based system of tax rates. Tax rates will be determined by municipalities, while property classes will be determined by regulation. The regulations to create these classes, to our knowledge, do not currently exist. We urge the minister to be very clear in defining property classes and to ensure that classes are consistent throughout the province. Without clear definition of classes, municipalities will continue to see instability in their tax base as property owners appeal the decisions of the assessment commissioner on the class assigned to their property. Instability translates into assessment base erosion and revenue loss.
With respect to the farm tax reduction program, London is prepared to assist with the administrative portion of the farm tax rebate program, but the cost of the rebate, estimated in London to be three quarters of a million dollars, should continue to be the responsibility of the province until a true balancing of the restructuring through Who Does What is established. The proposed legislation requires that municipalities pay the cost of this program. Each municipality has a different proportion of their tax base represented by farms. By assuming the cost of the farm tax rebate prior to ensuring a financial restructuring balance, all taxpayers, including farmers, could see a tax increase.
In the interests of time, I'll skip the actual portion dealing with phase-in; I think that is fairly self-explanatory. We appreciate the option of considering deferral of taxes in certain circumstances for the elderly or physically challenged. Provisions for the recovery of taxes deferred and appropriate interest, plus the determination of eligibility, should be recognized in the regulations.
0910
I'd like conclude my remarks with respect to the assessment appeal process. Property owners have expressed concerns for many years that the appeal process is cumbersome. We support initiatives which streamline the appeal process and provide taxpayers with an open and fair assessment appeal process.
The municipality appears not to have any involvement, however, during this initial appeal process. This is inappropriate. The assessment roll, when returned, is the basis upon which we determine our tax rates. As a result, the municipality should be involved in the process whenever an assessment is challenged, to protect the interests of all taxpayers and to ensure fair treatment. The assessment tribunal system needs to be strengthened because of the elimination of the Ontario Municipal Board role.
In closing, we'd like to express a general concern about the direction of municipal taxation which doesn't specifically relate to Bill 106. We are referring to the initial intention of the government to remove education from the residential property tax bill and replace it with program expenditures which by their nature tend to relate to income redistribution. We suggest that taxation methods should be consistent with the objectives of the programs they finance. A program that is income-redistributive to the economically disadvantaged is more closely associated with income rather than property tax. We urge the government to consider changes to make the system fairer.
I'd like to thank the committee for this opportunity to present the views of the city of London and express our thanks as well that while perhaps you're not in London this morning, you certainly are outside of Toronto. We appreciate the opportunity for communities outside the GTA to participate fully in the process.
The Chair: Thank you very much. I think the committee appreciates being outside of Toronto as well.
Mr Hopcroft: I hope you're all caught up on your sleep.
Mr Pat Hoy (Essex-Kent): Good morning, and welcome to Chatham. I had the opportunity to hear from representatives from London on Monday about the water and sewage bill that the government has and it was very finely put.
You have a number of issues here within your document, but to the non-profit organizations and the elimination of the business occupancy tax, I believe that non-profit organizations are being asked to do more and more in the current climate. Are you fearful of their ability to pay under this new Bill 106?
Mr Hopcroft: Yes, I am. Perhaps adding a bit of personal perspective on this one, as a member of the tax panel with David Crombie, we had really serious concerns and we urged the government to initiate a review of overall taxation policy with respect to non-profits and other exempt properties. We feel this is an issue that goes far beyond the issue of business occupancy tax, but one that goes really to the very heart of the charitable and non-profit sectors' viability in the province.
Mr Gilles Pouliot (Lake Nipigon): Good morning, Mr Hopcroft, and welcome to the committee as a presenter.
The first thing, Chair, I wish to do is to congratulate members of the government, my colleagues opposite, who today, I think to a person, have seen their dedication and their efforts rewarded by virtue of announcements of parliamentary assistants, and some have become chairs of committees. So it's recognition of their good deeds, and I want to commend them.
Mr Hopcroft, you note in your presentation that in 1996 the business occupancy tax will total $42 million. It's a considerable sum vis-à-vis your overall revenues.
I need your help with the following scenario. Your fiscal year will start January 1. Your revenue will derive from 50% of the previous year's assessment. The rules, your new responsibilities, will be substantially impacted starting in January. I don't assume at this time that you have the cost of the new initiatives, who pays for what, who does what.
Mr Hopcroft: We're waiting anxiously, yes.
Mr Pouliot: You will have a reassessment en masse by April 1, 1998. There's a lot of food on this plate here already. There will be a shift. The province will not make up the entire difference. It's not estimated. So you will have your BOT, business occupancy tax, revenues reduced; you will have your commercial responsibilities -- no tradeoff -- still paying the education levy; and you will have the residential levy asked to pick up the cost of the new initiative.
What are you expecting in terms of your final, your big levy? Do you fear that there will be some distortion, some dislocation, that the final levy in some cases when you factor in everything -- because this bill does not work in isolation. It is webbed with other legislation. What are we to expect? Would you not like to have all the figures, the cost factors at hand?
Mr Hopcroft: We certainly appreciate the fact that there are a number of balls in the air with respect to municipal finance for next year, and this legislation is only one of the balls that's there.
First of all, on the issue of shifts, we would clearly anticipate and understand that as far as the tax rates that are provided by the assessment offices for 1998 are concerned, they would reflect initially, subject to further deliberation by municipal council, a shift of the business occupancy tax on industrial-commercial across the industrial-commercial base.
Given that there are different classes bearing business occupancy tax at different rates, there will certainly be shifts between some of those businesses. Some will be winners, some will be losers, but of course that's only one part of the tax pie for next year. Clearly, what happens with the transition committees, with AMO right now, will have a big impact on the burden of services and programs that we will have.
Based on the January announcements, we anticipate a difference between what we're having to raise now and what we would have to raise next year at around a 20% increase on our taxes. Obviously, that's a significant concern to us in the city of London. It's an issue we hope the province addresses through the negotiations, because we quite frankly feel some of the programs that we've been asked to assume responsibility for are not appropriate services to be supported through property tax.
Mr Pouliot: A 20% increase. With respect, some of your citizens, the residents you represent, are expecting a 10% decrease by the year 2000, and this would be achieved through efficiencies, through the government at the municipal level getting leaner. So unless you can impact, you can take advantage of some class or classes of taxes and put the money right back on at the industrial and commercial level, what they have gained on the one hand, you could find yourself in dire financial need. Is that not so? Yet you support the legislation.
Mr Hopcroft: We support the legislation because it gives municipalities better tools to deal with some of those issues. There clearly will be shifts, but really right now there's nothing other than history to support one class of businesses paying business tax at 25% and others paying it at 75%.
Ms Isabel Bassett (St Andrew-St Patrick): Thank you very much for your presentation. There is just one quick question that I want to put to you. It's really a clarification. When you talked about property tax classes on page 6 of your submission, you raised the very good point that it has to be laid out clearly what the province is doing. We have tabled our regulations and the clerk will be happy to give them to you when you leave.
Mr Hopcroft: I would certainly be pleased to get a copy.
Ms Bassett: Then you can work from there. I'll turn it over now to my colleague from this area.
Mr Jack Carroll (Chatham-Kent): Mr Chairman and Mr Hopcroft, welcome to Chatham. It's nice to be able to host these hearings this morning. We appreciate the Chair bringing this travelling road show to Chatham. It's nice to be part of the government.
The $42 million in business occupancy tax, how much of that traditionally is not collectible in London? We hear about a lot of that business occupancy tax not being collected. Have you any idea how much of that is traditionally not collectible in London?
Mr Hopcroft: I'll give you an example. Last year we wrote off between $350,000 and $400,000. Clearly, to the extent that you're writing off taxes, that means everybody else is paying higher taxes because some aren't meeting their obligations, and one of the strengths of the bill is that we won't have to have some taxpayers subsidize others.
0920
Mr Carroll: Besides writing some off, I presume there's a lot of money wasted in trying to collect.
Mr Hopcroft: There are collection costs, there are the administrative costs of tracking tenancies, and we have something that has always frustrated me as a council member when we're dealing with tax appeals because of change of occupancy. The amount of paperwork and the amount of administrative effort that is devoted to that is substantial, both at the municipal level and at the assessment office level.
Mr Carroll: A quick question on the appeal process: You have some concerns about the simplification of the appeal process to a single tier. Currently, about 94% of all appeals get resolved at the assessment appeal board and only 6% ever go on to the OMB. Do you not believe there is a simplification that's worthwhile here in eliminating access to the OMB?
Mr Hopcroft: Oh, yes. I'm no fan of the OMB, believe me.
Mr Carroll: But you think there should be some upper level to appeal these to.
Mr Hopcroft: What we're saying is we support the simplification. We hope the streamlining will result in faster determinations on the appeals, but we would like to see municipalities involved at an earlier stage to protect the interests of the rest of the tax base vis-à-vis the interests of one taxpayer paying less taxes.
Mr Carroll: Okay, but eliminating the OMB process you think is just fine.
Mr Hopcroft: Yes.
The Chair: Thank you very much. We appreciate the city of London and you, Mr Hopcroft, starting us off this morning.
Mr Hopcroft: Thank you to the members of the committee. I hope you have a good day.
DARCY MCKEOUGH
The Chair: We now welcome Mr McKeough. Welcome to the standing committee on finance and economic affairs. It's always a pleasure to see a former member of the Legislature continuing his civic duties.
Mr Darcy McKeough: Thank you, Mr Chairman, and thank you also for coming to Chatham and giving this part of Ontario a chance to make an input into the bill.
I want to make three broad points, not go into the details. The three points are:
First, nobody likes taxes but the property tax is a good tax.
Second, the key to making it a better tax is establishing a uniform assessment base, which, as I read it, Bill 106 does.
Third, the key to making it a fairer tax is doing away with the business occupancy tax.
First then, I said the property tax was a good tax. As a one time provincial tax levier and collector, I regarded the tax as a provincial tax. In my day, it was even more important than it is today.
There are some figures there, but property taxes in 1975 were $2.4 billion; personal income tax was approaching $1.6 billion. Today, the property tax brings in nearly $15 billion and personal income tax last year brought in something over $15 billion. So as a provincial tax, it has temporarily slipped from the number one position, but I understand that with the recent personal income tax reductions, in 1997 it will again surpass personal income tax revenues. A good tax then in terms of size, and perhaps not as fast-growing, but a growth tax none the less.
Good also in terms of collection: In 1995, property tax write-offs in the province amounted to $367 million of the $14.7 billion, 2.5%, and a large proportion of that write-off was of business occupancy taxes. Those write-offs will drop to virtually zero under Bill 106. Against this, one can only contemplate how much more of the personal and corporate income taxes or provincial sales taxes are lost by evasion, bankruptcy, error or simply errors in reporting.
My second point is that the key to making it a better tax is assessment. Bill 106, as I read it, does that, the same base year for the whole province, with values brought up to date and kept up to date. The provincial response to municipal needs via grants can only be fairly and evenly made if the basis of measurement, the assessment system, is uniform across the province, ie, apples to apples.
My third point, a fairer tax, in effect doing away with the business occupancy tax and replacing it with a uniform rate of commercial and industrial tax, was recommended by the Blair commission in 1977.
There can really be no justification for the present business tax assessment rate of 60% on an industry, be that industry large or small; on a credit union or bank of 75%; or a rate of 30% on a racetrack and 25% on a car park. The tax rate should be uniform for each property class. Of course, there is no justification for rental residential properties being assessed at a higher rate than single-family residences.
In summary, I wholeheartedly support Bill 106. My only regret is that the provincial Treasurer 20 years ago didn't have the intestinal fortitude to do what this bill is now doing. I'd be pleased to try and answer any questions.
The Chair: A marvellous admission.
Mr Pouliot: I thank you very kindly, Mr McKeough. The provincial Treasurer of 20 years ago brought forth very high standards and ethics that indeed set the standard for more than two decades ahead, so I'm truly honoured that you have taken time to share your expertise with the committee.
The majority of people are either aware or are becoming aware of the distortions, the discrepancies built into the BOT, the difficulties in collecting, the perception of the same BOT. In the case of London, it doesn't illustrate what's happening elsewhere. It's a mere 1% or 1.5%, but it reaches extraordinary proportions elsewhere. It's a mess. No denial that it is unfair.
However, the question of the day is, as unfair as the BOT is, in a selected time period -- this is also happening quite fast. It's also happening in conjunction with new and diverse responsibilities. There is a need to not substitute the revenues generated by the BOT with some others, because a tax is a tax is a tax, however fair the other tax is, and also to respect the ability of consumers to adapt to changes and to pay for those changes. The government must represent everyone, from the most powerful to the least powerful. That comes under "society" or "societal."
What are your fears in terms of the shift, in terms of the 900,000 appeals this will generate, and how do we tell people at the residential level that they will not be impacted while those who can run the fastest, those who are the strongest, the large industrials, the banks etc, are getting a tax break?
Mr McKeough: There are certainly going to be shifts, but I don't think you're going to have equity until there are shifts.
The other point you make in terms of the shift in responsibilities from the province to the municipalities and vice versa, however they may turn out through the negotiations with the association, I also wholeheartedly support in terms of accountability. But at the end of the day there will still be provincial transfers of some kind or another, in my judgement, perhaps more to some municipalities than to other municipalities, and the basis of how that is done, the measurement system, is absolutely key.
The third point you made is in terms of individual equity. There are all kinds of people who are paying $5,000 personal income tax on, say, a $30,000 income, who are not in nearly as good a position to pay that tax as other people paying the same tax on the same income, and you are never going to get a complete evenness in any tax in terms of the ability to pay. But the measurement system of the personal income tax is the T4s that you accumulate; the measurement system in the real estate tax has to be the assessment system.
0930
Mr E.J. Douglas Rollins (Quinte): Thanks, Mr McKeough, for coming out. I'm sure after a long political life it must be enjoyable to sit and listen and see what's going on sometimes, because I know it wasn't an easy time when you were there, nor is it always easy here.
You mentioned the evasion of tax. I know this doesn't affect the underground economy as much as we think, but still we've got to get those people who are doing business at a business level so we can tax them. Do you feel, in your expertise, that there is still a lot of that going on, that we haven't got them at the right table to say, "Give me my fair share of taxes"?
Mr McKeough: As recently as 10 months ago, I didn't hire a contractor because he wanted to be paid in cash. He said there would be no PST or GST, as simple as that. I happen to be honest about it and wouldn't hire him, but I wonder how many other people have. I suppose PST and GST are the biggest examples of tax evasion, avoidance, but I think it certainly exists in income tax as well, unreported income, and in corporate income tax. The beauty of the real estate tax is there really isn't any evasion.
Mr Joseph Spina (Brampton North): Welcome, Mr McKeough. It's good to see you again. Thank you for taking time on this.
A simple question, I guess, and maybe not such a simple answer: We've had two varied opinions with regard to the number of categories of property assessment, increasing it from four to six, allowing a variable mill rate to give the municipalities the opportunity to try and recoup the business occupancy tax loss of revenue. The two differing opinions are, one, that some municipalities want that flexibility to be able to choose it on their own, and others have said they would prefer that the province clearly define that. I just wondered what your position was, which you felt would be better.
Mr McKeough: I think I come down on the side of the option. I'm not sure, in the final analysis, this is five or 10 years from now, that you might not see some healthy competition between municipalities as to their ability, using this system, to attract industry. I'm not sure that's the worst thing in the world. They may well decide that their residential property taxpayer could pay something more by way of attracting industry to their industry-weak municipality. I'm not advocating that particularly, but I think it's an option that should be left open.
The other example is that you have the city of Toronto, for example, that is complaining about the move to the suburbs of office space. Part of that reason undoubtedly is the high tax. The city of Toronto, or the new entity, is going to have to decide whether it is more important to maintain what are really in some areas of Toronto very low property taxes on residential properties in terms of the value of the property and continue to watch an exodus of office space to the suburbs. Those are going to be tough decisions and I don't think they're going to be made overnight, but I would keep the option open.
Mr Carroll: A quick question on the farm tax rebate. You might say they're eliminating the farm tax rebate and assessing farm property at 25% of residential value. There are some concerns in our rural communities that as that money is recovered in some other way, all farmers will pay the penalty. That farm tax rebate program has its genesis probably back in your days. Do you believe it's a good process to eliminate it and go to just a straight change in assessment?
Mr McKeough: I think it's necessary that farming, real farming, has some sort of benefit. Funnily enough, 20 years ago -- and I'm not sure whether this was Blair or this was the department -- we recommended, which I thought was a good idea and I still in some ways think is a good idea, that farm land be exempt, genuine farm land that was farmed, and that the residential property, plus or minus the farm buildings, be assessed in the same way as a residential property in the middle of Blenheim or in the middle of Chatham. There were going to be shifts if that happened but it obviously would impact on the hobby farmer who had a very expensive house, as opposed to the farmer who didn't have a very expensive house, and in that way I think an inequity would have been cured or helped.
The question of farm buildings I think complicated that issue because obviously a dairy farmer or a cattle farmer may have a lot of buildings and a corn farmer may have nothing, cribs. The federation of agriculture at that time opposed that suggestion, and nothing came of it, on the basis that the non-payment of taxes on farm land was going to lead to the confiscation or the expropriation of farm land by the province and they were opposed to it and wanted to go on paying taxes.
Whether this is the right solution, I'm not sure. I haven't seen the numbers to see what would happen. I suspect it may benefit this part of Ontario, where the farm land is worth so very much, as opposed to other parts of Ontario, where the farm land is not worth as much and you may be hurting the house.
Mr Hoy: Good morning. We're into a subject on farm lands. Kent county is 92% agricultural farm land. Some municipalities that I've talked to in my particular riding have revenues exceeding 50% from the farm tax and then it's rebated to the farmer. In Essex-Kent they will be short $8 million, according to the ministry. Talking to clerks and treasurers, they say $10 million, but let's say $8 million. So they need to recoup this.
Mr McKeough: Do they?
Mr Hoy: Well, I think so.
Mr McKeough: All right, that's the premise of your question, that they need to recoup this. I think what we're trying to do is find a fair tax system and I think you have to decide whether the $8 million is being well spent at this moment or whether it should be spent some other way. I'm not disagreeing with you, but I am questioning your quickness to say that $8 million has to be replaced.
Mr Hoy: Those communities have told me that they need to. There are other downloading situations coming along, and as someone said, there are a lot of balls in the air and no one is really too sure where they're all going to land. But the communities and the farm organizations I have talked to believe this money has to be replaced. The Minister of Agriculture has said: "Don't worry; we have a $1-billion reinvestment fund and we'll do something." The "something" is not really known.
Wouldn't this be a better bill if the finance minister, in conjunction with the Minister of Agriculture, put in the bill how this money would be replaced in the farm communities, those that are highly agriculturally based, with not a lot of room to look for other avenues of assessment, and specifically say how they're going to deal with the shortfall of $171 million across Ontario?
Mr McKeough: I am sure that the treasurers of the largely farming municipalities which you represent, and the farmers and the farm organizations, feel this money should be replaced. But I think if you go to the association of corner stores or you go to a mining community or you go to a credit union, they might want to debate this. Is the system fair? Just because that particular group of taxpayers has been getting $8 million, should they get it forever? That's the question you have to answer first. If you answer that question, and the answer is yes, then perhaps there are modifications that have to be made in the bill.
Mr Monte Kwinter (Wilson Heights): In your statement you say that you wish you had the intestinal fortitude to do what the Blair commission reported. In 1978 you did support it. You issued a statement saying that you were supportive of it, notwithstanding that it retained business tax, but it was not implemented because it was found to be unworkable.
Mr McKeough: No, that's not correct.
Mr Kwinter: Well, I can tell you the research that was done, and I have a statement right here that says it was not implemented because it was unworkable. I can tell you that this has happened with the Fair Tax Commission. All of these schemes make eminent sense when you see them on paper, but when you try to implement them, you have a problem.
I was away this weekend with Alan Tonks, the chairman of Metro, and he said to me, "Every government that tries to do this will founder because the inequities are impossible." Crombie came up and said that the evaluation should be on current use as opposed to current value. A delegation that appeared before us last week showed a modest little house on Wanless, a two bedroom, tiny little bungalow, post-Second World War with a mutual drive. Their taxes were about $3,700. On the page right beside it there was a rather substantial house, two-car garage, four bedrooms in a beautiful neighbourhood; taxes, $3,500. Where is the equity? Then we had a member of this committee suggest, "Well, if you can't afford it, move." That is going to be a land-mine.
Mr McKeough: Is this in the city of Toronto?
Mr Kwinter: This is in Toronto.
Mr McKeough: Well, come on. The city of Toronto has opposed reassessment on any basis for as long as any of us can remember. The city of Toronto -- and those people are the victims -- are the authors of their own misfortune. The city of Toronto has allowed the taxing of apartment buildings at fantastic rates. I have no sympathy at all for a complaint which should be directed purely and simply at the mayor and council of the city of Toronto. Mr Tonks will tell you that they tried to bring in market value assessment across Metro, and the city of Toronto went down bitching and screaming, and still is, so find a better example than the city of Toronto.
Mr Kwinter: Let's just talk about that for a minute. It's one thing to say "the city of Toronto," as if to say everybody who lives in the city of Toronto is responsible for this situation.
Mr McKeough: No, no, it's the mayor and council, successive mayors.
Mr Kwinter: Fine. Then what do you do? Do you say to the people, "It's too bad for you; you're going to suffer because your mayor and council have not acted properly"?
Mr McKeough: But there are a lot of people in Toronto who are benefiting, an enormous number who are not paying enough taxes.
Mr Pouliot: Rosedale.
Mr McKeough: Sure. Forest Hill. Up until now, as I understand the act, a municipality has to request reassessment; Toronto has not.
Mr Kwinter: I don't think anyone is questioning the idea that there has to be fairness and equity, but that also has to take into account the ability of the people to pay. You can't just say to them, "Too bad, you've had a free ride for 20 years and now you're going to have to move." That is the political problem, and that is a problem this legislation does not address.
Mr McKeough: You're the politician; I'm just a citizen.
The Chair: We thank Mr McKeough, citizen, for coming in and presenting this morning. It's nice to have the history of the view.
Mr McKeough: There was a question asked earlier about write-offs. I got the figures from the city of Chatham yesterday, which are really very low and very remarkable. In property tax in 1994, 1995 and 1996, the city wrote off $15,000, $12,000 and $12,000 out of $12 million; on the business occupancy tax, a surprisingly low amount, $27,000, $27,000 and $55,000.
The Chair: It's obviously a well-run city.
Mr McKeough: Oh, no question. I was on the council here once.
The Chair: I suspected as much.
Mr McKeough: Thank you very much, Mr Chairman.
The Chair: Thank you, Mr McKeough.
Is the chamber of commerce of Chatham in the room? I believe Mr Robinson has not yet arrived. The committee will take a brief recess, 10 minutes.
The committee recessed from 0945 to 1001.
RALPH ROBINSON
The Chair: I call the committee back to order. Mr Robinson, welcome to the standing committee on finance and economic affairs.
Mr Ralph Robinson: Good morning. My first comment would be that my presentation has been put together very quickly. The second issue is that I speak only on my own behalf and not on behalf of my employer; I'm sure they would be giving you a position on their own.
As an individual, I don't think anybody would dispute the need for changes to the existing system, nor could we dispute that the changes have been discussed for far too long, with too little action or results. I have not had the opportunity to review the complete bill, but I have reviewed the assessment of it under the brief that was prepared, which I obtained from my member. I think the inequities are well placed there, and I won't go into that.
There are two stakeholders in the changes I would like to make specific reference to, though. In my view, for this area of the province, they're quite important. Those two groups are manufacturing and agriculture. Whether we like it or not, business in Ontario and in Canada today must compete on a global basis, and for this reason we must ensure that obstacles are not created to place these businesses in any kind of an unfair position.
Turning first to manufacturing, as an employer it's quite important in our part of the province here, and they're being challenged by the global marketplace as much as anyone. Whether or not a truck is assembled in Chatham, Ontario, or whether automotive parts are manufactured in Chatham or Alabama or any other place in the world means very little to the end user, assuming the quality standards are maintained.
In my involvement with the industry committee of the chamber of commerce and the industrial committee of the city of Chatham, we are constantly reminded by plant managers and senior executives that in order for their companies to remain here, they must be competitive. Property and business taxes are an expense that must be considered. On the surface, the provision in the bill for repealing the business occupancy tax looks encouraging. However, as I understand it, it remains for the municipality to recover those lost revenues. Taxation on this industry must be competitive, and municipalities may need guidelines to support this end.
Turning to agriculture, this industry, in this part of the province again, and I believe in all of the province and in Canada, has become a business as compared to a way of life, which it might have been in the past. Once again, farmers must not only compete with each other but with agriculture producers around the world. I for one happen to believe that the Canadian farmer, and particularly Ontario farmers, will do just fine on a world and global market basis, but they need time to adjust. Too much change too quickly could be detrimental to this industry.
In addition, from my study it's not clear how the local municipality will recover the lost revenues that would happen if only 25% of the agriculture assessment was collected on a local basis. I assume there would be some type of grant coming from the provincial level to the municipalities to make up for that loss of revenues.
I have not had opportunity to study the effect of Bill 106 on education funding, so I don't comment on that at all.
My overall concern with the proposed legislation is the suddenness and the disruption it would cause at this time. But as I said at the outset, I believe some change is long overdue and welcome.
Ms Bassett: Thank you for your presentation. In terms of the farm rebate tax, there is going to be a $1-billion restructuring fund that will be available to help those municipalities that are in difficulty. Some are going to have more difficulties, obviously, than others, so this will be there. That might answer some of your questions at the end there. I'll turn it over to other colleagues.
Mr Carroll: Mr Robinson, it's nice to see you again. Just a couple of things: I certainly empathize with your concerns for manufacturing and agriculture and the speed with which things are being done, but as we heard the previous presenter to you, Darcy McKeough, talking about 20 years ago when he was Treasurer, he wished the government had had the fortitude to make these changes, because they are long overdue, and you admitted to that too. So while it is quick, it's not in relation to when it should have been done.
The farm tax rebate for farmers in Kent county and the business occupancy tax total many millions of dollars. We are currently, as you know, under a restructuring process going on in Kent county. It will see savings in local government that will amount to, by conservative estimates, $12 million. So maybe we don't have to replace the farm tax rebate and the business occupancy tax. Maybe there is a way, with restructuring and coming up with a better way to do local government, that we can save enough money so that those can be legitimate savings passed on to the taxpayers in Kent county and Chatham, so our manufacturers can compete, so our farmers can compete internationally with the products they grow.
Do you not believe that instead of looking at how we are going to replace those revenues we should look at how we are going to do government less expensively so that we don't need those revenues? Do you not believe that's a better approach to this problem rather than, "Well, we're losing it here; we have to find it over here"?
Mr Robinson: The point I would like to make is that I would be more concerned that an agriculture producer in Ontario have the same type of tax expense that a competitor, whether it be in Michigan or California or Australia, might have, because that's who he's competing with today. He's not competing with Manitoba or Quebec any more. If the municipal tax expense he's dealing with is unfair on a global basis, then he's got a problem to deal with. The intricacies of where the money comes from internally in Canada, I certainly don't have the expertise to deal with that. My concern is only that that producer remain competitive on a global basis and that the taxation issue be looked at in other parts of the market he's going to be competing with.
Mr Carroll: But if we can find some savings by restructuring local government so that we can reduce the tax burden on our taxpayers, is that not an advantage for those in business to be able to compete in that international market?
Mr Robinson: Very much so.
1010
Mr Hoy: Good morning. Thank you for your presentation. I'm pleased that the committee is here in a rural community to hear about this other aspect of the bill as it pertains to agriculture and that all the hearings weren't in Toronto. Perhaps we might not have heard so often the concern for the agricultural community. The farmers, of course, appreciate that the farm tax rebate program is removed for the purposes of -- we'll call it red tape. However, the municipalities are short this $171 million throughout Ontario, and as I mentioned to Mr McKeough, some of the municipalities in this area, my riding of Essex-Kent, are short in excess of 50% of the revenues. Whether we can find savings exceeding 50%, and in some cases in Ontario 70%, for those rural people in my mind is doubtful. I appreciate your concern for that.
In light of the fact that the government is saying there is a $1-billion reinvestment fund, which by the way they claim will pay for all of the problems in Ontario, notwithstanding this particular aspect of the agricultural component, don't you think it would have been a better bill if they had put in here for the municipalities that are in the midst of restructuring, about to restructure or maybe haven't even started to think of it, that they would know for the next year where these moneys are going to come from and that they'd be replaced dollar for dollar, that $171 million?
Mr Robinson: In all fairness, honestly, I'm not in a position to dissect and so forth where the money comes from. The taxpayer is the ultimate sponsor footing the bill, and I think we have to do it on a fair basis, but that has to be looked at from a much higher level than I'm able to look at it from. The existing system of getting the rebate is basically a subsidy for the consumer. Anybody who is involved with agriculture knows that there are a lot more people going out of business than there are becoming millionaires in the agriculture industry, so any subsidies and grants and so forth that go to the farmer usually end up, in my opinion at least, as a grant to the consumer, because he's the one who buys the product.
Mr Hoy: I agree with you that it does benefit the consumer in the overall picture, but I guess the concern of the farm community -- I've spoken with those major organizations -- is that they don't know how these rural communities, for example, are going to maintain the roads when anywhere from 50% and up of their revenue is missing, is not there any longer. As well, under restructuring they're also very concerned that the cities will dominate and may not have great interest in the roads in some far corner of a municipality.
There are many things happening here, and I agree with you that sudden change and a disruptive condition exist right now. We need to be thoughtful about how we're going to approach the coming years. I suggest that in this regard the government hasn't been forthright in what their plans are. Thank you for your presentation.
Mr Kwinter: I just wanted to get your comment. I welcome your comments about your concern about business. The Canadian Federation of Independent Business is also concerned. They stated that on average, let's say a $200,000 property, if it's residential or business, the business pays about two and a half times more tax because it's a business, regardless of the value. Do you have any comments about the idea of like value, that it should be assessed at the same mill rate as opposed to the use?
Mr Robinson: When you get into that area -- should taxes be collected through property ownership? -- I think the studies of the federation would be much better than my view, so I really couldn't comment on that.
Mr Pouliot: Thank you very much and welcome, Mr Robinson. I, for one, appreciate the insight in your presentation.
It has been my loss through the years and I must confess to negligence; I know little, and what I learned vis-à-vis farming I learned through my colleagues. The closest I've ever been to a farm is at the local IGA store. I'm a consumer, and I can assure you I pay market value for everything I buy, but I leave it to those whose lives have been blessed by being exposed to the farming community.
I like what Ms Bassett has mentioned in terms of the obvious need, as we listen to presenters, of having a makeup fund. I like what you say about putting the brakes on or making sure the changes are well thought out and maybe spread over a longer period of time to give people a chance to adjust and to make up for the discrepancies.
My friend opposite does not suggest that if you get revenues in excess of 50%, as has been mentioned by Mr Hoy, it can be made up with efficiencies. People are already fairly lean. A grader is a grader. Their scope is rather small. You have to pay Harry Smith, the grader operator, with a paycheque. You can't save too much money on that. Duplication does not exist to the same extent as it might elsewhere.
Simply put, if you take more than 50% of your revenue from the farm tax, you can do a lot, but once you replace half a clerk-treasurer, it's not going to yield a lot of money. It looks good on paper, but you're not going to make up the 50% lost revenue. I think most people would readily acquiesce to that, so I welcome the comment that some form of manna from heaven, some rabbit will jump out of the hat, will turn into cash and will make some compensation.
One of the problems we've had is that we don't know. It's happening all at once. I don't meet people who are opposed to changes, people welcome changes, but I go to the local coffee shop, Mr Robinson, and rumours take on extraordinary proportions. People don't know what they will have to pay for. All they know is that it's happening fast, and they would like to see the policies given more thought and be shown what the bill is so that inside, at the local level, they can make some more adjustments.
I share with you what you've said. There's a global entity at the manufacturing level; adjustments and changes take place all the time. But I wonder, again, about the capacity of government to deal with the people it represents, all Ontarians. There are only so many changes at one time that society will endure. I want to wish them well. I don't think they're badly intended. By the same token, there are a lot of discrepancies. It's a very diverse, very complex world, and you've got to give it a little more time to work. So I share with you: Come on, you guys, put the brakes on; don't scare people; don't encourage a counterrevolution.
The Chair: Any concluding comments to that, Mr Robinson?
Mr Robinson: My only concluding comment would be that very few of us expect our tax bills to go down. We welcome the inequities that presently exist being corrected. When you have that excess money, we all expect that you will use it wisely.
The Chair: Thank you ever so much for taking the time to make a presentation to the committee. We appreciate this kind of input.
WINDSOR AND DISTRICT CHAMBER OF COMMERCE
The Chair: We now welcome the Windsor and District Chamber of Commerce, Mr Fuerth. Welcome to the standing committee on finance and economic affairs. We look forward to your presentation.
Mr Tim Fuerth: Thank you, Mr Chairman, members of the committee. I'm sure you're all looking forward to finalizing this process of travelling across the province. I recognize at least a few faces that I've had the pleasure of making these types of presentations to, at least one who was the chairman of the committee dealing with the Tenant Protection Act in the fall. I think you'll probably see some of the same material coming from my submission.
Before I get into addressing the bill itself and certain of the concerns and potential impacts that it might have, in the submission paper I've distributed, or at least made available to you -- we heard earlier about rumours spreading like wildfire and getting worse and worse, and I think it's important that people arm themselves with the facts -- if you look at the second page of my submission, you'll see there's a bar chart. The source of this information is from the Organization for Economic Co-operation and Development, and it was published in March 1996. It sets out among the member nations in the OECD the level of property and wealth taxation as a percent of those particular nations' gross domestic product in 1994.
1020
Again, the facts are inescapable. The facts are that when you look at this particular chart, Canada ranks highest among the members of the OECD in terms of property and wealth taxation. What's particularly repugnant about that fact -- you'll see there's 4% of GDP in property and wealth taxation -- is that the other member countries also levy, in most cases, estate taxes, inheritance taxes and wealth taxes, which we don't particularly have in Canada, certainly not in Ontario.
What's also more significant is that not only is Canada the leader among OECD members in terms of property and wealth taxation, but Ontario even surpasses the national average. You'll see that the Ontario average as a percent of GDP of property and wealth taxation is 5.1%, whereas Canada is 4%. That's important, because those are the facts.
We heard earlier, from the last speaker, that we're really dealing in a global marketplace and that businesses have to be able to compete in that global marketplace. I think anyone looking at this chart would have some difficulty concluding that businesses operating certainly in Canada, and particularly in Ontario, with the high level of taxation, are really well positioned to take advantage of the opportunities that do present themselves in that global marketplace.
We heard commentary from the last speaker in terms of what the process is. I'd like to summarize some of the comments that were made by the members of the committee that are contained in my brief. Certainly the position we've taken is that to merely amend the Assessment Act and to put forward the Fair Municipal Finance Act really doesn't resolve the problem; it's really a symptom that there are inequities in the system.
The primary problem is that we have excess spending at all levels of government across the province. Really the approach that we foster being taken by the government, and I think they've established that path, is to take a two-pronged approach. The first approach is to minimize the inefficiency in government, rationalize the services that government is providing and ensure that the taxpayers are getting value for their dollar. We're quite confident that rationalization process would result in a significant reduction in the level of -- I call it in my submission "the take or the skim" from the economy by local governments and the provincial government. Having reduced the overall level of taxation across the province, then we can deal with some of the inequities that are contained in the current system.
Our belief is that Bill 106 certainly addresses the second prong of the two-pronged approach, that being to reduce some of the inequities in the system. We believe that other initiatives the government is taking right now that are under way are a good start towards attacking that first-pronged approach, which is reducing inefficiency at all levels of government and restoring accountability to the ratepayers in Ontario.
Before I get into specific commentary on the bill, I'd like to commend the current government for their leadership with respect to a number of areas, but certainly with respect to municipal property tax reform and property tax reform generally.
Approximately four years ago I made a presentation to the Fair Tax Commission. As members probably know, many of the initiatives that are being put forward now by the current government come more or less directly from the recommendations of the Fair Tax Commission some four years ago. I would submit to you personally that had the government of the day at that time acted on those recommendations, we wouldn't be sitting here today worrying about the impact it might have immediately; a lot of these impacts would have already filtered through the system and we wouldn't be worrying about them today.
I've also made several presentations over the years to the Honourable Mr Laughren in terms of his pre-budget consultation addresses. It's good to see that the current government is acting on many of the recommendations we put forward to Mr Laughren which never saw the light of day.
In addressing the bill itself, it's well known in the province -- I don't think anyone is foolish enough or has their head in the sand long enough to believe there aren't inequities in the property tax system. In my particular capacity and employment, I'm mostly involved in multiresidential property, and so you'll see that most of the report I've submitted to you addresses certain of the inequities in residential property assessment, particularly multiresidential property.
We have seen examples with multiresidential properties, for instance in Toronto, where $1-million houses along the lake are paying less taxes than one- or two-bedroom apartments. I'm sure that through our member organizations you've seen those statistics.
The bill, in terms of requiring annual updates to property reassessments, we encourage. In Windsor, we're currently operating under market value assessment. Our base year is 1984, and so you can appreciate that since 1984 in Windsor there have been both dramatic changes in the relative values of the property classes as well as very different directions in terms of the way those values have gone. We believe an annual updating on the reassessment is fair; it keeps the values current, and you're not paying for taxes that may have been fair 15 years ago. You're kept in line with your competitors.
The three-year rolling average will be beneficial in terms of smoothing out. We heard earlier in the presentation there is a concern of smoothing out and making sure that people aren't susceptible to 50% tax increases, and the three-year rolling average that's contained in the proposed bill would serve that purpose.
With respect to the business occupancy tax, I don't want to say an awful lot other than that it has been unfair, it's arbitrary and, again, for many years it has been recommended that the business occupancy tax be repealed. We share the concern of the previous speaker that the bill also gives it to the municipalities, however, to modify their class factors in terms of local property assessment. Our real concern is that the loss of revenue from the business occupancy tax will simply be added back on the backs of businesses through higher assessments for business and commercial properties. We share that concern and we encourage that when the final document is prepared there be explicit guidelines in terms of how that deficiency is going to be shared.
The Ontario chamber has been on record that there is really no need to replace the $1.7 billion in business occupancy tax, that it can easily be recovered through efficiencies at all levels of government, that really there is no need to replace that revenue.
The concern in my particular business is that as a landlord with gross leases on commercial properties, if the lost revenue from business occupancy tax is heaped on to commercial-industrial properties with a gross lease, those tenants will no longer be paying the tax, but as a landlord we will be, and we think that's abundantly unfair.
We see the streamlining of assessment appeals as a real advantage. We have a number of properties that have been under appeal for the 1995, 1996 and 1997 taxation years. We see no light at the end of the tunnel in terms of having the Assessment Review Board hearings. Many of the items we feel we would very easily be able to deal with with the local municipality, with representation from the assessment office, and the current system doesn't provide for that. We have to wait for the ARB hearing. It's important for the municipality as well to know what their projected revenue is going to be, so if they're waiting for three years in our case to see that they're going to have, hopefully, a substantial reduction in their revenues, it's important for them to plan for that.
There has been some discussion in terms of using different values for properties -- unit values, current use values and so forth. Our view is that the only fair way to assess the property tax burden is to base it on the values of the properties, and as I've indicated, we believe the current value to be the most appropriate value.
We have some concerns in terms of the sharing of the property tax. The current system provides that the residential rate is approximately 85% of the industrial-commercial rate. For years the chamber has been on record that the business sector has been overtaxed in relation to the residential. It's difficult to argue with that fact when in virtually all municipalities the mill rate for the commercial assessment is roughly 15% higher than for the residential sector.
I know that Mr Carroll has heard this before, but I'll repeat it again for his benefit. Dealing with multiresidential properties particularly, Windsor is very heavily taxed with multiresidential properties. If you look at the example contained in my report, if we had a property that was valued in 1984 at $100,000, whether it be a residential property or a multiresidential property -- and I don't want to waste a lot of time going through the numbers as to how you get to your final tax burden; they're clear in the submission -- the nuts and bolts of it is that if you have a house that's worth $100,000, your assessed value for property tax purposes is $17,500; if you had an apartment or multiresidential property that was worth $100,000 in 1984, it's $35,500, double the tax burden, notwithstanding that those properties had identical values.
1030
It's difficult to argue with the equity of that scenario, particularly when they're both residential properties; it just happens to be that one is multiresidential. I'd submit that the reason the taxation burden for the multiresidential properties is so high is that those tenants don't get a property tax bill and the landlords don't vote, and so why not hide the tax in the multiresidential properties, where the tenants won't see it? Really most of them don't appreciate how much tax they're actually paying for the services, or lack of services, they're getting.
We've seen circumstances where it's difficult to ignore, at least for this discrepancy not to be visible, particularly in condominium conversions. We've had condominium conversions in the city where we'll have two identical condominium units in a high-rise complex, side by side, exactly equivalent in terms of size, decor etc, and what we've found is that once those units are sold and the people occupy those units as their own residences, the property taxes often are reduced as much as 50%. It's difficult to convince a tenant he should be paying 50% more in property taxes than someone who buys the unit and lives in it.
In the presentations we made on the Tenant Protection Act, this matter came up. We're happy to see that at least some measures are being taken to remedy the inequity. Social housing groups are always looking for ways to reduce taxes, and an equalization of the tax system between residential and multiresidential based on market value will go a long way towards reducing the cost of operating those properties and hence the rents the tenants are paying. As everyone knows, most of the people renting are the most vulnerable people in society in terms of their levels of income.
The other interesting example contained in my submission where we see a real inequity in Windsor is situations where we have multi-use properties, where we have a property, for instance, that's got both a commercial element as well as a residential element. One that I think everyone can visualize is a high-rise tower where the top floors are apartments and the bottom floors, or some of them, are commercial.
I've again contained in my submission factually -- and I think it's difficult to dispute the facts -- an example of a property located in Windsor on Goyeau Avenue. I'll be happy, if someone wants to know the name of the building, to tell them. What's contained in the report is that for this particular property, when market value assessment was done in 1984, the commercial element was valued at $4 million and the residential portion was valued at $3,599,000.
The current system allows for only one factor for a property. So it's not as simple as to say, "Well, it's simple; in this case, you assess the commercial area at the commercial rate and you assess the multiresidential area at the multiresidential rate." In fact, this was appealed to the Ontario Supreme Court. When a party won on this particular point of law, the previous Treasurer retroactively amended the regulations to the Assessment Act to get around dealing with the inequity.
But in the case I indicate in my submission, it's very clear -- and I deal strictly with the multiresidential portion of the property -- had those units been assessed at the multiresidential rate, much the same as any other high-rise, multiresidential properties that are sitting next door or across the street, the taxes would have increased from $169,000 in 1996 to $262,000. I'm never one to endorse higher taxes, but I am one to endorse equity in the system. Clearly where you have a property sitting across the street from this complex which is paying considerably more property taxes on the same product, the same units, there's a real inequity in the system that skews the fairness and gives this particular property owner a tax advantage.
Some of you may find that interesting, but the local officials in Windsor have endorsed -- if not on the record, off the record -- that they support use of multiple factors for multiple-use properties. They feel that it's not a situation where the technology doesn't exist today that you could assess all these properties at the different factors.
Dealing with the phase-in measures, the municipalities will be afforded the opportunity to deal with the phase-in of the consequences of this particular bill over eight years, which seems to be fair. I think eight years is a very long time. Had the previous government dealt with this four years ago, we'd be halfway into that term in terms of dealing with these transitional issues. One might argue -- and I would just put forward as a comment -- that if we acknowledge there are inequities in the system, is there really a basis to continue those inequities for eight years? If there are inequities, the inequities should be addressed.
In summary, I'd like to just say that we appreciate the opportunity to make our presentation to this committee. As one of the member chambers of commerce in the province, we represent business and business's interests. People think "business" and "profits" are dirty words. It's important that business have the environment in which to be able to compete internationally in the global economy, because all the taxpayers have jobs working for those businesses. If businesses can't compete, they can't employ people.
The Chair: Thank you very much. It gives me pleasure to introduce a former member of the Legislative Assembly, Mr Andy Watson, formerly representing this area, I believe. Welcome to the committee, Andy.
That leaves us about two minutes per caucus for questions. We'll begin with the official opposition.
Mr Kwinter: Mr Fuerth, one of the provisions of this new Bill 106 is going to allow municipalities the option of using as their assessment value its current use as opposed to its current value. That is going to mean that it is quite possible that identical properties in different municipalities will be assessed at different rates, which is exactly the problem they're trying to solve. Do you have any comments on that?
Mr Fuerth: Our comments would be that it's difficult to argue with a circumstance where you have identically-valued properties paying different taxes. In other words, we don't support the current use values.
Mr Kwinter: But as I say, this bill provides that option for municipalities. I can tell you that the people who are responsible for administering it, the people in the municipalities, see this as a major concern; not only that, but the regulations are very ambiguous. So it doesn't solve the problem that the thrust of this bill is supposed to solve.
Mr Fuerth: In that particular aspect, our view is that one method of evaluation should be adopted. Otherwise, every time you allow these options, every time there's an option, every step of the road, all you do is introduce complexity back in the system and the concern by the ratepayers that the system is unfair, that someone is gaining an unfair advantage over them and that they're paying more than their fair share of the property tax burden.
Mr Kwinter: The other part of that, of course, is that it opens it wide open for more appeals and has the same problem you're trying to address now with your appeals.
Mr Fuerth: That's correct.
Mr Pouliot: I too did appreciate your presentation. You mentioned in your presentation as an opinion that the shortfall with the reductions and the elimination of the BOT should not be made up by another class of taxes, nor by a grant from the government; that the savings can be generated, can be found by more efficiency.
I wish to suggest to you, and I know the members you represent will be appreciative of this government's initiative, in terms of Windsor, just keeping in mind the industrial sector -- and people don't have a choice here -- once you're finished with Ford and Chrysler -- just think of the floor space -- vis-à-vis the BOT, they will pay substantially less. They are the big winners, big time.
That shift will go to the smaller industrials, make no mistake about that, because it is worked into the system. Then, come levy time, the township council will be asked -- because we're talking about tens of millions of dollars here -- to go to the commercial level to make up the shortfall, because we might say they're overspending, but they will say, "No, we've been trimming for years." Regardless of what both sides' opinions are, they will be the elected representatives.
Then they will go to the residential levy, and they will count houses and say: "We represent all the people in Windsor. Where do we pass the shortfall? We must find so many millions of dollars to provide essential services." They will go to the commercial and they will say, "There are so many of you and so many residents." The realities of life.
Your membership, the people you represent, mostly made up of small and medium-sized businesses, are expecting a tax decrease. Most people I suspect are not too concerned about what title, what umbrella. The bottom line is, "How much tax do I pay?" because they feel that they overpay.
Well, surprise, surprise. The municipalities -- I haven't found one yet going through the province -- when asked will the taxes stay the same, increase or decrease, not one said they will decrease; most have said they will increase. And who will take the hit? "Oh well, we'll have to look at possibilities under a new tax class to go back to the commercial."
I'd like your comments. I hope this doesn't happen. I too pay too much tax. I appreciate the services, mind you, but I pay a lot more taxes than I should.
1040
Mr Fuerth: I certainly appreciate your asking my comments, and I guess I'd like to make two comments.
First, I appreciate that this committee's been travelling across the province. This Monday past in Windsor there was a decision before the local council and the decision involved contracting certain municipal services, in this case parking enforcement in the downtown area, to a company in London. The savings that the administration recommended, that the contracting out be done, were approximately $1 million a year. Unfortunately in Windsor we have an election this year, as in most municipalities, if not all.
Mr Pouliot: Unfortunately.
Mr Fuerth: In any event, the council actually opted not to go with its own administration's recommendation to save $1 million. That's just a recent example. So when people tell me that there aren't savings in the system, this is a very, very small portion of the delivery of service in our municipality where there's $1 million on the table to be saved and the local council chose not to save it. I think that will come back in due course to affect them.
Second, in terms of the commentary that there will be a shifting of the burden, let's assume for the moment that of the $1.7 billion, perhaps $1.2 billion will be recovered through efficiencies, and there's half a million dollars left to come over. Is it unfair that all tax classes should be asked to pay for those costs? Is that unfair? It's the people, for instance, the property owners, who have their jobs with the employers, who earn their living with those employers to be able to afford those homes. I don't, in my personal point of view, argue that it's inequitable that the tax burden be shared by all classes. I'm not suggesting just a residential class, I'm not suggesting just a commercial, but all classes. I have difficulty arguing with the unfairness of that.
Mr Pouliot: And you're not running for office.
Mr Fuerth: No, I'm not running for office.
Mr Spina: Mr Fuerth, it's good to see you again and thanks for coming. The one area that you talked about, which was the property classes, was a concern about how wide these might be and what kind of controls there may or may not be. There have been some proposals tabled by the ministry, and they were presented to this committee on the very first day after the finance minister made his opening comments, that in setting the tax rates municipalities would be required to follow provincially set tax ratio ranges.
Further, for 1998 the Ministry of Finance would determine the transition or the starting ratios. Furthermore, the province will define a tax ratio range for each class of property, and transition ratios that are outside the ranges could be retained, but any future changes in the ratios must move closer towards the ranges.
Do you feel that those policies would assist the municipality in keeping some degree of control? From the taxpayer's perspective, it at least prevents a municipality from running rampant and trying to jam taxes too high, particularly to small businesses, as my colleague indicates here, and really would permit them enough flexibility to vary the revenue and recover some of it, but also make it a fairer system, which is the objective we're trying to achieve.
Mr Fuerth: Yes, I quite agree with that particular comment. The key in all this is that there be some very clear, well-defined ground rules for all parties to follow to avoid exactly that scenario where, for instance, because the municipal election is coming up -- let's take an example -- and the industrial and commercial property owners don't vote but the residential property owners do, there's obviously a desire to shift some of those costs -- and I'll argue inefficiencies, albeit not 100% -- to those people who don't vote and keep the people who are going to vote you back into office happy. Those measures will go a long way towards that. I haven't seen the specifics yet.
I do know from the particular business I'm in, which is multiresidential property, that in our case the discrepancy between, for instance, the residential class rate of tax and the multiresidential class is approximately 100%. I also know from discussions with colleagues and with members of the assessment office in Windsor that in London, as an example, the discrepancy is more in the neighbourhood of 10% to 15%. So we're very heavily taxed and I think anything that will bring us as a municipality back to that equilibrium or fair level is important.
The other important point is that you need to have those overall guidelines to ensure that businesses aren't being lured from one municipality or jurisdiction to another one because one happens to have a lower rate of tax on a particular type of business. I think those kinds of guidelines will avoid the ability of municipalities to lure business and jobs away from other parts. Stealing jobs from ourselves doesn't do any good. We want to be out stealing jobs from the Americans, from the Mexicans, from the Indonesians. I think we're very shortsighted in trying to fight with each other over the jobs we have. I think we're missing the boat.
The Chair: Thank you very much, Mr Fuerth. We appreciate your presentation and your point of view on this bill.
STEEVES AND ROZEMA ENTERPRISES
The Chair: We now welcome Steeves and Rozema Enterprises Ltd, Mr John Rozema. We look forward to your presentation.
Mr John Rozema: Thank you for the opportunity to appear here this morning. My name is John Rozema. I'm president of Steeves and Rozema Enterprises Ltd.
Steeves and Rozema has been in business in southwestern Ontario since 1963 and we've been active in development, construction and management of residential rental and condominium accommodations as well as some retirement facilities.
I serve on the board of the Fair Rental Policy Organization of Ontario and on the board of the Sarnia Property Management Association.
There are many issues in Bill 106 which concern me, but I want to focus on the difference in tax rates between the two classes of residential properties: the buildings with six or less and those with seven and over.
I'm very concerned that the provincial government is backing away from ending the discrimination between these two classes, ending the discrimination against tenants. The inequities are so obvious and have been pointed out by the Fair Tax Commission very clearly, and by several other studies, I understand, which I haven't read. Tenants are now paying on average in the province more than twice the taxes on their homes as the homeowner does on a home of the same value. Studies have shown that homeowners have almost twice the income of tenants in apartments. This makes the regressive nature of this tax even worse than you think at first sight. Not only are the cheaper homes taxed higher, twice as high, but it also happens to be the people who have the lower income.
I know it's another point, but apartment buildings are much less demanding of services from the municipalities. They are more energy-efficient and, if anything, they should be taxed at a lower rate than single-family housing.
I just read the report of the CFIB on Ontario's property tax. It says in here, "Municipalities should, as a matter of policy, tax property classes in proportion to the levels of local services they consume." This principle will bring fairness to the property tax system and restore government spending accountability to their electorate.
1050
What they're also proposing is that an independent study would be done to determine which classes of property are using how much of the municipal services.
The property tax inequity brings the rents of apartments up approximately $50 per month or $600 per year in cities like Sarnia and Chatham. If the two classes of residential property were equally taxed -- I did some calculations on that in Sarnia -- the apartment tax would go down from $1,200 to about $600 per year and the residential class would go up 5%. Nothing devastating, nothing serious, just 5%, but look what it would do to the tenants.
This is another point in my presentation: It should be made very clear that 100% of that tax reduction on apartments is passed on to the tenants. In the long run the market would take care of that, but in the short run we're in a beautiful position because we still have rent control in place. So you can now simply say that the taxes go down that much on units that have seven or more units, therefore the maximum legal rent goes down that much, goes down by $50 a month or something. So the opportunity is right there now to do that, and without any extra cost; simply send out notices.
In some municipalities it may be necessary to spread this equalization out over a number of years, and perhaps it should be spread out over five years. In Sarnia, which was just amalgamated with Clearwater, we went through an equalization there and it's spread out over five years. The difference is far greater there than it is between the two residential property classes, although when I'm saying that, maybe some time should be taken to adjust it. It is difficult, I think, to justify why an inequity like this, perpetrated for so long, should continue. I think this is a beautiful chance to correct it once and for all.
Thinking about why this ever happened, I think it's shameful why it happened. Tenants have never been informed of the taxes they pay. They've been left in the dark. I could never understand this, but as I got into it a little more, I finally understand why it is: because they're taxed two, three or four times as high as homeowners. That should be exposed. If we believe in democracy, this has got to be known. It's got to be open. It would be much better if tenants were treated the same as homeowners and probably had to pay their own taxes, or at least be notified.
I have a little sample here of what landlords have to go through to notify their tenants of this. In some of our buildings we used this, posted this notice -- that was in Bob Rae's time -- to let this be known. We told them how much the taxes were, how much they would be if they were taxed the same as the bulk of residential properties. Actually, something can be done there. At one time we had enough tenants in the council chamber in Sarnia to fill it up about this issue. However, with the convoluted system, the city cannot change it. It's the province. The province says, "We don't set the taxes; it's the city that sets the taxes." So this has been a very frustrating thing and I think it is a great time to change this.
It is good in Bill 106, the way I understand it. It makes it possible for the municipality to address it now. That would be an improvement, but it would be so much better if the municipalities were required to eliminate this injustice once and for all. I really urge the committee to do that and be strong on this. I think you'll be pleased when you talk to people around you that you've straightened it out.
This is basically my presentation. I did bring some material about one particular property that we have here in Chatham. It consists of 20 town houses. There's a 10-plex, a sixplex and a fourplex. The sixplex is taxed 50% lower than the 10-plex. They're the same kind of units, built at the same time, same layout, everything. It's interesting that the assessor estimated the market value of the sixplex to be about 10% higher than the other ones. My guess is that he felt guilty because there is no difference, so probably the rules allowed him to do that, but it's too bad they have to resort to things like that. It ended up that the 10-plex still pays about 40% more in taxes per unit. The rents are the same, the layout, everything is the same.
Another irony is that on that project -- it's right here, Trillium Village in Chatham -- there's also a fourplex. The fourplex has been thrown in with the 10-plex, also at the higher rate. We're appealing that, but that's the kind of thing you end up with because there's no rhyme or reason for it. That's my presentation.
The Chair: Could we start with the third party? It's about two minutes per caucus.
Mr Pouliot: Thank you very kindly. I want to wish you well with your appeal. Presently there are about 300,000, and it's estimated that with the new reassessment you will have an additional 600, so I invite you to grab a number early, and I'm happy that you did in your case.
This is good coffee. Sometimes we get instant coffee, which will go with instant assessors, because they're training them, giving them 12 bucks an hour. They've contracted $62 million for the massive assessment and reassessment and those people get one day's training, so I'm happy that you'll have the opportunity to appeal because there's going to be one heck of a lineup when they're finished with this.
You've mentioned in your most welcome presentation that local taxes, property taxes should pay for local services. I want to get this clear, as I'm a notetaker. "Local services" means sewer and water, it means police service and protection. Does it mean general assistance? Does it mean library? Does it mean social housing? Does it mean dealing with the demographics? The litany is about this long, the new services which are about to become local. It won't matter what they say, it will matter where you live, because they're under the impression -- well, they're right there -- that the federal Liberals dumped about $3 billion of transfer payments on to them. For a while they felt overtaken so they said, "What do we do?" One of them among the lot said, "This is what you do: You pass it to other elected people and then you smokescreen." They talked about assessment and so on, so it's a bit of a shell game.
The fact is that there is $2 billion missing when all this is said and done, when the smoke clears. You're our property owner, by God, your little piece of heaven. You probably have, judging from the sentiment, and it's most welcome -- you blend common sense and you also blend the human dimension of the poor tenant. The poor owner is appealing on behalf of his poor tenants.
The Chair: Thank you, Mr Pouliot. I believe the question was asked.
Mr Pouliot: How do I read you, sir?
The Chair: I believe the question was asked.
Mr Pouliot: Thank you, Chair.
Mr Rozema: As far as the services are concerned, how they're used by different types of buildings, I think that mainly refers to sewer, water, roads, public transportation, because you tend to avoid the urban sprawl that you get with single-family homes. There's nothing wrong with single-family homes, of course, don't get me wrong. I live in a single-family home. I choose to live there. I pay taxes accordingly. I think I'm not paying enough. It should be 5% more because of the expense of a small number of people who choose to live in multiple-family residences.
I liked your other comment about passing it down. I think there is something really good about that. Being in business, some time ago I listened to -- and I forget who it was now, but somebody who was really admired for running such a good business, and one of his rules was: "We always make a rule to have the decisions made at the lowest possible level in the company. And why is that? Because that's where the best decisions are made." In a democracy I think that's where people should know, and that's why the municipalities should have more say -- I agree with the previous presenter -- not to compete with each other, but let people know and let them decide whether they want to spend it on libraries or on roads or on social services.
1100
Mr Carroll: Thank you, Mr Rozema. The first thing I'd like to do is thank Mr Pouliot for his comment on the coffee. We appreciate it. I'll pass that along.
Affordable housing is a social issue in our province; the ability for municipalities to eliminate the inequities that currently exist between the rates of property taxation on apartment buildings as opposed to single residential units. In Windsor, we heard it's twice as much. In Toronto we know it's four times as much.
A couple of questions: The ability of municipalities to solve that problem through this new tax system, do you see that as reducing rental levels on apartment buildings, thereby providing more affordable housing for people who need it, and second, do you believe there should be a provision that landlords have to disclose to tenants how much tax there is on their units?
Mr Rozema: I would certainly like that the landlord disclose it. Whether they should have to, I don't really think so. I think the municipality should do that. Treat all people the same. They're all voters. They're all citizens. Whether they live in a $1-million house that they own or in an apartment that's worth maybe only $50,000, they should be informed of what they pay, equally. The municipality should do that.
Mr Carroll: Why do the landlords not do it now?
Mr Rozema: Well, landlords have lots of work. There are lots of things, lots of regulations. They do it sometimes, and they should do it, I agree. We do it sometimes.
The other point that you made about social housing, I think that also should be made by the municipalities, not by the province. In Sarnia, we have in my calculation some 2,000 vacant housing units; still a very high vacancy.
The province -- it was under the previous government -- decided we needed more social housing. They did a survey and they have never found, when they did a survey, that they didn't need more social housing, because people know a good deal when they see one. It is very good housing. Actually, our company is in construction too. We built one of those 60-unit complexes, co-op housing. It cost the province $6 million. I did my calculations based on sales and so on, and the day we were finished it was worth $3 million. It cost the taxpayers -- that's all of us -- $3 million, just like that.
If it had been a decision made locally by the city council, it would have never been built. It just doesn't make sense. Now, we were glad to have that job, we built them, and I'm proud of the building, but it should have never been built. It's probably 80% filled now, but they sucked people from other social housing units that were a couple of years old.
Mr Kwinter: Thank you, Mr Rozema. You mentioned the issue, and one of the previous presenters did as well, that the tenant doesn't know what the tax payment is. The previous presenter suggested that the municipal politicians like that because they can charge commercial and industrial people more because they're not voters, like the landlords per se, and the tenant doesn't know what they're paying anyway, so it doesn't affect them.
One of the problems, and Mr Carroll mentioned it earlier today, is that rather than look to see how you can allocate your revenues, maybe you could cut costs so you don't have to worry too much about that allocation. In the real world, if anything, costs are going to be going up, and the municipalities are going to have to get that revenue somewhere. Everybody is downloading.
How do you reconcile the need to look after the services that are being downloaded, the costs that are going up -- just as a matter of inflation, regardless of how low it is, they're certainly going up -- and the possibility of reductions in an environment that is really pretty lean anyway? How do you reconcile these two differences?
Mr Rozema: I'm not so sure that the total property tax should be lowered, because of the need for money, for services and so on. To live in a civilized world, we want to have services that we pay for together, no doubt. I'm mainly addressing the point of the discrimination between the two classes of residential property, the most glaring case of discrimination that I know of.
Mr Kwinter: The point I'm making is that there's lots of discrimination throughout the system, but the end result, as you say, you don't think that property taxes should be going down. So the minute you start adjusting, when you take it from one, you've got to find somewhere else to get that revenue and you've got to put it somewhere else. That's the concern that a lot of businesses have. They feel they're going to be the ones. They're the last guy in the line who has the least influence really when it comes to voting capability, and it's going to be offloaded on them. It all depends where you are in the hierarchy of offloading.
Mr Rozema: I like the KIS principle, or keep it simple, and I think it would be much better if the same class factor was used all at the same tax rate. If your property is worth $100,000, you pay $1,500 in taxes and if it's worth $200,000 you pay twice as much. I think that would be the best. There are all kinds of problems that result; these court cases you mentioned earlier. I know of a case where a building is partly commercial, partly residential and it has been going through the courts for years to settle that. How should it be classified? Should it be to have a split factor?
You wouldn't have that if you just treated everything the same. Now you may need in some situations, especially Toronto, I suppose, a kind of phase-in period, but then the result would be that municipalities and people would look at this and say, "Well, if I build this way or I do that, it's going to cost the municipality more, therefore I will have to pay more taxes." So in the long run, it would create more efficiency in the system.
The Chair: Mr Rozema, thank you very much for your presentation today and for taking the time to answer the questions so thoroughly. We appreciate your input.
SHAREN REALTY
The Chair: We now welcome Mr Bob Sharen from Sharen Realty. We look forward to you presentation.
Mr Bob Sharen: Mr Chairman, committee members, thank you for the opportunity to make a few comments, and listening to the questions, I have a few more to add. First of all, I think the initiative to update this important piece of legislation is commendable.
I'll give you a quote from a book. It says, "Nothing by the wit of man is so sure or so well devised or so sure established that with the passing of time it does not become corrupt." This is the situation with the Assessment Act in my opinion.
While I laud and support the effort to update the act, I have concerns as well. I ask you to consider some of these concerns for future modifications. It is important to point out that in disagreeing with the assessors I recognize the many good, hardworking men and women employed in the field. Over the past few years I have become a friendly adversary with several.
The Assessment Act affects everyone in Ontario in their everyday life. You might say it gets us where we live. The move to biennial reassessments and going to annual assessments is excellent. People will be better able to relate to the more current values. It's hard to remember what properties sold for four years ago, even when it's your business.
The more recent annual values allow the assessors to more accurately react to major market changes than the four-year periods allow. A prime example of this is the sharp decrease in value of properties along the lakeshore after the September 1995 incident at Ipperwash Provincial Park. Prices plummeted; assessments remained fixed.
Presenting over 100 articles in support of the fact that there was a great deal of adverse publicity affecting the area had no effect on the chairs of respective assessment review boards; this even though one chair borrowed the exhibit for a week or so to study.
1110
Annual reassessments will remedy this inequity. Paragraph 6 of subsection 14(1) states, "Market value of the parcel of land." Subsection 19(1) states, "Subject to this section, land shall be assessed at its market value." Subsection 19(2) states, "Subject to subsection (3), the market value of land assessed is the amount that the land might be expected to realize if sold in the open market by a willing seller to a willing buyer."
This in fact does not happen, the excuse being that it is a mass appraisal and therefore a median will prevail. That's wonderful, providing you have a property that lies below the median. If you're above, it's a different story.
We say that we have county-wide market value assessment in our county. That is not correct. We have market value by small areas. If we had true market value across the county or the total area affected by the assessment or reassessment, no assessor would fear having his or her work in another area of the assessment area compared to that of the appellants.
This is not the case. Every time the subject is raised the assessors hide behind section 60. Section 60 contradicts the idea of market value across the assessment area. Section 60 also refers to equity between similar properties in the vicinity. Please note that there is no definition of "vicinity" in the act. Vicinity has been held to be one block. It has also been held to be many miles. This section 60 should be deleted, because if there is no equity between Euphemia township in the south part of Lambton county and the town of Bosanquet in the north, you have a problem.
The disparity between residential farm lands and other residential lands is astonishing. I give you the example of a 5.05-acre parcel in the town of Bosanquet recently sold to a non-farm couple. No severance was required as it had long ago been severed. The new owners received an amended or omitted assessment notice adding $59,000, factored at $3,127 to the existing assessment. This amounted to about a $700-per-year increase in taxation. Bear in mind that neither the land nor the land's use had changed. The only change was that a city person now owned the subject property. There is no question that the Assessment Act and system are long overdue for updating.
Item 4 in the overview of Bill 106 says, "Business occupancy tax eliminated." That's good. The good could be overcome by two other items, however. The first is that the local council can set tax ratios to offset the revenue decline. If this is done effectively, there is still a BOT on commercial properties.
The second problem is the right of the upper-tier governments as follows: "will have the power to set the tax ratios within their jurisdictions." That's item 10(1), paragraph 3. This can and will be abused to the detriment of commercial development within the member municipalities. If I am correct, the implementation of this by the upper tier will result in an impediment to achieving the proper 60-40 residential-to-commercial ratio. It can also lead to artificial urban-rural levels of taxation.
The comments were made here that municipal politicians will look to setting rates of taxation because of the greater amount of money they receive from certain levels of property. I can tell you from experience, no politician, until they get into doing assessment appeals, realizes the difference. I was not aware that if you had a residential unit as part of a commercial property, you paid a much higher rate of taxation on that property than anywhere else. I was not aware of the numbers of different ratios that they assess against various residential tenancies.
The tenants do receive an assessment notice but there is no mill rate given with that so they can do a calculation. It would be quite simple if they had it, but the more you become involved with an issue, the more you begin to understand it. While I was introduced as being in real estate, my friends in assessment would tell you that I am a community activist, or they might call me an agitator from time to time because I believe in equity. I believe that you're moving towards equity with this legislation, and I hope you continue and perhaps make some more changes as time goes along so that we truly have equity in assessment. My taxes on my home will rise if we have equity. That's fine, provided we have true equity with everyone.
I'll close by saying that I commend you for undertaking this onerous task. You have probably pleased no one. All the experts most certainly could do it better. In the end, however, Ontario will be a better place for the effort. I guess it all comes down to one issue: There's nothing so constant as change. I hope this is only the start of an evolutionary process that will lead us to the best assessment legislation in Canada. Thank you and good luck, you'll need it.
Mr Douglas B. Ford (Etobicoke-Humber): It's been refreshing to travel across this province, being from Toronto and constantly, as you see in the newspapers, getting flak from disenchanted people with the market value assessments in the various areas and talking to the mayor there, the patchwork of assessment. I see down here in your area you have a little bit but not the extreme problem they have there. You're talking about assessments back in 1984; there we're talking about assessments back in 1942. So you can see the inequities across these various areas.
Looking at what you were talking about here, Bill 106 gets rid of section 60 in the Assessment Act. I see properties being assessed at a higher rate than single-family residences; I'm a person who looks at this, and if you were to tell the tenants in various apartments what tax rate they were paying, and if the government started to collect from them, as you could see and understand, it would be a very difficult problem.
Mr Sharen: That wasn't the point I was making. I was just making the point that they should be aware that they are paying a much higher level.
Mr Ford: Yes, I can see that too. But then it comes to the point that probably these people would want the government to collect the tax rather than the landlord collecting the tax. That's a possibility. In other words, right now, you're renting on a basis of a net-net lease, everything thrown in.
Mr Sharen: If I might, that's correct, and that would continue. I have no problem with that, but what I'm saying is that the tenant receives an assessment notice as to the unit or the space that they occupy as to how much that is assessed at. A very simple matter would be to put the mill rate with it so they can calculate how much they're paying; nothing extra in cost, one more line by the computer.
Many of these people would like to own their own place, but in the case of commercial in our area, because they're using the factored system, the commercial property is assessed at 150% of the same valued residential property and that is negatively affecting those people who can least afford it, because normally people renting a portion of a commercial building are renting it because it's a lower-echelon place to live.
Mr Hoy: Thank you very much for your presentation. I'm curious about this farm land property you were talking about. I'd like to ask you some questions and hopefully you'll know the answers to them, but I would also understand if you did not, if you weren't personally involved in it. The farm land in question here, the taxation went up $700 per year, you say, because a non-farm couple bought the land. Is the land still zoned agricultural?
1120
Mr Sharen: The zoning on the land I think would be residential there. It could be agricultural. They classify it as being part of the farm even though the 5.05 acres was in no way farmable because it's pure sand. But because a farm couple owned it and had previously owned the farm that was adjacent to it, that never changed until there was a sale.
We have benefits to farmers, and rightly so, but their farm home and an acre around it is supposed to be assessed at market value. If this is a situation where they're still using the acreage value, that home and the lot that it sits on are underassessed, and therefore you and I -- and I'm guessing you live in the city -- those of us who live in the urban areas, are subsidizing that and that's improper.
Mr Pouliot: Thank you, Mr Ford, for net-net. I think we were referring to a gross lease.
Mr Sharen, if you look at all taxes, all perception of revenue under tax at the personal level, at the corporate level, governments tend to prefer a progressive kind of system. I'm just wondering when it comes to assessment, where we look at the value of property but nowhere in any act will you see an assumption vis-à-vis ability to pay that goes beyond the value of property because we do so at the personal income tax level --
Mr Sharen: Excuse me, but in actual fact the Assessment Act does take that into consideration, because there is a progressive rate against businesses. It was originally based on the ability of that type of business to pay more than another type of business.
Mr Pouliot: The point is well taken, and I thank you. I know so little about these things. We've been reduced to a very humble and small lot -- some will say thank heaven -- courtesy of the electorate. That's okay, we accept our fate. So therefore we have a lot of committees. I'm by myself here representing our party, and I'm sitting on two other committees.
Is market value assessment the same as what the market will bear?
Mr Sharen: No. It is supposed to be but it is not. It is done to a median because it's done on a large basis of properties. There is no way, with the number of assessors they presently have, I'm told, and I have no reason to disbelieve it, that they can visit every home and make sure that they are as accurate as possible. The degree of accuracy is reasonably high; I've done about 300 appeals.
Mr Pouliot: I need your help again. I came to this province to learn English, so sometimes I get a little confused. I thought market value was what the market will bear. Is current value or actual value the same as market value? I've got my two dictionaries at home, and the one is Oxford, the other one is Webster's.
Mr Sharen: My understanding of the English language is that market value and actual value are identical. In a simple world, the assessment would reflect either actual value or market value. We're dealing with a factor of error because it's human, and my concern is the factor of error be lessened.
Mr Pouliot: To give you an example, because I read the paper, and it says --
The Chair: It's a very short example, is it?
Mr Pouliot: Yes, very, but it's going to help me in the future because I'm to move from Manitouwadge.
The Chair: I'm not sure I want to help you in the future.
Mr Pouliot: I've got an expert here. You have a certain neighbourhood which is fairly mixed and the high-end housing isn't moving. If you go by the price -- let me finish please -- prices above $600,000 cannot be sustained and they're taking a hit presently, and yet vis-à-vis if I go the median, that price is moving and the prices are sustained for a myriad of reasons. It's not easy being an assessor. From a taxpayer's point of view, how much are each of those two properties worth?
Mr Sharen: You've asked two questions, you've made two points. Number one, yes, it's not easy being an assessor but the majority of them are reasonable and you can deal with them and negotiate ahead of time, which is another good point of Bill 106. Also, one of the points I made was that coming to an annualized assessment is going to overcome that type of problem because it reacts to it quickly and within a time frame that you, Mr Hoy and Mr Kwinter etc can relate to and understand as laypeople. I've been over 25 years in the real estate business under the system of going four years back. I still have to go out and check every time to make sure whether truly I can prove an error has been made or confirm what the assessors have done. Many times they're absolutely correct, other times there is a mistake and usually we can negotiate it out.
The Chair: Thank you very much, Mr Sharen. We appreciate your presentation, particularly your expertise in this area. We appreciate that input.
SARNIA/LAMBTON PROPERTY ASSOCIATION
The Chair: We now welcome Andrew Falby, Sarnia/Lambton Property Management Association. We thank you very much for taking the time to come in and make a presentation to the committee today.
Mr Andrew Falby: Good morning, all. Thank you for the opportunity to appear here this morning. I will speak very slowly, seeing that some of you cannot handle speed-reading.
My name is Andrew Falby and I am the president of the Sarnia/Lambton Property Management Association. I have also owned and operated various types of residential housing, from single-family homes to multiresidential complexes.
I would like to start by congratulating this government for being the first not only to address the inequities in the property tax mechanism, but to actually do something to correct the inherent flaws in the system. Unlike your predecessors over the last 10 years, who did absolutely nothing to rectify the overtaxation burdens other than to arbitrarily increase the debt to almost $100 billion in the name of social engineering, we feel confident that this government will deal with the problems, come to fair conclusions and look to the future for all of us to benefit.
As both landlords and taxpayers, we welcome Bill 106 as a progressive means to end the discrimination that exists in the tax disparities between classes of properties and style of tenure between all residents of Ontario.
Most parts of Bill 106, including actual value assessment, the repeal of the business occupancy tax, phase-ins to soften the blow to various sectors of society, tax deferrals for seniors and persons with disabilities, and the tax assessment appeal procedures, will mean more fairness and equity in the system and eventually more spending power in the economy for all.
Our only concern is that of changes being made to the Municipal Act, the new Regional Municipalities Act and other municipal legislation that will use the new province-wide assessment to determine the tax shifts between classes of property.
Groups such as the Fair Rental Policy Organization of Ontario, of which I am an active member, have brought some concerns forward which should be addressed in the legislation. FRPO has previously made two specific submissions for amending Bill 106 that I would like to reiterate:
"(1) That all municipalities be required to tax each residential accommodation at a single rate, that the multiplier be either eliminated or equalized regardless of the amount of units in a building. This would provide an immediate incentive for the construction of new rental housing in the province and end the discriminatory application of tenure.
"(2) Over a five- to 10-year period, municipalities will be required to phase out the existing differentials between residential classes so that traditional ownership housing, condominiums and apartments in buildings both small and large would all be taxed equally."
If municipalities are allowed to continue the practice of taxing residential properties solely on the basis of whether there are more than seven units in a building, they are in effect discriminating against the very tenants they claim to protect only because of their distinction of tenure.
Notwithstanding our own Charter of Rights and Freedoms with regard to fundamental human rights, part 2, article 1 of the International Covenant on Civil and Political Rights states:
"Each state party to the present covenant undertakes to respect and to ensure to all individuals within its territory and subject to its jurisdiction the rights recognized in the present covenant, without distinction of any kind, such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status."
Allowing either through legislation or by acquiescence distinctions based on where one lives only leads to more prejudice and NIMBYism, further dividing community lines.
1130
Another suggestion we have is in regard to the process in which the actual value of a rental building is determined. According to our local assessment office, all properties are to be reassessed to 1996 market values. The office does not take the vacancy rate into account when determining the market value assessment of the buildings. But the actual value of the building depends on the real gross income and expense, and vacancy should always be included in the expense of the equation. What the assessment office does say is it takes into account the actual selling price, but there is no guarantee that the sale price between the vendor and purchaser will reflect the vacancy rate.
Sarnia has one of the highest vacancy rates in Ontario at 12%, according to the last figures from CMHC. Would it not make more sense that the vacancy rate for each municipality be addressed when the assessments are made, especially when the act provides for three-year rolling averages which would help smooth out any fluctuations in property values?
Multiunit buildings, in particular the high-rises, make the best use of space, land patterns and public services such as police, fire and infrastructure over all types of developments. By providing housing in bulk, one only wonders why these particular buildings are taxed at levels often twice as high as units in smaller buildings. For example, Sarnia-Lambton multiplies the assessed value by 5.3 for single-family and buildings of six or less and 11.6 for the multiresidentials. Why? What response would you anticipate from the commercial sector if these same differences applied to low- and high-density structures? After all, why should landlords and their tenants be penalized by paying more for using less services than a municipality collects taxes for in the first place?
Furthermore, understanding that the total income is taken into account in the determination for a proper assessment, will the social housing be assessed using the same standards of gross income versus expenses? With two sets of subsidies, rent-geared-to-income and bridge financing, it would only be fair if those buildings, despite government ownership, pay their fair share of the property tax burden as their counterparts do in the private sector.
We understand that the complexities and intricacies of fairness with respect to property taxes are at best difficult but we have great trust in this government to ease the transition and bring Ontario into the 21st century with dignity, pride and prosperity for everyone. Thank you for your time.
Mr Kwinter: Mr Falby, thank you very much for your presentation. You raise some interesting questions and I wish I had as much confidence as you do that Bill 106 is going to address and solve them. You talk about these inequities: Why should a property that has more than six units have double the factor when commercial and industrial don't have the same thing? I can tell you there are lots of inequities. You go to Windsor -- and we had somebody here from Windsor -- and take a look at how they assess the distillery. If you had a brewery next door or if you had a winemaker down the street, every one of them is assessed differently, with the distillery being assessed the most, and it's an aberration, for some reason or other. At one time they felt that it was a demon rum kind of thing and, "Let the guys pay," so they really whacked them. You have those things throughout the system where there are inequities.
I would really like to get some input from you as to how you think all of these things are going to be addressed in this bill when the intent of this really is to try to get a common denominator and reduce the number of classes and make this happen. I really see a problem because, from your comments, I think you're trying to fine-tune it even more. You're trying to take into account such things as vacancy factors, expenses. What happens if my expenses are more than my neighbour's? I shouldn't have to be paying as much. How do you address that?
Mr Falby: As far as the vacancy rate problem is concerned, I think I addressed the problem for each municipality to address the vacancy rate.
As far as your other questions on industrial and commercial, I really don't have an answer. You actually answered yourself in regard to how we fix the problem. It's your job to fix the problem. You admitted yourself that there are inequities, so fix the problem. We're talking about it. You've had opinions from everybody around you for two weeks on how to fix the problem. You've answered yourself; there are problems. I don't have the answer. You are the learned people. You are the elected representatives. You've admitted there are problems. There have been problems for 30 years and exacerbated by the last 10 -- fix them.
Mr Kwinter: The point I'm trying to make is that we are not the experts. We're a committee looking to people like yourself to make suggestions or recommendations to us so that we can in turn reflect those recommendations and what our final deliberations are going to be.
Also, just to correct the record, if you had been here earlier when Mr McKeough was here, he was talking about 1977, the Blair commission that came in to address these problems. So notwithstanding your editorialization of what happened in the last 10 years, this was 20 years ago and similar problems were there and recognized. He recommended that the Blair commission report be implemented and the government of the day backed off because, as he said to me afterwards privately, they didn't have the guts to do it. He said, "I recommended it and they didn't have the guts to do it, and it's unfortunate."
This is a very complex problem, and I can tell you if it was simple, it would have been addressed long ago, but it's very difficult. You certainly have definite ideas on how to fix your particular area and the areas that you want to address and we're looking for input from you on that.
Mr Falby: I addressed the landlord-tenant/single-family home ownership point of view, and I think that's where my comments should lie. You should be addressing the industrial-commercial sector with people who are in that business, in that field.
Mr Pouliot: Mr Andrew Falby, welcome. I did appreciate the courtesy that you extended to me in particular when you prefaced your remarks by saying that you would go slow for those who could not handle fast reading and you looked directly at me. I think you're quite right, sir. I do better at slow reading because I do it in five languages. So welcome to the committee.
On your page 1 you state that we did absolutely nothing -- that's total -- to rectify the overtaxation burdens other than arbitrarily increase the debt to $100 billion. I take it you're talking about the provincial governments, not the federal ones.
Mr Falby: That's correct.
Mr Pouliot: Because if you were to look at the federal governments, I think it parallels. It's pretty well the same thing regardless of stripe. But you're quite right, your presentation does focus on the reason for which we are here and it's to address the assessment discrepancy and how to benefit the three sectors -- residential, commercial and industrial -- without dislocation. The committee has been going through the province seeking expertise and ideas and then the committee will go back before it issues a final report and recommendations and this will be reflected with the regulation that will give life to the bill; from people like yourself, a little bit here, a little bit there. There will be some discrepancies. In some cases there will be injustices. It's like playing pinball; you try to catch, but inevitably someone will go through and will not be adequately covered. But that's also subject to appeals, that's also subject to revision.
What we're hearing, and I would like your comments, is that Bill 106, if it were in isolation, only Bill 106, would be immensely easier to deal with because it is fairly streamlined. It talks about fair assessment, revised assessment, the price of one property or sets of properties vis-à-vis the other in a certain vicinity at a given time. But inevitably you have to blend other things to it, because this is one of the many changes that we have to contemplate. While we don't have the flexibility here to incorporate all those changes, it's still omnipresent in our subconscious. We have to factor these in as we look at Bill 106, and I wonder if your presentation was fully aware of other bills that are coming down the pipe, because they have to be factored in. They're part of our daily lives as well.
1140
Mr Falby: What particular bills are you referring to?
Mr Pouliot: The transfer of services, responsibilities.
Mr Falby: You're talking about the downloading.
Mr Pouliot: Some will call it downloading, but let's say that there is a change indeed, yes.
Mr Falby: What would you like to know about the downloading -- my personal feelings on the downloading?
Mr Pouliot: Yes, from what you know at present. None of us, I suppose, because there are negotiations going on, are fully aware of what services, to what extent and at what time. But what is your approach, your philosophy?
Mr Falby: I feel that the downloading is either sheer genius or just inevitable. I agree with Mr Rozema when he states that the best decisions are made at the lowest, local level. I believe that some municipalities will not address the problems in a fully open capacity because of voting power. I'm talking about tenants versus homeowners. I don't think the tenant population gets out and votes or speaks their mind the way they should, because they've been left out in the dark in as far as what goes on is concerned. The homeowners, who are more organized, perhaps more affluent, would be out there en masse trying to solicit the best position from their respective municipalities, and as such, there's almost like a smoke screen out there.
But in answer to your question, I think the downloading is an excellent idea and that it will invoke individual accountability and financial responsibility from each one of us when we peer into what actually happens out there.
Mr Tim Hudak (Niagara South): Thank you, Mr Falby, for your very reasonable, intelligent presentation. I appreciate your remarks too about the slow reading. The real reason is because they wanted this filibuster to go on for as long as possible. Sitting around with 30 or more opposition members, NDP and Liberal, for 24 hours straight for nine days, I think that --
Mr Pouliot: Cut your losses, too.
Mr Hudak: -- the reason they wanted to do that was because they thought they were working. But it wasn't work, and now we're glad to be out on the road and working on committee and getting intelligent responses like your own, and like Mr Rozema's too, saying that in exchange for giving municipalities more responsibilities, let's give them the ability to make the tough decisions, which this bill does. I appreciate your comments in that regard.
In your case, in the multiresidential area, it will give the municipalities the ability to decide at what ratio of the residential they should charge. So then you can, at your level, and the tenants and such, pressure the council to get a more equitable distribution there in the Sarnia area or Chatham, or Niagara, where I'm from.
There's another provision in the bill I wanted to ask you about, and that was on the new multiresidentials, the provision in the bill that will allow municipalities to give a different rate for that, to encourage new multiresidential housing in municipalities. What do you think about that class being different from the current multiresidential?
Mr Falby: All that being said, I don't believe there really should be any difference in classes, be it multiresidential, single-family homes, buildings of less than six or new residential. But if it would spur construction, increase jobs and be generally good for the economy, there may be some provision for a different class, with the understanding that it was phased in over a five-year period so that builders such as myself or my colleagues could realize that they might have an edge for five years, but at the end of the five-year period there would be an equalization among all residential classes.
Mr Hudak: But you see it as creating an economic incentive, then, to build more affordable housing from the private sector as opposed to what Mr Rozema talked about, the old ways of spending millions of dollars on government spending?
Mr Falby: Definitely. Social housing? My favourite topic. I think the private sector should be the one that builds housing, not the government. The government should be there to make sure that all sectors of society, be it low-income people, seniors or persons with disabilities, have decent, affordable housing through legislation that's fair and equitable for all.
Mr Carroll: Thank you, Mr Falby. I had to comment on the speed-reading thing. Some of us did a speed-reading thing, some others did speed-listening, so we shared the responsibility.
Are you concerned that municipalities will not do the fair thing, given the option in Bill 106 to equalize the assessment between multiresidential and single residential? Are you concerned that they won't do what's right for their taxpayers? Is that why you would want to see it made mandatory?
Mr Falby: Yes. I certainly agree with what you said. I think that we all vote for whatever ideology, whatever party exists at any time at the municipal level, provincial level and the federal level. So if we have NDP persons at the provincial level, they're also at the municipal level and they will skew the legislation to factor in their ideologies at the municipal level and you do not have an even playing field.
Mr Carroll: But why would municipal politicians want to treat tenants unfairly vis-à-vis homeowners? Why would they want to do that?
Mr Falby: That's a good question. I can only answer that with a quotation from 1991, from Hansard, where the then finance minister stood up in the Legislature and said, "We, the NDP, cannot support entrenching private property rights in the constitution because ownership of land is a form of thievery." That was Floyd Laughren. So this particular ideology can be sitting on a council seat at the municipal level and if they think that way, then they would be skewing municipal legislation in favour of tenants over homeowners, and vice versa. You can't have that. You can't have one side benefitting from the other. I don't know, did I get off topic there?
Mr Carroll: You got the quote in, though. I appreciate the quote.
The Chair: We thank you for your presentation -- I think we'll move on from there -- and for taking the time to present to the committee.
Mr Erie Woltz? I don't believe Mr Woltz has arrived. We may be able to work him in this afternoon if he does show up. With that, I don't believe there's any more business this morning. We will stand in recess until 1:40 this afternoon.
The committee recessed from 1148 to 1340.
KENT FEDERATION OF AGRICULTURE
The Chair: We now have the pleasure of welcoming the Kent Federation of Agriculture. Mr Cox, we have 20 minutes together for you to make a presentation.
Mr Ron Cox: Thank you, Chairman Chudleigh. First of all, I'd like to introduce my vice-president, Dave Derynck. He's a farmer from Tilbury East township here in Kent county. I am Ron Cox, and I'm a farmer in Tilbury East township as well.
The Kent Federation of Agriculture values this opportunity to address Bill 106 to the standing committee on finance and economic affairs. This is an important issue which will have a great impact on our membership.
The KFA is the largest general farm organization in Kent county. We are part of the Ontario Federation of Agriculture and represent over 2,100 local farmers here in Kent. These farmers produce over $250 million worth of agricultural products every year on their properties. This is a substantial source of wealth to both the local economy and the various levels of government through taxation. Those numbers are from the 1990 census. I expect to see much higher levels when the information comes back from the 1996 census.
The KFA is looking to the government for a fair, consistent and simple method of assessment for the rural community. The assessment should fairly represent the costs associated with the property as it is used for agricultural purposes, not people costs which may be tacked on. The assessment should be consistent across geographical areas, with variation due to the productive capacity of the land, not its speculative value due to possible future development.
The 25% of the residential tax rate on all farm land will fairly assess agricultural property for the services it consumes. This is more consistent with the actual cost associated with land for local services rather than a cash source. The problem with this is that it leaves the municipality in a cash deficit position, since it is losing 75% of the income which it used to derive from the property.
Kent county is up-to-date in terms of assessment. We are currently using 1988 values. With the elimination of the farm tax rebate and business tax, the municipalities will have a serious cash deficit. The rules are not clear in terms of how the funds will be accessed, and it seems unlikely that there is enough money in the funds to satisfy all the needs of the different municipalities. The province needs to set out firm guidelines on the mechanism to access the funds and a commitment to replace the income which is being lost.
This deficit needs to be addressed at the provincial level since there is limited potential for income in the rural setting. Because of this, the rules for assessment need to be set out clearly and concisely by the province for all areas in order to make the rules consistent across the province. The rules need to be set in regulation or legislation, not suggested as possibly vague guidelines subject to interpretation. If the rules are not clear, there will be significant time and money spent on litigation, which further loads an overburdened court system and wastes valuable resources which will be better spent elsewhere.
There are many terms and activities which need to be defined by the government in order to avoid this confusion and assist everyone in implementing Bill 106. The following definitions show how we interpret the bill and what should be done.
The first one is farm property. All farm property should fall into one major class. Farm land is used for primary production, storage of both farm produce and equipment, and support facilities: the farm shop, grain cleaning facilities etc. This would include the farm home since it is necessary in the operation of the business, and its value is lower than if it were on a separate lot due to the presence of the farm operation. Farm storage operations, such as bins, need to be taxed as part of the farm since they are necessary for storage of the crop and only used for short periods of time and specific uses.
Managed woodlands, road frontages, drainage schemes, pastures and wetlands should also be placed in this category, but they should not be taxed since the farmers are being stewards of the land without remuneration by maintaining these properties for the benefit of the general public.
Bill 106 speaks of two classes of farm property: residential/farm, and also farm lands and managed forests. Farm lands and forests is the only category eligible for the 25% tax rate, but there is no definition of what belongs in this category. The standards or examples must be put in regulation so that confusion is kept to a minimum and assessment is uniform across the province. The bill is unclear, and this could lead to problems.
Value-added on farm operations are another possible problem with Bill 106. They are not defined in the bill and the method of assessment is not laid out. Would they be assessed on a percentage basis? What class would they fit into? There is great potential in the countryside which needs clear and fair guidelines to assist in its development and growth. The economic benefits should not be lost due to poorly stated regulatory guidelines.
The next subject is farm property eligibility. Farm property should be eligible for the 25% of residential rate, provided that the property is used for agricultural purposes, the owners or tenants have a gross farm income of $7,000 and a valid farm business registration number as per the Farm Registration and Farm Organizations Funding Act of 1993. All property should be treated the same and pay the same relative tax as similar productive land independent of the relative location of an urban influence. The taxes paid should be based on the value of the land as farm land, not its possible value as residential or commercial property. The level of assessment of the property should only change once there is a material change in the use of the property, eg, if a building permit is granted for development of the property for alternative uses. This would ensure that a farmer isn't forced to quit farming due to inequitable taxes being assessed on land if it was in a residential area.
The minister must specify rules or regulations such as this so that municipalities in need of cash do not find inequitable ways to increase their cash flow without providing something necessary for the assessment. If it is not firmly laid out, people will try to offset the reduction in revenues from the province in the easiest way possible, and this would possibly be the way used; for example, an assessment of $3,500 per acre for farm land versus $300,000 an acre as residential land in the Oakville-Mississauga area. Municipal bylaws should not be allowed to supersede provincial regulations in these matters. Thus municipalities wouldn't be able to impose unrealistic user fees on farm property to recover lost tax revenue due to tax reform.
Tax phase-ins: Rather than having a phase-in for taxes, we believe property taxes should be averaged over a number of years to reduce the variability in the level of tax due to fluctuation in property values, which change considerably due to changes in crop values, interest rates and the health of the general economy. A five-year average in values would even out many spikes and dips in the level of taxation.
Before reading the next paragraph, I would state that the above is our preference. If that is not acceptable, this would be the alternative: Bill 106 should mandate an eight-year phase-in for any tax increases to buffer the effects of the tax on the property. Taxes on land should only be used to fund the costs of land to the municipality. Farms do not need to be levied with increased costs such as road frontage levies. All charges to land should be clear and proper. The bill should leave no room for improper taxation.
1350
In the area of appeals, the system laid out in Bill 106 has a commissioner considering preliminary appeals. This limits the number of people involved, but one person can't know all the nuances of the many operations presently working. Thus, a small committee of government and rural people would have a better idea of whether the situation is viable as described and have a better idea about the validity of the appeal. This idea is recognized as peer review. The removal of the OMB is very serious and will result in a great loss of experience. The government must not eliminate something which works without an effective mechanism to replace it.
In closing, we trust that the parameters given in this document will be clear and concise to guide the local governments in the proper use of their new powers. Agriculture is an international enterprise, competitive in the international market. We cannot afford to be placed in a non-competitive position due to rulings at the local level.
This concludes my presentation.
The Chair: That leaves us with three minutes per caucus, and we'll start with the third party.
Mr Pouliot: Welcome, gentlemen. I'm certainly appreciative of your sensitivity to the need for municipalities to have to address the bottom line, the need in some cases to make up for the anticipated shortfall in revenue.
I sense that you're anxious that what you may gain on the farm, you may lose some, if not all, on the house. You see the house as being a natural part of the farm, one and the same. I don't wish to impute motive, it wouldn't be fair, but in terms of analogy, of parallel, since forestry is also eligible, would you appreciate a forest worker making the claim that their residence is also part of the forest? Would you disagree with a fisherman on the Great Lakes who stores his net in a shed in the back that the shed and the house in which the family lives are also a natural component of the job? Would you agree that a miner living in a small and remote community could claim the same opportunity? In their own fields, they validly will claim that they too also make, when all is said and done, an equal contribution to our vast and magnificent land. I'll leave you with this.
I appreciate what you're saying. Your situation is unique, and so is the unique situation of others. I too am trying to be consistent and reasonable. You spell out the sensitivity and do so by question mark, saying, "On the one hand we're worried that the municipality will just turn around and do what they feel is right because they have no other choices and become overly innovative, yet on the other hand" -- you see, Mr Cox, I'm trying to say yes, but life is a compromise; we can only have it so many ways. If today you make the argument to block the housing unit, the residence, with the operation, tomorrow surely somebody else will claim with equal passion and the same justification. I would like to have some clarification of your comments on that.
Mr Dave Derynck: On a personal note, I'm having a farm re-evaluated for a mortgage, and because of the location of the house it is worth significantly less than it would be if it were on a lot on its own. I have an assessment from the township and I have an assessment from the bank, and there's a considerable difference in the relative value of the two. Am I going to be assessed at the township value or am I going to be assessed at the bank value?
Mr Pouliot: Good point. I don't have the situation, but we would have to factor in the criteria the assessor uses and also those of the bank. The criteria are different. You have to factor in collateral, past history, and it's not only the value but the market conditions etc and your down payment.
Mr Derynck: Right, but it's all going in the same time period. This assessment is within two months: one from the township on what my taxes are going to be on this property, and one from the bank for negotiating a mortgage on the property.
Mr Pouliot: You've got me there. It's beyond my field, but I appreciate what you're saying.
Mr Derynck: That is where the concern comes from. We can't possibly take it all the way, but we feel there is a need for recognition of it. It will not be worth as much as if it is a stand-alone lot.
Mr Carroll: Thank you very much for being here today. I have a couple of questions. You say at the bottom of page 1 of your brief, "The province needs to set out firm guidelines on the mechanism to access the funds and a commitment to replace the income which is being lost" from farm tax rebate and business occupancy tax elimination. Is there a possibility that some of that revenue being lost by those two taxes being disbanded can be found by more efficient ways to do local government?
Mr Cox: I believe that was the hope of restructuring. We followed that quite closely. Both Dave and I were part of the public focus group in the county. That remains to be seen, and I think that's the danger. There's a certain amount of uncertainty there. We're all looking towards January 1998 with optimistic expectation, but we've got three major threats there. We've got county restructuring; hopefully, that will work. We have the downloading, and county restructuring is supposed to be able to mitigate that situation. We also have reassessment occurring, and it is kind of hop-stepped over to 1998 from 1992 through to 1996 values.
It's the uncertainty. We're looking for some assurance that we're not going to be left in an unviable situation. That is the fear. We can hope and expect, but I think the shareholders in Bre-X had a lot of expectations as well. Maybe that isn't the best analogy, but --
Mr Carroll: My point is that if we can find some way to deliver government services more efficiently, rather than just replace one tax with another tax, you as agricultural people would agree that that should be the first thrust?
Mr Cox: If that can deliver, I think that's helpful.
Mr Carroll: You agree that the 25% assessment on farm buildings or farm land used for farm land is a fair system. You don't have any problem with that.
Mr Cox: That's what we've worked towards.
Mr Carroll: Do you not believe that local politicians will treat farmers fairly when it comes to assessments and their share of taxes? Do you not believe they will treat you fairly, that you need the protection of the province to make sure local politicians don't beat up on you? Do you really believe that?
Mr Cox: I do, because we have had examples to this point. In Essex county there was a situation where -- there's a situation of desperation and some local officials may have jumped at the opportunity to do so severances, whatever. There's talk of user fees, that possibility. This uncertainty -- I would like to see a provincial government that has a continued supervising role that will look at certain situations and say: "This isn't the norm. There are things going on here that traditionally, in percentages, haven't been the rule of the day."
Mr Carroll: I understand that. In Kent county, we always say: "We don't want Toronto to make all our decisions for us. Let us make our own decisions locally." Now I sense that you're saying to us that you don't think that politicians locally can make good decisions for agriculture and you need Toronto to make them. You're not saying that to us, are you?
1400
Mr Cox: I think we have to have balance. The province has said they're going to give more power to the local situation; they didn't say "complete power." That's where I look for the balance to come from, from the provincial government. Maybe they're not going to have their hand on the switch, but they're right there standing behind, making sure we don't have any radical changes that shouldn't be occurring.
Mr Carroll: So you trust the local politicians, but not totally. Is that what you're saying?
Mr Cox: After having viewed county restructuring, we do have doubts about certain people.
The Chair: That might be said of all politicians.
Mr Hoy: Thank you for your presentation today. It seems clear to me that you believe that municipalities will need some kind of bridge funding or mechanism to replace the moneys they will be losing from the farm property tax. In your township of Tilbury East, they will be short by in excess of 50% of their revenue. The question has been asked by the government side, do you think they can save 50% through efficiencies? In my conversations with municipalities across the riding, they don't believe they can save that kind of money.
Do you think this would have been a much better bill if the government had put in the parameters of how municipalities across Ontario would access and recoup and replace $171 million lost through the property tax?
Mr Cox: I think that would helpful. As you mentioned Tilbury East, I believe we're about $1 million short in terms of the downloading, plus the loss of the cash flow because we've gone down to a 25% area. We're in a very serious situation. Because we don't have a large industrial-commercial base, there isn't the opportunity to tap into other sources.
User fees have been mentioned as a possibility. It's difficult for people to come up with proper user fees that would fully address the shortfall. People have different feelings about them. At least they're open to the public for scrutiny, but there's a limit to what we can stand. If we're in such a poor situation, the situation demands that there has to be some assistance. There isn't any clear alternative other than access to the three funds the government has set up.
Mr Hoy: I want to touch on another subject within your brief. I believe I understand what you're talking about, value-added on farm operations. For the benefit of other committee members, I would like to have you expand on what you mean by value-added on farm operations and what your concern is for them under Bill 106. Could you expand on that a little?
Mr Cox: That is one area that is rapidly changing. Originally, we had some small enterprises that started up as value-added. Maybe somebody was growing soybeans and then got into processing, making soybean candy or developing tofu locally for a local market. That's rapidly changing. With biotechnology, a lot of things are being talked about now that were never imagined. The fact that a dairy cow could be a source of pharmaceuticals because of biotechnology is really right out there on the edge, but the technology is there. That has to be developed. There's that partnership between farmers and the industry.
It's rapidly changing. Exactly what we're talking about has to be defined, in terms of where does the farm issue and where does the business? How do we support those industries? We're concerned about rural economic development. That was a major point that was stressed by OMAFRA Minister Noble Villeneuve. The opportunity for growth is recognized in agriculture, so I think it's critical that we get the details down so we know exactly what the rules are. We don't want to see limitations that would restrict or prevent the possible potential there.
This is something that needs consultation. There are a lot of interested players, whether it's OMAFRA or our parent affiliate, the Ontario Federation of Agriculture. Everybody should be concerned about the opportunity to bring economic growth to the province. This isn't just some narrow view. It's an engine of growth that has export market potential all around the world. I think that's being recognized by the Premier himself, because of trips he's been on. In that area, if we know the rules it will benefit everyone.
The Chair: Thank you very much. We appreciate the Kent County Federation of Agriculture having come in to make this presentation today. We appreciate your input.
Is the Essex Federation of Agriculture present?
ERIE WOLTZ GERARD CHARETTE
The Chair: We'll ask Mr Woltz to make his presentation now. Welcome to the committee.
Mr Erie Woltz: Thank you, Mr Chairman. My name is Erie Woltz. They have it as "Ernie," but it's Erie. I'm a retired contractor from the city of Windsor. Next to me is Gerard Charette, a lawyer from Windsor. He is going to do the presentation.
First, I would like to say that I have been through two property reassessments, one in Windsor and one in Maidstone township, and I didn't find them too distasteful. Also, the mayor of Windsor says he's not opposed to reassessment. We had our reassessment done in 1992, so I don't think there will be too many problems with the city of Windsor.
Mr Gerard Charette: Good morning, ladies and gentlemen. It's perhaps helpful that I identify myself a bit to the committee by stating what my biases are. I think biases are an important part of getting business done, but they should be clearly stated so the listener can weigh what's being said.
I'm a resident of Anderdon township near Windsor, which is a rural area. I work in an urban area, the city of Windsor. I'm a tax lawyer and I practise business law as well. I am a supporter of the current government and I believe it is doing a good job at making tough decisions. I of course accept that there are those who have different opinions. I recognize that fully. I'm solely responsible for the contents of this submission.
First, if I may, some general comments. The bill has my general support because I believe it seeks to simplify tax legislation. As a tax lawyer, I have always taken the position that governments should do whatever they can to simplify our tax structure.
Complicated tax structures do the following: They make it difficult and costly to assess, calculate and handle tax payments, both for the government and the taxpayers. They also frequently amount to nothing more than make-work projects for tax lawyers and tax accountants, and I think we can use our resources better than that. Third, I think they interfere with the economic and social affairs of the residents of Ontario, who must devote inordinate amounts of time in ensuring tax compliance. As this government is fond of saying, there is only one taxpayer. I do agree.
We must seek to create tax systems that are transparent. Tax systems should give taxpayers a clear understanding of the cost of the services which they, the residents of Ontario, purchase from government. In that manner, the residents of Ontario can make clear determinations about the following: whether they value the services highly enough to purchase them; whether governments should be providing the services at all; and whether there are less expensive mechanisms by which those services can be delivered.
Now to the essentials of my submission. As you ladies and gentlemen know, Bill 106 is a wide-ranging statute. I have not had the opportunity of giving it my full analysis. I would therefore like to comment specifically on two areas of the bill: the elimination of the business occupancy tax, and some of the provisions affecting farm lands and conservation areas.
1410
The business occupancy tax: The business occupancy tax is difficult, both for businesses and for government, to manage. It is based on a set of business classifications which cover businesses that in some cases no longer exist. The classification system is clearly outdated and probably fails to capture new businesses and enterprises as they develop in our, quite frankly, vibrant economy, which creates many new methods by which people earn income.
The tax is also difficult to manage. It is easy for governments to miss taxpayers because many businesses frequently come and go. The tax is a tax upon business; it's not a tax upon property. Accordingly, in some cases the tax is never collected. Businesses go bankrupt, come and go, and never pay their taxes, or they just move on. Municipalities are therefore left without effective mechanisms by which they can enforce collection for taxes which are owing.
I think the new system is better because it establishes the tax as part of the municipal base. As you know, municipal taxes are a charge upon the land. This goes just about all the way in ensuring that taxes do get paid when they are owing. Therefore, municipalities will have a clearer idea that they are going to collect the taxes that are levied in their municipalities.
Similarly, land owners, those who will now be responsible for ensuring that this portion of the tax is paid, will be able, together with their tenants, to price the cost of the tax into their lease arrangements. On balance and on whole, this is a much simpler system which guarantees that we do not have a leakage in the tax system. Accordingly, I do support this aspect of the bill.
Taxes on farm lands and conservation areas: The existing system of farm tax rebates is outdated and the government has identified that fact. Again, the government is addressing the issue of simplicity with this change. I know of farmers, and I suppose we all do, who pay taxes to municipalities only to send in rebate applications to the province so that they can obtain a rebate. The result: Government takes money from residents and residents write to another level of government, only to send the money back. It's ludicrous, it's time-consuming, and it wastes so much effort. Farmers, as you know, are such busy people we can do a lot better in keeping them as productive farmers rather than tax filers and tax preparers and all of this that goes with it.
Again, issues of farm taxation can be dealt with on a more rational basis because we don't have money coming and going by way of taxes and rebates. We have one single tax bill and we can debate quite easily whether that's the right level of tax.
No one, not the government, not bureaucrats, nor any of the residents of Ontario, enjoys dealing with the payment, collection or assessment of taxes. However, all of us should agree that these disagreeable tasks should be simplified so that government can reduce the cost of administering the tax system, and so that residents will have more time to deal with the central challenge of being productive for themselves, their families and for the residents of Ontario.
Ladies and gentlemen, this is the essence of my commentary. I thank you for your patience in listening to me. I'll be pleased to answer any questions on any issues which you might have. That's it. Thank you.
The Chair: Thank you very much. We open with the government on about a two-minute round of questions.
Mr Hudak: Thank you, gentlemen, for your presentation; some very well-reasoned arguments in terms of the simple tax rate. People can understand, so they know where their taxes are and they can lobby their municipal politicians if they don't feel the tax level is high enough.
I like your points on the BOT as well, because why should an insurance company in a same value business as a shoe store next door pay more taxes just because it's insurance instead of shoes?
Mr Charette: It makes no sense.
Mr Hudak: Yes. The question I have for you follows from that, for the simplicity in trying to level the playing field across the commercial sector. The committee has heard two arguments in terms of a separate property tax class for the small commercial sector, where if a municipality felt that they had an interest in promoting a downtown core or some small businesses in the community, they could have a separate class for the small guy. What are your feelings on a different commercial class for different-sized businesses?
Mr Charette: I'm instinctively mistrustful of that because it tends to get tax lawyers like me thinking about how one fits into that shoe horn. I think there should be one basis for everybody. I'm not saying that you cannot have some type of incentive system. There has to be some flexibility on a local basis, but I just don't think that there is necessarily a good rationale for councils to get involved in these types of decisions where they're trying to value whose operation is more deserving of protection. If you're in business, you should pay your fair share of taxes. Keep it simple. Otherwise, I think the tax lawyers and accountants are going to eat a good part of the savings that people might get. That's my view, Mr Hudak.
Mr Kwinter: I was interested in your comment about the business occupancy tax and how it should be attached as a lien against the property so that the municipality can always collect it, regardless of whether the business leaves town or not.
When Willis Blair chaired a commission on tax reform back in 1977, one of his recommendations was that the business tax stay but it not be a lien on the property but be a special debt. The reason for that of course is that, as a landlord, you may have a business occupant who has an obligation to pay business occupancy tax, takes off in the middle of the night, and the municipality can collect it. If you have it as a lien, then what you have is a property owner being penalized because his tenant has skipped out or doesn't pay the tax.
We have a similar situation now, because notwithstanding that they say the business occupancy tax is going to be removed, it really isn't going to get blended into the reality tax. They're not going to forgo the income. They're just apportioning it differently. So you have that same problem. You have the landlord being subject to this potential penalty because of the indiscretions of his tenant. Do you have any comments on that?
Mr Charette: That's true, and that's part of the risk of the business. You can say that it's not fair, but there are many mechanisms that commercial lawyers use. They can use guarantees or letters of credit to ensure payments. They can do pre-payments. I'm sure that the marketplace will adjust in a fairly reasonable manner to make sure that landlords are not the ones who get left holding the bag.
I agree with you that is a risk, Mr Kwinter, but I think too many taxes are leaving the system without ever being collected and no one is responsible. I just think it's a good balance to make the landlords responsible. They own the property and they lose the rent if their tenant doesn't pay, so they have to be vigilant. I acknowledge the point you're making. I just think this is, on balance, a fair system, the one that's being proposed.
Mr Pouliot: Thank you, gentlemen. I must commend. No prejudice towards your honourable profession, but it's not too often that a committee hears that a lawyer would wish to make the system less complex and more expedient.
Mr Charette: I do not have many friends in the legal profession.
Mr Pouliot: I understand what you're saying, Mr Charette.
All morning, and I don't wish to draw you into this, but I must observe we've had in this exercise of switching responsibilities -- downloading; it's there for everyone to see -- that they, the council people, with question marks, are the most relevant form of politics, others will say, so they know what's going on. Those local treasurers can sure balance the books, so they should be able to pass, in some cases, as much as 30% or 40% in efficiencies.
Don't ask me to do it because in the past two years, not necessarily your administration, the provincial government is spending more money. Revenues are up big time, so it's good, but they're spending more money in this fiscal year than they did last year -- go and ask Mr Eves -- and the year before, more than they did the previous year, so it's not always easy, but it's much easier for you to save, you see.
All of this is coming down big time. You have the BOT. You have the example of a good spin, of the insurance company and the little shoe store. Try to twist those things around over the years, Mr Hudak; it will serve you well.
Residents have listened to the Premier, who said that by the year 2000 the municipal councillors should be able to pass a 10% decrease in property taxation. The chambers of commerce are expecting, because of the BOT, that the small and medium-sized businesses will get a tax decrease. The big industrial people are getting a tax decrease. The government says, "We won't cut education. We won't cut health." One simple question when all is said and done: Who the heck is going to pay for all this? Where is the money going to come from?
1420
There's no free lunch here. There's no invitation from Brooke Shields inviting you for dinner, sir. When your phone is ringing, it's not her calling. Get me? Who's going to pay for all this? These are your friends. These are the people you support. You're just as political as I am.
The Chair: Thank you, Mr Pouliot. I think I heard a question there.
Mr Charette: Mr Pouliot, your question is so broad, I cannot even begin to -- I apologize. I don't apologize, really, I should say, but --
Mr Pouliot: Where's the money going to come from?
Mr Charette: We're going to find it because we're good, productive people and it's going to be fair. I trust the local councils that will make the tough decisions. Frankly, I want my tax collectors up close to me where I have a chance of influencing their decision.
The Chair: Thank you very much. We appreciate your taking the time to come in and make a presentation to the committee today. We very much appreciate those kinds of inputs.
MICHAEL CHILDS
The Chair: We now welcome Michael Childs from Oak's Inn. Welcome to the standing committee on finance and economic affairs.
Mr Michael Childs: I'd like to thank the Chair and the committee for hearing me today. I'll give you a little background on who and what I am.
Presently, my family owns an 80-room motel in Wallaceburg. I'm general manager there. We employ over 50 employees and we're very active in the community. Our facility has 80 rooms, a full dining room, lounge and banquet facilities.
In the 1990s, we found that to carry on business, you have to work on the expenditure side because the revenue increases that would normally be there in the 1980s were not to be found in the 1990s. So we've had to work harder for less. We're looking at the future to try to bring profit to the investment and so to the industry; the service industry, the hospitality industry can strive forward and be successful. A little bit about what we're about now to carry on with reference to Bill 106.
I see this as a fair and equitable system that should be supported. The tax assessment based over three years I believe should be a fair way, no matter what the class of taxation is. It will help avoid the highs and lows that occur today. In business we would like to see expenses in a predictable manner so we can plan for the future and make sure our business is long-term and stays. Our service industry's known for the comers and goers. We'd like to see that be a little more permanent, and having predictable expenses will help that.
At the same point, I do have some concerns with the bill. With reference to ensuring that changes are fair, I think that makes note of the new classes that could be created. I feel these should be created through legislation as opposed to the municipalities approaching the Ministry of Finance of that day and possibly undoing the good that the bill is meant to encompass; seeing the new classes be brought through a normal legislative process where there would be public hearings and just to make sure that fairness is seen across the board.
As well, another concern is the new variable tax rate. I'm concerned that it needs to be fair for the commercial-industrial sectors and needs to make sure that the municipal politicians sometimes see the voting residents and not always see the non-voting business people. We need to make sure that the provincial government is a leader in educating the municipalities and making sure if that's important to them, they take a look at the business. Business is a very important sector to the community and it's also important to the business, the proper tax on them in locating, maintaining and remaining in the communities. There's a concern to make sure the rate between the business and residential doesn't widen, and if at all possible, narrows in the way of the new tax rate.
Roughly, those are my concerns as I see the bill. I'll be happy to answer any questions. I'm not a property tax expert. This is from what I've been able to get from my accountant and the assessment office and everything and how it'll impact my business.
The Chair: Thank you very much. That leaves us about five minutes per caucus for questions. We start with the official opposition.
Mr Kwinter: The Canadian Federation of Independent Business indicated that one of the major problems is not necessarily the municipal tax rate but the provincial tax rates. They had a study and someone duplicated it today, I guess the representative from Windsor, which showed that Ontario is probably -- of the ones they have illustrated -- the highest property and wealth taxation jurisdiction in the world.
I notice in the comments that we've been hearing, there's a lot of attention being given to the municipalities and what they're doing. You've just raised the question that several have raised about municipalities saying, "We're going to tax the non-voters because we have to account to the voters." Have you and your industry and your association looked at these areas and have you identified those provincial tax regulations that are impacting negatively on your industry?
Mr Childs: I'm not sure what the associations are doing, to be quite honest with you, as far as that is concerned. My concern with the municipality level is that you've got a changing municipal government and there are concerns that the voting residents might persuade the municipal government of that day to bring something that would pull an unfairness in the tax structure. That is my concern.
Mr Hoy: Shortly after my election in 1995, I met with all of the municipalities in Essex and Kent that come under my riding. At that time they told me, "We haven't had a tax increase in three years." Some hadn't had a tax increase in five years. Some hadn't had tax increases in even longer periods of time. Just by chance I happened to go to a restaurant at noonhour and some people from Essex who are in municipal government were there. They are saying to me now that for the life of them they don't know where to trim any more. I think they're between a rock and a hard place right now.
They're also discussing amalgamations of counties and the municipal governments. As someone said here earlier this morning, the government has all these balls in the air and they haven't come down and nobody knows where they've landed yet. They're struggling with how to deal with these pieces of legislation that are coming in and not complete, such as Bill 106. It's not complete on the minds of many people, yourself included. You'd like to see some changes for the positive. They really don't know where they're going to find more efficiencies.
Not only that, but given that the government's agenda is so rapid, yet incomplete, they don't know who they want to amalgamate with. It's like going to the old school dances that I went to in high school; everybody was walking around the outside, but nobody knew who to dance with. They don't know who they want to dance with in the future, not given the complete story.
I appreciate your being here and giving your input from the business perspective of a person who owns an inn. We need to have the government put its full agenda in place before the people of Ontario and not in kind of a patchwork. Thank you very much.
Mr Pouliot: Mr Childs, I wish you well in your endeavour in Wallaceburg. You're creating employment. Would you have any idea how the business occupancy tax translates in terms of a cost per room per year?
1430
Mr Childs: To be honest with you, I've never done that calculation. I could probably do that and get it for you, but off the top of my head I couldn't give you the actual dollars.
Mr Pouliot: But it's substantial.
Mr Childs: Oh, definitely.
Mr Pouliot: There are winners and losers in this exchange. Congratulations. Today the sun rose for you, because, not unlike the bigger industrial players, you come out on the winning side as hotel/motel operators. Large apartment owners also will do fairly well.
There's a sentiment that the losers, those on the other side of the ledger who compensate, will be the small business, smaller industrial and perhaps the residents. You're right to be concerned about an opportunity for people -- because they must get the money from somewhere to pay for services; it's quite simple -- that while you gain by a reduction or elimination of the business occupancy tax, people will petition other levels of government and they will say, "Give us the opportunity within the system to establish or to look at another class of taxes."
So while you might see that the new system is more fair, in the final analysis, "Gotcha." So you'll sleep better; you won't eat any better. You would like it because a tax is a tax and a dollar is a dollar, whatever title, but if it's in the legislation, only a change of heart from the government in place or a change of heart from a new government would mean that they would have to open the act. It can be changed at any time, but if you do it by regulation you don't have to risk opening the act. In the political context, once you open the act, it's a can of worms and it becomes a bag of snakes and the opposition go crazy and they filibuster etc. Preferably, it's in the legislation. The government will not wish to have the name of every child in the province become part of Hansard. That would be a waste of time. The streets, that's okay.
I understand your fear. I'm not a prophet. Municipal governments are very good. The fact is they need the money. And you're phased in; they won't have time to phase in. If they need the money, the friendly banker will make sure that they do the phasing in tout de suite, and the people who say, "I've been paying too much, I want justice to be done now, not over eight years, and by the way, where's the interest?" they'll want it now, and the people who haven't been paying enough will say, "Eight years is not enough." So your local council -- I hope you're not running for office -- has to reconcile all that.
I agree with you, and I wish you well. You have the obligation to be very vigilant, because you'll celebrate one day, and the next day you'll experience the very opposite of celebration, that is despair, because it's like tales of Houdini: At one time it was there, and it passed and you missed it. Good luck.
Mr Childs: I think the key thing there with the taxes is the fair thing. Trying to be equitable, yes, there are going to be some ups and downs and some adjusting, but in this province I think the good operators will stay good, stay for a long time and carry on. What they need is an equitable tax so that we know where we're going with it, instead of having these ups and downs that the current tax legislation has.
Mr Pouliot: You are very positive.
Mr Carroll: Mr Childs, first of all I have to comment on Mr Hoy's dance analogy. I went to the same kind of dances. The one thing I found out is that at some point in time, you did have to make a decision and ask somebody to dance or you went home alone. Decision time is upon us.
I want to compliment you on a couple of points: number one, being a small businessman coming out and taking the time to come out and be heard, and being a young person taking the time to come out and be heard. On both counts, that's important that you take your place with government and tell us what you feel, so I compliment you on those things.
You live in and do business in a community that has done a marvellous job in the last few years of reducing expenditures at the local government, dramatic changes in Wallaceburg in the reduction of expenditures. Have you seen, as a businessman and as a resident there, a profound reduction in the level of service as a result of those efficiencies that have been found in Wallaceburg?
Mr Childs: With reference to my business, not directly; with reference to some residential services, yes.
Mr Carroll: Acceptable reductions?
Mr Childs: Yes. Once again, it comes down to starting to pay for the services that you require, and I support the government's moves and I think they're positive ones. Then you see where the private sector sometimes picks up the difference on different programs, and it gets sorted out and done and there's not a major lapse in services.
Mr Carroll: As a small businessman, taxes are a big component of your overall costs. If the government can come up with a tax system that is fair and that overall allows a reduction in taxes, be they income taxes, property taxes, whatever, does that put you, as a businessman, at a better opportunity to compete, get more business, hire more people, create more jobs and in actual fact make a bigger contribution to your community?
Mr Childs: Definitely. There are always things we could do to create more opportunities at our facility, to add on and increase the volume of traffic through, as well as promote different areas of the motel and expansions.
Mr Carroll: One other quick thing: You're one of several people who have expressed some concerns with local politicians making good decisions, and some concern about, "Maybe we need more protection in the act so that Toronto has more input in local politicians." Are you really concerned about giving more responsibility to the local politicians in Kent county to make good decisions on behalf of you in Wallaceburg? Is that a valid concern on your part, that you don't want them to have more responsibility and more opportunity to make decisions?
Mr Childs: I don't want to miss the opportunity for input. I want to make sure that the council of the day -- once again, I have no problem with the current council, but I have current concerns. I'm a young businessman; I plan to be in business for a while. I don't want to create a nightmare today that's going to impact me 15 years from now. It's hard to predict the future, and it is nice to get some consistency so we can plan a track to a positive future and not have too many bumps along the way. We've seen enough bumps in the 1980s and 1990s in our industry. We don't need to create too many more.
Mr Rollins: Thanks for your presentation. It is very encouraging to hear some young business people come out.
In Bill 106, the range of the categories that we're establishing there, there may be some variations at the upper and lower level as far as the range, each different sector, and I think that's one of the reasons that we feel that maybe the local municipality can make those adjustments. I think there needs to be a top and there probably needs to be a bottom, and as long as you play in that, it gives some accountability.
And the same thing with our local assessment; if we're having the assessment done locally, through your own local municipality, you're going to be able to be in touch with those people. Now, whether they physically do it or people are hired to get it done, I think that it gives you some protection if we put some guidelines in from Toronto -- but just the guidelines, not to draw the whole dotted line and the whole thing. Do you not agree that we need some flexibility?
Mr Childs: I agree. I don't know the exact form and how to do it. My concern is that it's a fair, equitable way, that somewhere down the road we don't have a major surprise in our industry. If that will be accomplished the way it's set up, that's fine, but I have concerns that we have to make sure that it will entail a fair and equitable way.
Once again, I'm not afraid to do business. If my taxes have to sneak up a little bit, I don't like that, but if that's what's going to happen and the guy next to me's got the same deal, then we'll deal with it, but I want to make sure I'm playing on a level playing field.
The Chair: Thank you very much, Mr Childs, for coming in. As has been expressed, it's a pleasure to see people of your vintage taking their place at the table. Thank you very much.
Mr Childs: Thank you for the time.
Interjection.
The Chair: Yes. We do have one person of your vintage on this committee: Mr Hudak.
Mr Manchester? We don't believe Mr Manchester has arrived yet. Mr Vander Pol? I don't see Mr Vander Pol here. He would be early.
1440
ARNOLD BROEDERS
The Chair: I believe Mr Broeders is here. Mr Broeders, would you be prepared to go a little early?
Mr Arnold Broeders: Yes.
The Chair: Thank you very much. We welcome you to the standing committee on finance and economic affairs and look forward to your presentation.
Mr Broeders: First, a brief introduction. I've been teaching for approximately 30 years. About 15 years ago, I also got into business, so I guess I see both the tax takers and the taxpayers in this deal. I just want to let you in on some of the experiences that I have had with the tax system. I presently run four video stores, and my experience is based on this. I became involved in the question of fairness in our tax system as a result of operating these four stores in Kent county.
In November 1989, I opened the fourth location for the Video Terminal on the corner of Richmond and Lacroix, one of the former car dealers in the city. The property tax had not yet been determined, but I felt it would be in line with our other locations.
When the new tax demands came out in the spring of 1990, I was shocked. The effect of reassessment on my home amounted to an increase of "only" 24%; the tax in a strip mall on Queen Street went up 80%; my location in Thames-Lea mall went up 135%; and in my new location, over 200% in one year. That new location required a property tax, for a store roughly the size of this room, of $1,100 a month. My rent was $2,750.
I yelled, I protested, I was interviewed by the press, the CBC, local TV etc. But everyone in the tax system explained to me that I was paying my fair share.
This is how the assessment people explained my assessment: Across the street the previous year, Mac's milk had just bought property and put up a new mini-mall for over a million dollars. Therefore, the renovated mall I occupied was worth more. The first tenant, a Pizza Delight, had the landlord do $360,000 worth of improvements and paid $28 a foot in rent. The tax was based on the improved lease. My lease, for a less prominent location at the back of the mall, cost $10 a foot, but I was paying tax at the same rate.
It is unfair to assess each store location within a plaza at the same rate when they do not share the same advantage of location or value. I appealed my tax, and it was eventually reduced by 10%. Pizza Delight was forced to close. The deli next door was forced to close. I was told by a local politician, "If you can't afford the tax, get out of business," so I moved out. The owner of that plaza eventually lost the plaza.
Why do local businesses have to pay speculation tax when out-of-town businesses bid up the value of property? Mac's eventually closed down most of their stores here in Chatham, but not before making a lot of small business people here in Chatham suffer by their speculative building frenzy.
The question now is, what is a fair tax? A business must pay for local services such as police, fire, road repair -- they have to make sure they can get to the store, so the snow is cleared -- and administration. If I have a business in three different locations renting videos, are those costs not the same in different parts of Chatham? If you want to tax income, then do it through a different tax system.
To add insult to all of this, there's a business tax which is assessed at 30% of the property or speculation tax. Business tax could be based on licensing fees, the number of employees, gross sales or profitability, but should not be based on the speculation tax.
The second experience I had with the tax system dealt with appeals. At one of my store locations, I was fortunate to be able to buy out the neighbouring store. I had a video store; that was a variety store. At the end of the year, about five years ago, we put a portal through the wall, just like opening up this door here. The effect of that was that if I was paying $6,000 in tax on this side and $6,000 tax on the other side, you open the door and the tax goes down to $9,000, a saving of $3,000, even though it is still basically my business.
I called the tax assessors in and they said, "We'll take care of that next year." While I waited for a full year, I overpaid $3,000 in tax. That next year my tax was reduced. It was like that for three years, so I saved $3,000 for those three years.
In November of that year, I told the assessors that my lease was up the following August and therefore the ownership or lease would then go back to the owner of the mall. My tax assessment was changed immediately. I was not notified, because the new tax assessment for that vacant store, even though the hole was still there, was sent to the landlord, who lives in California. All of a sudden I get this increased bill: "Pay up the $3,000." I'm still using it as a storeroom, but the tax assessor says, "No, it's a vacant store, so pay up."
Towards the end of that year my landlord saw that he could not rent it out to anyone else and he gave me a better deal and I rented again. I got the contractors out, enlarged the opening, got the assessor in, in November and said: "Change my assessment again. You've made me overpay this year." The guy refused. He didn't submit it. I called and called. Finally, in November of last year, the assessment came through that, yes, I had been overpaying tax, only for the one year, not for the two. I still don't have my money, because my tax is paid to the landlord, who lives in California, and the city is now going to rebate my $3,300, but it's on his books. I paid it and he thinks it's his. So thanks to these assessors, I overpaid $10,000.
When you talk about local guys you can call, there's only one way I want to give the guy a call and that was with a big assessor of my own, but unfortunately these guys are untouchable. He should have been sued, he should have been shot, he should have been fired. I'm upset and out $10,000. I just hope this new system that you have will be much fairer and will have some local input and a little bit of immediacy, because we small business people have to react quickly to changes in the marketplace. That's the only way we can survive against the big guys.
That's my experience, and if you have any questions I'll be willing to answer them.
The Chair: That leaves about four minutes per caucus. We could start with the NDP.
Mr Pouliot: Thank you very kindly. Yours is a very sad, desperate story, yet you have the fortitude and the solace to go to school and to form, to cast the minds of the future. I would hope, with respect, that you are not telling those young students to shoot, that you will instil in them the kind of self-discipline to stop from doing that. In any event, should you wish to do that -- you see, they talk of another kind of revolution. Make sure you have the guns, teacher.
Mr Broeders: They're being taken away by another bill.
Mr Pouliot: Yes. This is a deterrent.
Do you feel that if you shifted the responsibility of assessing to the local level, in lieu of the present system, you would necessarily have quite a difference, because they would be local?
Mr Broeders: I just felt that there should be someone to appeal to, like I said, the local politician who came in. I don't want to give too much power to local politicians, because they all get grants to spend money.
Mr Pouliot: Thank you very much. All of us are local politicians. Mr Carroll is saying -- and I recognize the tone; I've been doing this for 12 years straight -- it's the local politician. But he knows everybody in the room. All politics being local -- but he works at Queen's Park, so I guess we'll take that with a grain of salt.
The appeal will have to be simplified because they expect -- and I'm not the one saying this; independent people without prejudice are saying 900,000 appeals, that it will be chaos. There are 3.8 million units to be reassessed. It's the highest, deepest concentration of assessments ever undertaken in North America over a short period of time, and it's going to be done partly by call boys, people who will be trained in one or two days. They have no concept and they'll do it for $12 an hour.
The contract's just out: $62 million of our money to do this charade here. It's going to be chaos. The entrepreneur, the contractor, will be getting $30 per unit, and he will fork over $12 to some student who will have been trained, and they'll make H&R Block, when they file their income tax, look great.
1450
I warn you, if you want to talk about appeals, there will be one heck of a lot of appeals. They say there's light at the end of the tunnel; it's a freight train at the end of the tunnel. I'll be around to say we told you so, but I want to wish you well. Maybe I'm wrong. I appreciate your courage. Your courage is great.
Mr Spina: Thank you, Mr Broeders, for joining us today and making some of your comments. You might want to talk to our friends over there with the relatives in Ottawa about Bill C-68. I know that's in the back of your mind.
One of the things you were concerned about was how the changes would take place with regard to the rates that might be applied to businesses. Yours is a very real case. We fully empathize with the objective that the person who does the assessment should be somebody you will have the opportunity to address, and they should not be able to go about with impunity. They ought to be accountable.
Just as in a real estate transaction where you might get two separate appraisers to evaluate a property, I think it's only fair that you have the opportunity to get two assessors, which is essentially the same thing -- all they do is use slightly different criteria -- to look at a property. By simplifying the process, as we have proposed in this bill, your total appeal should be done in 90 days. I think you'll agree that's a considerable cost saving.
We talked about some of the ratios of categories for business. I wonder if you could give me your opinion or if you're familiar with that aspect of the regulations that have been tabled.
Mr Broeders: No.
Mr Spina: What's happening is that in setting tax rates, the municipalities will be required to follow provincially set tax ratio ranges for the various categories. These ratios, if they are above the provincially set ratios, because of where they are currently taxed, are going to have to downgrade to the provincially set rate, which is really a safeguard for the property owner to ensure that they aren't being jammed unnecessarily with skyrocketing taxes so that the sky will not fall in, as my honourable colleague will say over here.
I just wanted to assure you that these are some of the policies that we are trying to implement as part of the overall implementation of the bill. Does that make you a little more comfortable, as a business owner?
Mr Broeders: Yes.
The Vice-Chair: About a minute left. I have Mr Carroll and Ms Bassett.
Mr Carroll: A quick comment. The 900,000 appeals that my friend from the third party commented on, I don't know where he got that number from, but it's just slightly more than the number of amendments they tried to put through on Bill 103.
We're moving to a system where basically, very simply, properties of equal value will pay equal tax. Can anything be fairer than that?
Mr Broeders: No.
The Vice-Chair: That's all the time. To the official opposition.
Mr Kwinter: Thank you very much. I really do empathize and sympathize with your situation. You're really representative of a class of businessmen who I think are going to be adversely affected by this bill.
I'll give you an example: A bank tower, regardless of whether it's in downtown London or downtown Toronto, its business occupancy tax was calculated at 75% of its realty tax. It is going to go to 42%. You, in your category, have been assessed at about 30%. You're going to go to 42%.
What is going to happen -- and you've got two problems. Your major problem is with your realty tax, because the assessment you talked about initially was the discrepancies in these four different locations, and how you had the same use of the property and yet your realty taxes were so disproportionate because of Mac's milk building its mall across the street and all that other stuff.
What is going to happen is that this business occupancy tax is going to be removed but it's not going to disappear. It's going to be blended in with your realty tax. You are really in a position right now where I can predict that your situation is going to worsen, it's not going to better, because you're now paying 30% on your business occupancy tax; it's going to go to 42% and it's not going to address your particular problem. It was suggested that maybe you should go after the assessors because they're not dealing with you equitably. You may have a course for that if you take it to an appeal or something like that.
Are you aware that's what's happening with the business occupancy tax?
Mr Broeders: It's the same problem I've had before. If one type of tax goes up and the assessment stays the same, there will be all sorts of businesses closing. Everyone always says there's only one taxpayer. You can get me at home; you can get me in the business. If the tax is too high, I'll close the doors and then we'll have more screaming people and more unemployed politicians and a new party to try and do the best that way. But so far, I want something that is fair and is applied equally to everyone. That's what I'm hoping for.
The Vice-Chair: That concludes our time. Thank you very much, Mr Broeders, for your presentation today.
Mr Broeders: Thank you for allowing me to present this.
The Vice-Chair: Glad to have you here.
HONEY ELECTRIC
The Vice-Chair: I believe Mr Vander Pol has not yet arrived, so we're going to move to Mr MacDonald from Honey Electric. Good afternoon, Mr MacDonald. Welcome to the standing committee on finance and economic affairs.
Mr Reg MacDonald: I'm glad to be here, I think. Am I the last speaker of the day?
The Vice-Chair: It depends on whether a couple who missed maybe are running a little late.
Mr MacDonald: I was just going to check. You probably all have bingo butt by now and I could be brief, cut it really short.
The Vice-Chair: We do have 20 minutes together. Any time you choose to leave can be used for questions from the different caucuses. Please proceed.
Mr MacDonald: First of all, I'd like to open up with a couple of comments. The property tax system is long overdue for upgrading. I think we all agree on that. This government should be praised for its courage to take on such a monumental task.
This said, the property tax system must be changed, but in a fair and gradual way. There are too many inequities and problems with the current system. Ontario is the top property tax generator in all of Canada and this is a deterrent to any existing business or prospective businesses. We need guarantees from this government that the municipalities are not going to increase our taxes, that this government will protect businesses from unjust taxation.
My first issue: Canada, and especially Ontario, have some of the highest taxes in the world. The rate of increase for property taxes has risen over 20% in the last six years alone. This is one of the major deterrents to economic and job growth. The business community, especially small business, will be affected the most with higher assessments and higher tax rates, to make up for the loss expected when school taxes are taken over by the province. The business community in most cases pays double taxes compared to the residential ratepayer, and usually receives less service.
Small businesses, by sheer numbers, have greater competition in a sector than do their large multinational counterparts. With less income, the higher taxes have a greater impact on small firms. Because property taxes are deductible from business income does not mean we can handle more taxes and just pass the burden on to the consumers. We are all consumers; there is only one taxpayer. The small business sector is price-sensitive and higher product costs will force consumers to purchase their goods elsewhere. Worse yet, business owners will lay off workers, try to reduce wages and cut back on expansion or capital purchases to offset higher assessments.
Who says local governments are going to lower taxes? Political pressures will favour the residential sector and any changes in class will result in businesses picking up the difference, especially with the repeal of the business occupancy tax.
My suggestion: It would be fair if residential and business property taxes were the same, but this is probably impossible. If a fair rate was fixed by the province at a percentage of residential property assessment and the existing taxes allowed to rise and fall to a median level over a specified period of time, this would allow everyone to adjust with a minimum amount of discomfort -- municipal accountability assumed there.
1500
My next issue, allowing municipalities to design classes of property designation beyond the current list, is asking for more areas to tax. When the business occupancy tax is repealed, the need of municipalities to replace this income from business will necessitate increasing the property taxes. If the current list of property classes are maintained and identified in law, the municipalities will not be able to create a number of new classes to broaden their base.
There would be even more discrepancies and needless arguments about the designation of certain types of properties that did not quite meet the municipal description of a class, and the taxpayer having to pay for a higher rate than expected. The arbitration system would be overstressed to meet the demand of class readjustments. Simplifying the tax system would be one of our primary goals.
Another suggestion: If the business occupancy tax is repealed, it should be done gradually and over a specified period of time. The loss in tax revenue to municipalities brought about by these proposed changes should be borne by all taxpayers, not just an increase in business taxes. The number of property classifications should be reduced, or at least limited to the existing list.
The next issue: The property tax system should never have been the vehicle of education taxes. If the government is going to tax businesses to recover education taxes, the businesses should have a greater say in how the education taxes are to be spent. We all benefit from a skilled, educated workforce, but at what cost? A balance between what is required to train and educate our citizens to what could be a job-killing tax burden will be difficult. My suggestion is that education taxes be phased out of property taxes for both residences and businesses.
In summary, reform of the property tax system is needed, of course. Businesses should not be the sole focus of tax increases. Fairness and simplicity should apply to all tax changes. Phase in changes over a reasonable time frame. Governments should be made accountable for their costs and administration of taxes. The provincial government should establish a fixed percentage of property tax rates and legislate property tax classifications, instead of allowing local governments to create new classifications.
In conclusion, property taxes, once perceived as a necessary cost of doing business for progress and development, have become the cancer in our pocketbooks. The desire of the public to see prudent stewardship by government has become the fear of runaway bureaucracies fed by the opiate of taxation. This is an opportunity to correct years of unjust and complicated property tax legislation. The hope is that fairness to all and simplicity will rule the day.
A property tax based on current market value is the best approach at this time, provided accountability at all levels is ensured. We want guarantees. Governments have to put dollars back into the pockets of taxpayers. Our collective disposable incomes have not increased since 1974. It's time to give us a break. Half of my income each day goes to pay for all the levels of government, and I can't afford it any more.
The Vice-Chair: That leaves us with a significant amount of time for questions, about five and a half minutes or so per caucus, beginning with the government side.
Ms Bassett: Thank you very much, Mr MacDonald, for your presentation. You raise several interesting points. That's what we're here for, to hear people's different ideas.
One of the things I'd like to talk about is the business occupancy tax. You assume, it seems, that the elimination of the business occupancy tax that so many people have requested in the business field will mean that taxes are going to go up.
We believe, first of all, allowing the municipalities the power to redistribute or collect the lost revenues the way they want, spreading the tax over a wider base, will be an equitable and fairer way of doing it. Although we haven't said how it's to be done, municipalities probably will redistribute it over the business base. Also, a lot of the BOT that we don't collect, we lose -- $200 million a year in lost revenues. That money will be coming in.
I don't see any need, and I wonder why you think we have to raise taxes. It's just restructuring, in my view. Right now it is an unfair tax dating from 1904, and we're saying people who don't deserve to get it or who have no reason for paying more than someone else will now probably have a stable way of going about paying it.
Mr MacDonald: Excuse me for being so naïve, but what happens is if there's ever any money that has to come out of the community, it seems they always go to business first, and I can't afford it any more. You have to understand that most businesses -- I don't know what the percentage is, but a large percentage of businesses -- are small businesses, mom-and-pop operations, one, two or three employees. When you increase any kind of tax to us, we have to immediately pass that on to our consumers: "There you go." Like I said, I'm only one person. Each individual is the taxpayer.
Ms Bassett: Can I just add that municipalities will have the ability to establish a two-tier system for the BOT, so they will be able to have --
Mr MacDonald: But at what rate? If the residential rate is at one amount and they tax business at an increased amount and we're getting the same services, I think we've been hard done by. Why is it always that business has to pay for this? If I had additional income in my business because I didn't have to pay as many taxes, I'm sure I could find a lot of interesting things to do with it, like expand my business, hire more people etc. This is what I'm talking about.
If you take any kind of tax away from municipalities, they're going to have to find a way to replace that, unless you shrink the size of those governments -- and I guess we're trying to do that too.
Mr Spina: Thank you, Mr MacDonald, for your input. I think you've kept in mind at least the underlying thrust of the objective that we are trying to achieve. The province really doesn't benefit from any increase or drop in taxation here. It's really intended and designed for the community itself and for the municipal government to be able to have a lower administration of tax collection, a fairer system of tax collection and at the same time keep in mind that it is small business that's creating jobs.
To that extent -- and I appreciate your concern about the community maybe having too much control over setting the number of categories. Did I understand your concern in that area?
Mr MacDonald: Yes. I can see them subdividing into all kinds of little categories, and every conceivable opportunity would allow them to spread the base out, so that if you had a piece of property that was perhaps not complying in one of the classes, they could subdivide it down into something else and, because it was an anomaly, increase the rate associated with that class.
Mr Spina: If it's of any benefit, in setting the tax rates the municipalities will be required to follow provincially set tax ratio ranges. That's a policy paper that's accompanying the bill. The province will define the tax ratio range for each class of property. Furthermore, those transition ratios can be retained if they are outside those ranges, but any changes in those ratios have to move closer towards the provincially set level. Do you feel that's a sufficient safeguard?
Mr MacDonald: Yes, I think I understand it, and without going into it in detail, I would accept that as being fair, I would suspect.
Mr Hoy: Good afternoon. You make a very compelling case from a business perspective, and I can appreciate your appeal, that if the business occupancy tax is repealed, it should be done gradually and over time. I think that would be a prudent thing to do.
The other point I found very interesting in your submission that varies somewhat from some others was that you state that the education tax is still left on the business component -- we recognized that immediately -- and with the withdrawal of the BOT, your new tax regime would go from 30% to 42%, yet you're still left with the education component.
If the government thought that the education tax shouldn't be on residential units, homeowners, why they thought it should be left with business doesn't seem to make a very good argument, to me. It's not one or the other, but either it's off everything as a property tax consideration, both for business and residential, or it stays in both places. I'm baffled by why they did what they have.
Mr MacDonald: If I could address that just for a second, I guess business is going to be the user of the education product that we produce in a large way, and I don't see where we should get off scot-free.
1510
Also, it should be more of a user-pay system. From my particular perspective, if I might just digress for a minute, I'm advocating that the apprentices who work for me actually pay for their education. Right now, they don't do that, and it's like a tax on me.
I'm saying that they would have a better understanding of the value of their education and apprenticeship if they paid for some of that training directly themselves, a user-pay system, just like any other college or university student might. Right now, they pay virtually nothing. I think they should pay something, and I'm willing to contribute to that; in fact, I do.
In the four and a half years it takes me to train an apprentice, it costs me in excess of $100,000, but I don't get any recognition for that, none whatsoever, and I would like to, because at the end of that time, they can leave my employ, go work for somebody else, usually Ford or Chrysler, which do not have an apprenticeship program -- big multinational, can afford it -- and I wind up paying for all of that training. That's like a tax as well on me. But I am willing to submit that, yes, I should be responsible for some of the education tax, because I am going to receive some of those benefits.
Mr Hoy: How would you achieve that? You suggested that education taxes be phased out of the property tax system for both residential and business. How would you apply your last statement to a trainee? You said you were willing to pay for some of this person's education.
Mr MacDonald: No, I said the apprentice or the individual should pay for their own education.
Mr Hoy: Oh, they should. I misunderstood. I thought you were willing to pay some portion of that.
Mr MacDonald: I'm paying the largest portion of it now, and they pay nothing. I'm saying they should pay something.
Mr Hoy: Okay. I understand you. Thank you very much.
Mr Pouliot: Mr MacDonald, a welcome irony is that the person who was the presenter, contributor, right before you is also a medium, small business person, but he is also a teacher.
I see in your text -- and you write in a colourful and direct fashion -- "the opiate of taxation." I could work on that if encouraged, and we could maybe prepare your next presentation together. You commend the government. You use words such as "timely" and "courageous," words of encouragement indeed. Yet, as your theme develops, you seem to lose that fervour, better associated with youth at the beginning of a campaign. You then say: "Well, yes, but protect me. I know that you are doing a good thing, but I need some further protection from other people out there who exercise the same honourable profession but at a local level."
I hope you're not the victim of a sinister ploy, Mr MacDonald. You deserve better.
Mr MacDonald: I hope not.
Mr Pouliot: The reason I say this is that few people, and I hope it's not the case here, mention the effects of the downloading, fewer dollars, transfer payments, from the federal government to Ontario, about $3 billion. People see the province as saying: "You're the government now. Don't whine. You have the responsibility. You have the tools at hand. You can change some laws. You can legislate."
Sometimes the dark side of me senses an encouragement to say, "You go and deal with your direct relationship now." It will be the municipality, because they're going to have all the demographics, the unpredictable and costly items and that of you, the teacher in the classroom. You will deal one on one with the government. Your right to withdraw your labour might be withdrawn. If not, they will let you go out and then legislate you back.
Your pension plan -- and you would like to have a say in education, you say this, so I'm inviting you to have a drink after -- is in excess of $50.2 billion. By all actuarial figures, it's guaranteed that they can fund all liabilities for another 35 years. They will find that pension plan with a lot of crust, Mr MacDonald, a seduction seldom seen --
Mr MacDonald: Excuse me, what does this have to do with property taxes?
Mr Pouliot: Pardon me?
Mr MacDonald: I missed something here.
Mr Pouliot: I didn't interrupt you. Please don't interrupt me.
Mr MacDonald: I'm sorry, but my time is valuable too.
The Chair: I'm sorry, Mr MacDonald, he does have five minutes to use for a comment or as a question. If he gets too far off track, I'll bring him back. He does wander.
Mr Pouliot: You commend the government. You're the one here, under any circumstances, sir, who is going to end up paying big time, because you're going to get it from all sides. There is no alternative. They have a contingency plan or fund for the downloading, but in terms of Bill 106, there is no fund. It all comes out in the wash. The big people, like you said, the multinationals, they're getting the big breaks, because that's the way the system works. Small industrial will pay more. Residential will be protected and at least they'll get a bit of a tradeoff because they won't pay any more education. You will still be paying your education tax, and you will pick up the slack because you don't have the protection of the representatives of the voters. You'll be left in between.
While you agree with this -- because when I go back to Queen's Park, I'm going to say my good friend from Honey Electric, Mr MacDonald, agrees with this. But when you get your bill, I don't want you to hate me next year because your taxes go up.
What I'm saying is, under the present system, unless they change the rules of the game in short order, people like you are getting it right between the eyes, and I don't want to see that happen to you. That's all I'm saying, sir. I'm putting you on caution. I'm with the third party. I have nothing to lose, but I can count. I've been there long enough. I had four ministries with the previous administration. No better, no worse, but I'm saying, not because they want to but the way the system is designed, you will become more vulnerable.
The Chair: Do you have a concluding comment to that?
Mr MacDonald: I've always paid. I expect to pay. I don't know how I can get out of it. I just don't want to pay any more if I don't have to, like anybody else. Not only that, I expect this government to treat me fairly. That's all I ask.
The Chair: That's a marvellous note to conclude on. Thank you very much, Mr MacDonald, for taking the time to come in and present to us. We appreciate it.
ROL-LAND FARMS
The Chair: We welcome now Mr Vander Pol. Welcome to the standing committee on finance and economic affairs, Mr Vander Pol. It's a pleasure to have you come in and present to us. I should point out to the members of the committee that I've been an acquaintance of Mr Vander Pol for some years. We used to negotiate tomato prices many years ago.
Mr Pouliot: Who won?
The Chair: I always said that he won.
Mr Hank Vander Pol: That question is better answered off the record.
The Chair: I always admitted that he won, but we were always very happy.
We have 20 minutes, Hank. If you'd like to make a presentation, we can fill any remaining time with questions.
Mr Vander Pol: Thank you, Mr Chairman and members of the committee. I recognize a number of faces. Quite frankly, I didn't put together a long epistle, mainly because I think what's really relevant for me, as a primary producer and an employer in Kent and Essex counties -- and just by way of an introduction, I'm the president and CEO of a family farming business which employs some 200 employees in both counties now. We farm about 1,600 acres of cash-crop land. We do a couple of other things. Our business this year will turn a farm-gate value of something approaching $50 million. That's probably still small business if you're in downtown Toronto, but it's what I consider a reasonable family farm in Kent or Essex counties -- farming business; it's not just a farm, it's a farming business.
As a taxpayer in four different municipalities, it is of some concern to me that this restructuring effort be done fairly and appropriately. To that end, my opening comment would be that taking education taxes off of property taxes has been a long-standing issue with me and I think it has finally come about. I've always had a tough time understanding why, because I own property, I should pay education taxes. I always thought that was a function of people as opposed to property. That Is finally being rectified. Of course, ancillary to that comes the issue of restructuring the property taxes.
1520
I've got some concerns, and they're not with the act and the principles of the act at all. The concerns, as I understand them, are really in terms of the regulations, when and if those are put together. By way of an example, those of you who are from this part of the country will understand that there's quite a diversity in farm land values, and they're very subtle. You can't tell when you drive through the countryside which piece of property is worth what. I can't in my own mind at this particular point in time be satisfied that when you talk about current-value-type assessing it's going to manifest itself in farm values and farm assessments.
I still haven't sorted out in my own mind, for instance, how the arbitrary 25% of residential rates would apply to farm properties in a particular area. Those of us who are from Kent county are going to get a big surprise here one of these days and we're going to find out what kind of government we're going to have, Jack. I'm not taking any bets on that one either yet, by the way.
These are the kinds of things that concern me as a taxpayer. I would be disappointed if taxes went up significantly as a result of this function. I don't see any reason why they should. The total tax load is going to be there, and what really matters is how it's equitably distributed. If tax rates have to go up because of the downloading that was alluded to previously, so be it, as long as it's done equitably.
One of the concerns I have is, again, the 25% issue and the arbitrariness of 25%. I wish my good friend Bob Seguin was here. Maybe he could shed some light on how they came up with that number.
I wonder whether it wouldn't be more appropriate to suggest that taxation and potential taxation changes on productive agricultural properties -- and you can put woodlots in that category -- wouldn't be better served by a system that would mandate that in the next X number of years -- and I'll leave that up to the regulators -- there be some function of what the current effective rates are -- the effective rate is the mill rate less the rebate -- as opposed to saying that now all of a sudden we're going to hitch our wagon to a different star and that different star happens to be residential properties.
Having said that, it seems to me that if there are inequities as a result of historical assessments and all that, it would make sense to have a period of frozen rates on those kinds of properties and then a phase-in period as opposed to saying arbitrarily that it's now going to be 25%. It's a way of possibly mitigating any shocks, and I respect what the gentleman over here said about what might happen. I might get killed going home today too, so I'm really not that concerned about it. If we want services from society and we want the government to supply those, then we have to pay our taxes. Hopefully those taxes, in total, won't be any greater than they have been historically.
Those are the kinds of things I would just like to allude to. There may be some questions from some of the committee. Again, my major concern is not so much who controls taxation ultimately, because I think the best place to have that is at the municipal level, quite frankly, because I can get at a local politician a whole lot faster at least than I can get at some of you at Queen's Park. A few of you I can get at pretty quickly at Queen's Park. I don't think those of you who serve Ontario at Queen's Park should be involved with those local kinds of issues anyway. The local politicians can deal with that quite effectively, and I'm quite prepared to pick up that challenge as a taxpayer in Kent county, Essex or wherever it happens to be.
I am concerned about the transition period and the effects of that transition period and the arbitrariness of 25%. I could make an argument that it should be some percentage of the commercial tax rate or the commercial assessment rate as opposed to the residential rate. It's a notion I think merits some thought.
I'll finish there. I see there are at least a couple of questions, and I'd be only too pleased to try to answer them.
The Chair: Thank you very much. That gives us about five minutes per caucus. We could start with the Liberals.
Mr Hoy: Good afternoon. Congratulations on your recent appointment. You'll be even more deeply involved in the farm scene if you weren't already.
You question the 25% on the residential and 75% being forgone. I wondered about that same thing, but I suppose it relates to the rebate itself being probably more political than thoughtful. Even to that, I would say that other governments in the past have tinkered with that rebate. It has been lower. It was suggested at one time that it even be 100%. There was some friction over that as well. You would know well that the farmers do want to pay their fair share of tax. They don't want to be seen as being handled any differently than anyone else, though I suppose within the ministry they're suggesting that the finance minister would go this route, I assume. Maybe Bob Seguin can answer that better than I, but that's what I assume it is. It's just to mirror something that was going on prior to this.
Farm property value is an interesting point. Land values here, from my understanding, have escalated a little bit, depending on the locale, in the last year or two probably based on grain prices and other commodity prices, and then there's land that you want to make sure you walk across before you sign the cheque. Land values here range maybe $1,000; some people are paying $6,000 an acre. It all depends, I suppose. You have a good point there.
You're in a highly value added business or diversified, we'll say, at least. There have been some concerns in other areas of the province that value added farming could be taxed differently than it currently is. How do you feel about that? We're talking about market gardening, roadside businesses etc or potentially new businesses that neither one of us has thought of.
Mr Vander Pol: To address the issue of value added, I really question what the words "value added" mean in the context of agriculture, to be honest with you. Anything that is produced on the field or in an enclosed environment, whether it's a greenhouse or a mushroom farm or that kind of thing -- I consider the production we do in our greenhouses and the mushroom production facilities just as much agriculture as growing tomatoes out in the field or growing corn in a field or, for that matter, milking cows as we used to.
If you look at value added as being something that changes the natural state of a commodity, processing or something like that, then I wholeheartedly concur that that's commercial. I have a little trouble understanding why anybody would think that because we grow mushrooms in a controlled environment, for instance, that's not agriculture. I don't think you're implying that either. If you were to process that product, and packaging is kind of a grey area -- but if you don't really change the state of the vegetable or the fruit in itself, I consider anything up to that point in time to be agriculture, and I would expect that would be treated as agriculture under these rules.
Mr Kwinter: I was interested in your comment about how you could never figure out why education tax should be attached to property and not to people. I'm sure you're aware that under the proposals of Bill 106 the education tax is going to be transferred from the municipality to the province. The province is going to collect the education tax from businesses. Do you have a feeling on that?
Mr Vander Pol: If you really want to cut to the bone, my feeling is that there's probably only one fair tax, and that's an income tax or a sales tax, a consumption tax, those types of taxes, as opposed to attaching it to real estate. The only justification I can see for real estate taxes or property taxes is that the services that are provided to those properties ought to be paid for by those properties. That might be policing, roads and fire protection, these kinds of things. The value that's added to the property by those services should be paid for by those taxes.
Mr Pouliot: Good afternoon. I too echo the positive sentiment: Congratulations. You're obviously a very dedicated and successful person, and I commend you. I feel a bit intimidated, Mr Vander Pol. I wish I could have you benefit by way of conversation exchange from my comments on farming, but I'm in your hands, I know very, very little. Suffice it to say that I'm more comfortable with mining. I got every one of them to buy Bre-X about a month ago, but they seem to have recovered.
Mr Vander Pol: There's nothing wrong with buying it, as long as you sold it on time.
Mr Pouliot: I share your sentiment that education should maybe be handled directly by the province, and perhaps to go further than what is being proposed, and the government is on the right track there, is to not assess at the commercial-industrial level because you're not to do so any more at the residential level. To quote you, not verbatim but approximately, we should have property assessment for the services we pay, and I think you mentioned roads -- not highways -- and policing. Did you have in mind welfare, libraries, sewer and water, seniors' health, assessment, seniors' housing and drugs etc? That too is going to be a shift.
When you made your presentation, you inserted into it an element of time. I took it, and please correct me if I'm wrong, that in order to digest all this and in order to avoid too many surprises, they should push through with the same determination but maybe take a little more time so we can better assess the pros and cons as if it's a marketplace.
1530
Mr Vander Pol: My comment about time relates to the kinds of things any businessperson hates, and those are surprises, surprises in added costs. Surprises in added revenue are usually not that bad. You can deal with those quite nicely because the government always wants to take their share anyway, so it's not a big deal. But seriously, it's important to those of us who are trying to run businesses that there are as few surprises as possible. That allows us to plan.
Having said that, in light of the fact that I haven't seen the detailed regulations, I'm really not in a position to comment, in all due respect to the government and anybody else, on the detail. I offer this as a possible way of mitigating the potential for surprises; the total won't change, but surprises to the individual, because if there's a negative surprise for me, there might be a positive surprise for somebody else. I don't know which side of the fence I'm going to fall on.
In our little niche I'm saying that -- and I just offer it as a suggestion -- rather than saying 25% arbitrarily, maybe the $171 million in savings is appropriate and should stay there. But after you change the assessment process and the basis for assessment, how does the $171 million wash with the 25% and all that kind of stuff?
Mr Pouliot: Mr Vander Pol, when we blend everything -- and it's happening somewhat fast, quickly -- there's the reassessment. Every item is fairly good. It's only when we put them together that it starts becoming complex. One of the problems we all have is that we don't know, in some cases, even the approximate costs. No final decision has been made as to who is going to pay for what? Is it going to be 30%? They're negotiating with AMO and with other people as well, and I think that's wise. You wouldn't buy a tractor, Mr Vander Pol, without knowing the costs, and who could blame you? It's only basic and wise management.
The people who will pay -- and you're right, there's only one taxpayer -- and also the people who will do the administration, it seems we're all asking the same questions before we can make some decisions as to where we will establish our priorities: What about the cash flow? What about adjustment in terms of downsizing our own operations, becoming leaner? It will be okay. The sky will not fall, but the clouds may get very low. What I am saying is that we all need more database, more information before we can make the right decisions.
Mr Vander Pol: If I might respond to that question or comment, yes, that's right in theory. In practice, we all live with risks, and the question is whether the risks are tolerable and whether we can live with them. My suggestion was only made as one way that might be of no great cost to anybody of reducing some risks in what finally comes out of the pipeline.
As a businessman, I live with risk every day, and usually all day. That in itself doesn't scare me. I recognize that any time you change you're not -- it's like getting married: You think you know what you're getting into, but you don't always know. Having said that, in all due respect, as being single --
The Chair: With that, perhaps we could move to the government for a question.
Ms Bassett: Everybody is happy to move on to a new subject, so let's go back. You were mentioning the problems of current value. I just wanted to point out that the Fair Municipal Finance Act establishes a separate property class for farm lands and eligible managed forest on which a tax rate of 25% of the residential tax rate will apply.
Your question was, what will the eligibility be? The eligibility for that, if you're going to be a farmer or not, will be that the same criteria will apply as applied in the past. So if you could apply and got it before for the tax rebate, the same criteria more or less will apply. Just one thing and then I'll hear what you have to say. The eligibility requirements will be set out in regulations later this spring and will fine-tune it.
Mr Vander Pol: I would expect that the eligibility requirements will not be significantly different from what currently exists. That would be my expectation, only because of the historical significance of that.
The concern I have, and it's strictly a matter of how the regulations will be written, is that I don't know what the relationship is between current residential property tax assessments and agricultural properties in the same neighbourhood, in the same municipality, in the same county or, for that matter, across the province. My concern is, how well are those two linked at the moment, and how well does that linkage truly reflect the arbitrary 25%? I can't answer that. I'm not a tax type. I just try to make a living farming. But that's my concern. If that linkage is hard, then my issue is moot.
Ms Bassett: That's something we will have to make sure is clarified.
Mr Rollins: The Minister of Agriculture, when they announced we were changing the method here, basically assured us it was supposedly to be a wash; that it was to compensate for that rebate and it looked as if it was going to wash out awfully close to that. Whether it gets to that exact figure or not will remain to be seen.
There's one other question we have some concern about. I come from eastern Ontario, and we don't see land value at $6,500 an acre. I know there was a 50-acre parcel just out of town here that sold for $60,000 -- you know, that kind of money. Hopefully you don't grow that wacky stuff on it, but you've got to grow something on it to make that land produce that kind of value with it. How do we address the problem in other parts of Ontario where we have farmers who want lots severed off their property, but they don't want it to be taxed as a severed lot until such time as they want to dig the hole or put a For Sale sign on it? They want it both ways. How do you see it from your perspective? Do you have some of those lots too?
Mr Vander Pol: I really don't want to answer this question. I've got a lot before the OMB right now which they won't let me sever because there's already a house on it. Never mind. That's off the record.
Mr Hudak: Too late.
Mr Vander Pol: I realize that, but as long as the record doesn't go to the OMB.
I don't think you can have it both ways. If you're going to sever off a lot for retirement or for whatever reason and it's allowed, then, quite frankly, if you know that upfront and you know what the rules are -- if you make the rules retroactive, that's one thing, but if you know upfront that that's now going to be taxed residential, then you have your choice. I respectfully submit that in a number of instances, at least, these things are done perhaps marginally prematurely in order to guarantee that the rules won't be changed somewhere down the road. That's the risk thing that I talked about earlier. I really don't have any trouble with having it one way or the other, but not both ways.
The Chair: Thank you very much. We appreciate your taking the time to come in and make a presentation to us, Mr Vander Pol. We appreciate that kind of input.
That brings to a conclusion our deputants in Chatham. I have a request for a motion to be brought, by the government.
Ms Bassett: Mr Chair, if you'll permit me, I'd like to move that the English version of the pre-budget consultation report be tabled with the Legislature as soon as possible and that the French version be tabled when it's available.
Secondly, I'd like to move that a copy of the report be delivered to the Minister of Finance as soon as possible.
The Chair: Comments on the motion?
Mr Pouliot: In the interests of time, the point is well taken. We too understand that the French copy will be produced as soon as it is possible, and I thank you. We'll support it.
The Chair: Any other comment?
Is the committee in favour? Opposed? Carried.
This committee stands adjourned until 9:40 tomorrow morning in Port Colborne.
The committee adjourned at 1543.