[ Page 1127 ]

CONTENTS

Routine Proceedings

An Act to Provide No-Smoking Areas in Public Places (Bill M205). Mrs. Wallace.

Introduction and first reading –– 1127

Property Tax Reform Act (No. 1) (Bill 7). Second reading.

Mr. Blencoe –– 1127

TUESDAY, AUGUST 30, 1983

The House met at 10:21 a.m.

Prayers.

MS. SANFORD: Mr. Speaker, in front of the buildings are a group of people who are concerned about the arms race. They are so determined to do what they can in order to halt that arms race that they have set up a peace camp. They are out there fasting in an attempt to draw public attention to the madness of the nuclear arms race. This is day four of their fast.

MR. SPEAKER: Hon. member, from time to time the Chair allows some digression from the regular introduction period, but clearly the member is now embarking on what can only be described as an address or speech. I would ask that we bear in mind that this period is reserved for introductions, and that is the sole purpose of this significant part of the day.

The Provincial Secretary on a point of order.

HON. MR. CHABOT: On the statement being made by the member for Comox, who suggested that these people are fasting, information has been conveyed to me that a few of them were caught eating in the cafeteria of the Douglas Street building.

Interjections.

MR. SPEAKER: Order, please. Hon. members, clearly we can see what happens when introduction period becomes more than introductions. I would ask the member for Comox to restrict her remarks specifically to introductions.

MS. SANFORD: Mr. Speaker, I'm going to ignore the interruption by the Provincial Secretary and mention that three representatives from the peace group are in your gallery today. All of them are from Parksville. I would like the House to join me in welcoming Carolyn Fontaine, Ian MacDonald and Laurie MacBride.

Introduction of Bills

On a motion by Mrs. Wallace, Bill M205, An Act to Provide No-Smoking Areas in Public Places, introduced, read a first time and ordered to be placed on orders of the day for second reading at the next sitting of the House after today.

Orders of the Day

HON. MR. GARDOM: I ask leave to proceed to public bills and orders.

Leave granted.

HON. MR. GARDOM: Adjourned debate on second reading of Bill 7.

PROPERTY TAX REFORM ACT (NO. 1), 1983

(continued)

MR. BLENCOE: It is most unfortunate, Mr. Speaker, that after a number of hours of trying to convince the government that certain sections of Bill 7 are abhorrent to municipal government, and that municipal government wants the ability to operate its programs and infrastructure in an atmosphere of autonomy, separate from the inroads and the heavy centralization of the provincial government, the government appears unwilling to listen. Those municipalities have been established and running their operations for many, many years, and have been quite capable of running their own financial arrangements, thank you very much. They are able to balance their books regularly. They are able to tell their electorate that they don't run deficits. They do their budget debates and preliminary discussions in the open, where the media are available to scrutinize every single vote. The public and interested groups are invited to participate in those budget processes that have been used by municipal government for many, many years.

Municipalities are accessible and accountable, and their budgets are public. Before they pass their budget on May 15, according to the statutes under the Municipal Act, the communities that they serve are fully advised of where they are going to spend their money. Residents of municipalities know exactly where their dollars are going to go and what programs there will be at the local level well in advance of the final resolution that is passed in council chambers. Every single year municipalities go through long deliberations —  agonizing hours, Mr. Speaker — in trying to achieve the difficult job of balancing their books and avoiding deficits, which would put their residents into heavy debt.

[10:30]

Unfortunately this provincial government is not capable of doing that. Governments at the local level work long hours on their budgets; many hours of staff time and elected official time go into ensuring that their budgets are understood. They are fully scrutinized by the honourable fourth estate and by the residents of their municipalities. That process has been in place for many, many years. Municipal governments are trusted. They are elected and are accountable, either on an annual or biennial basis to their voters. They are charged with ensuring that the budgets are honest and reflect the reality of the financial times the municipalities are undergoing. Every single dollar that is spent is public and is known. There is no delay in the delivery of their budgets. By law they have to have their budgets in place by May 15 every single year.

It's most unfortunate that there wasn't a law for the provincial government that their budget had to be honest, upfront and clearly delivered by a certain date, and that they couldn't avoid calling the Legislature to debate every single dime that is spent. That's what municipalities have to do. I believe the provincial government should take a leaf out of the municipal book of operations. They shouldn't, in my estimation and in the estimation of our party, undermine their credibilitv and their ability to run their own financial arrangements an set the tax rate according to what they think their taxpayers can afford to pay and what they think their priorities are for their taxpayers. That's a longstanding tradition in municipal operations. This government is taking the privilege away from municipal government and duly elected officials to be able to establish their own tax rate, spending priorities and, if they so desire — if they deem it appropriate

[ Page 1128 ]

that taxes have to rise by a certain amount.... I would remind this government that those officials are elected as the government is elected and as we all are elected in this chamber. If the electorate does not like what the municipality does with its tax rate or with its particular formula for collecting taxes.... If they spend more than the electorate feels they should be spending or set their own policies or spend the money on things they don't deem appropriate, then there is a process, and in constitutional democracies that process is called the power of the vote. It is called elections. Democracy is alive and well at the municipal level, I can assure you of that; but democracy is being threatened by this provincial government.

This government, in its wisdom, some years ago removed direct elections at the regional level. They are now appointments by local councils, a retrogressive move, I believe, in terms of the right of regional district voters in organized areas to elect their members. That was removed by the provincial government.

HON. MR. RITCHIE: On a point of order. Mr. Speaker, for approximately 10 hours now we have listened to irrelevant and tedious repetition from this second member for Victoria. For the record I would like to read the principle of this bill, which obviously the member does not understand.

MR. SPEAKER: The member will come to his point of order. The principle is read and it would be inappropriate to move, during a point of order, to read the principle of a bill. The point of order by the member, as the Chair understands it, is that the relevancy section is not being adhered to. Is that correct?

HON. MR. RITCHIE: This is correct, Mr. Speaker.

MR. SPEAKER: Thank you hon. member. That constitutes the point of order.

Hon. members, yesterday the Chair advised the second member for Victoria about the relevancy factor, and asked the member to consider very carefully his remarks in light of the standing order that calls for relevancy in debate in second reading. I would ask the member again to bear in mind the rules that bind us in this House during debate in second reading. This has now repeatedly been brought to the member's attention and I would ask the member in continuing his speech, to insist on the relevancy section.

MR. BLENCOE: Thank you, Mr. Speaker. I will take your remarks and do my utmost to maintain relevancy in my discussion on this bill. My reference to what I believe is a direct assault on the autonomy of local municipalities is part and parcel of this bill. I don't want to go into those particular sections, because we have no time to do that. But the principle and the ideas behind this bill are quite clearly making inroads into municipal jurisdictions and municipal autonomy. That is what I wish to talk about this morning, and I will continue to do that.

The case I am trying to make early in debate this morning is that municipal government does not require the help of the provincial government in its financial arrangements. What the provincial government should be doing, rather than obstructing municipalities' ability to run their affairs on their own, is ensuring that they have adequate revenues to make sure their operations are funded adequately and safely. That's the issue. Rather than tinker with the system allowing various shifts by the municipality in terms of the variable mill rate — seeing that as the panacea is totally erroneous.... If there is not the support from the provincial government in terms of adequate revenues to maintain the basic infrastructures of municipalities, towns and villages in the province of British Columbia, then their ability to maintain and operate satisfactorily and safely is hindered. In its wisdom this government has removed a major source of funding from municipalities, towns and villages that allows them to ensure their basic infrastructure is safely and adequately maintained.

Just tinkering with the semantics of how taxes are collected or where you transfer the load, which Bill 7 does, resolves nothing in terms of the dire revenue shortfalls that municipalities are currently experiencing. We all recognize that governments are doing their utmost to be aware of the financial constraints the taxpayer faces in these difficult times. But I believe that if there is one level of government that is aware of that particular situation, it is local government. The process that local government goes through in terms of determining its budget and its priorities, and how it collects the money, is an extremely good one. Local government and its officials are the most accessible to the electorate of any level of government.

It's most unfortunate that this government feels that civic officials are not doing their jobs properly, or are not being understanding of the financial constraints being faced by their taxpayers, and deems it appropriate to make major inroads into the traditional areas of responsibility of municipal governments. The major job of municipalities, towns and villages is to ensure that budgets are understood, that their fiscal policies are honest, that their budgets are balanced and that the various votes for spending are clear and concise; to show their revenues, estimates and spending patterns; and to show the local electorate that they have a handle on their own financial arrangements. That is perhaps the most important job local government has done for hundreds of years. Their officials are elected to do that job. That's the understanding of the local electorate. The local councils, the aldermen and the directors of regional districts and unorganized areas are given the mandate at election time to ensure that municipal operations and financial operations are correct and that they meet their electorates' requests in terms of the financial arrangements for their jurisdictions.

Mr. Speaker, I can't overemphasize that that is a longstanding tradition. This government, in its wisdom, feels it's appropriate to constrain local government in its mandate to run its own financial arrangements. That's most unfortunate. This bill has some serious consequences for local government. In this country there are three levels of government, all with clear and understood mandates in terms of jurisdiction. This government has decided to centralize, under the powers of cabinet, the opportunity to control municipal governments, to calculate and set their tax rates, or their relationships between tax rates; in effect, to neuter the ability of local officials to establish their own policies and priorities. That's the major principle involved in Bill 7.

MRS. JOHNSTON: What bill are you on?

MR. BLENCOE: Section 6, Madam Member. Section 6 of the bill gives you and the cabinet the right to enter into the direct daily operations of municipal governments in terms of tax rates, relationships between tax rates, formulas, limits,

[ Page 1129 ]

and how much they can collect for each class of property. That has always been done by municipal governments on their own.

I would remind the Minister of Municipal Affairs (Hon. Mr. Ritchie) that every second year there are elections at the local level, and that those elected officials win or lose according to what the electorate feel they have done with the financial arrangements of their municipality. That's direct accountability. This government is taking away that local accountability in terms of the residents' knowledge that the local council sets the tax rate, the formulas and the relationships between various categories of property.

MRS. JOHNSTON: It's giving you flexibility.

[10:45]

MR. BLENCOE: On the one hand, maybe, but certain sections of this act are taking away much of their flexibility.

What worries me is that local councils will lose the ability to tell their electorate honestly that those local councils were responsible for having certain things happen with the financial arrangements. They will say: "The provincial government is controlling us so much that we don't have the opportunity to control our own financial destiny."

MRS. JOHNSTON: That's not true at all.

MR. BLENCOE: That's the absolute truth. That's what the act gives you the power to do. Local autonomy, the ability of municipalities, towns and villages to determine their own financial destiny, is what we've accepted for hundreds of years in British Columbia and in Canada. Yet this government, in its wisdom, wishes to remove that very important aspect of municipal operations. I don't think there is another jurisdiction in Canada that has decided to take on such a chore.

I would remind the government that it has many problems of its own in terms of the financial arrangements of this province. It has a growing debt; it has some control problems in its own operations, I think they need all the time in the world to make sure their own financial arrangements are in good stead. I say to the government: you don't want that chore. You're giving yourself an incredible job, one that you don't need, and I would suggest that you just haven't got the time to do it properly. Local governments are elected, and they work long and hard. They can do it quite well, thank you very much.

For the government of British Columbia to be now in the position where every single municipality, regional district, town and village is involved in the nitty-gritty of financial arrangements at the local level....

MR. SPEAKER: The member for Omineca on a point of order.

MR. KEMPF: Mr. Speaker, I rise on standing order 43. I've been sitting here keeping some notes, and also perusing yesterday's Blues. This member now on his feet is making more of a mockery of this chamber than has ever been done before. Mr. Speaker, I can give you a sheet of paper showing the numbers of times that certain phrases or words have been uttered in this chamber, not just in the last 10 hours but in the last 15 minutes. If we can't keep more to the tradition of proper debate in this House than that, I would very seriously suggest that some sort of ruling to stop this mockery is brought down in this House.

MR. COCKE: On that point of order, Mr. Speaker, I think.... [Interruption.] I think I probably need a repair of my mike.

MR. REYNOLDS: That by-election really got you upset last night.

MR. COCKE: Yes, it did. But I don't think that has much to do with my mike.

With respect to standing order 43, where the Speaker is asked to rule on whether or not a person is tedious and repetitious, I can show you some quite irrelevant speeches between 1972 and 1973 that went 14 or 15 hours. I suggest the elements of new information that this member is putting forward far outweigh many of the "filibusters" I've seen in this chamber over the last 14 years.

MR. KEMPF: On the same point of order. Mr. Speaker, I wish to give notice that I intend to continue to sit here this morning, this afternoon, and however long this debate goes on, making notes. Every time that member is tedious and repetitious I intend to rise under standing order 43.

MR. SPEAKER: Hon. members, the interpretation of standing order 43 is a discretionary one in the hands of the Speaker, who has been very patient in listening to the debate, which has gone on now for in excess of 10 hours. Nonetheless, it is a call by the Chair that requires a great deal of reasoning before any such step would be taken. The tedious repetition aspect is one part of that section; the irrelevance is another. The matter of irrelevance has been dealt with on numerous occasions. I'm sure that the matter of repetition will also be addressed. In the meantime, hon. members, the second member for Victoria has the floor.

MR. BLENCOE: I'm sorry the member for Omineca believes that there's certain repetition in my speech this morning. If the member goes back.... I do not think that in the past I have referred to the longstanding tradition of local government being able to run their own financial arrangements. That's a point that I will continue to make.

MR. KEMPF: On a point of order, Mr. Speaker, the record will show that in the last 15 minutes the words "financial arrangements" have been uttered by that member six times. I think that's repetition.

MR. BLENCOE: Certain words?

MR. KEMPF: I think that's repetitious.

MS. BROWN: On a point of order, the record would also show that the words "Mr. Speaker" echo through this chamber at least 100 times a day. Surely that is repetitious.

MR. KEMPF: They don't show up in the Blues or Hansard; these words do.

MR. BLENCOE: It's our belief on this side — and I was trying to say this earlier — that the government has....

[ Page 1130 ]

AN HON. MEMBER: New debate.

MR. BLENCOE: Protect me, Mr. Speaker.

...some serious problems of its own.

MR. KEMPF: That's the second time you've said that in ten minutes.

MR. BLENCOE: That's quite true. But I think it's very important that the public and the members over there who do not know.... Perhaps they have not perused this bill as closely as they might have. What they are saying is that they are going to be involved in taking a look at the various aspects and intricacies of municipal budgeting and financial....

MR. KEMPF: Arrangements.

MR. BLENCOE: That's correct. Have you ever looked at all the municipal budgets, the debt servicings, the various expenditures and revenue estimations, cost per capita and the various provisions they have to follow in the Municipal Act? Now you're saying that you've got the time to take on that job as well as trying to do something about the biggest deficit in the history of this province. I don't think you've got the time. And with respect, I don't think the record of the government in financial matters is one that recommends it to be taking over the job of the municipalities in running their financial affairs. I'm going to make that point over and over again. If there's one level of government that has shown that it is capable of running its own financial affairs, it's local government. It's very important.

Before we adjourned the debate yesterday, I had started to give some insights into alternatives to the present system of real property taxation, which this government should perhaps review and consider introducing in the province as an alternative to the real property tax. I won't go into the inequalities. I've done that a number of times in this House. I will again refer to a very useful document put out by the Bureau of Municipal Research in Ontario. It's in Civic Affairs and is entitled "Property Taxation and Land Development." It's a short document, and I think every member should perhaps peruse it. I think it gives some good insights into where the provincial government could be going in terms of some real change in the taxation system for municipal government.

There are a number of alternative tax structures that the provincial government could take a look at. These approaches are considered feasible alternatives or supplements to the present system and they're fully discussed and analyzed in this document. Other tax possibilities by this particular research bureau were dismissed initially as being clearly inadequate or unrealistic.

[Mr. Pelton in the chair.]

For example, they took a look at local sales tax, which was rejected because many products are already being taxed to the saturation level by the province. Such a tax could not, then, be sufficiently productive to support local fiscal autonomy — local autonomy, of course, being adhered to, revered and supported in nearly every single province in Canada. Seven changes in its tax structure do merit consideration, according to this well-known Bureau of Municipal Research, as possible alternatives for a local tax system. There are seven suggested here: one is the net income taxation system, which I've already talked about at some length; two is the gross rental tax; three is what's referred to as the British rates taxation system; four, user charges; five, land value increment taxation; six, site value tax; and seven, municipal income tax, which is one I will go into at some length later in the debate.

To effectively compare the alternatives, certain criteria were established by the bureau. First, traditional testing criteria of any tax policy were used, including the equity of the tax, the adequacy and stability of its yield, and its administrative feasibility. Further, because there were many conflicts between sound planning objectives and the present tax policy that we have in place in all provinces, the neutrality of each particular tax with respect to the land use planning is an additional consideration which could not be overlooked. Thus, the effect of each tax on land use decisions was adopted as an important criterion.

[11:00]

Let's look at the first suggestion. I would recommend to the government that these alternative tax structures could be the subject of a special committee of this House, which would take a look at the municipal real property taxation situation. I think a clear, rational and intelligent analysis and discussion and an objective look at the problems of municipal revenue shortfalls and tax structure would do us all a world of good. It would indeed, I believe, be a good leaf in the book of this Socred government. I would say they have the opportunity to do that. They have a mandate now for the next three or four years, and I believe that in consultation with the opposition, with chambers of commerce, industrial property holders, tourist property holders, residential property holders, senior citizen organizations and special housing organizations, we in the province of British Columbia could devise a taxation system for municipal purposes that is fair and just and understood...

HON. A. FRASER: And repetitious.

MR. BLENCOE: ...and based upon the ability to pay at the local level of individual property taxpayers. It may be repetitious, but I am going to continue to say it over and over again in this chamber whenever I get the opportunity: the property taxation system has outlived its time. I do not know anybody who can support it in an intelligent way. The alternative structure that I am about to suggest today, as at least an initial discussion point for this government and for people affected by local taxes, is the way to go: the net income taxation system.

The first three — the net income tax, the gross rental tax and the British rate taxation system — adopt an income rather than a capital approach to real property value. The net income tax is assessed on the actual net income from the sites and the improvements combined. Consequently the property is valued on the basis of the income actually obtained minus the expenses paid by the owner, excluding taxes. Since capital value is approximately equal to net income capitalized at current market interest rates, there will probably be no significant difference in tax liability between property owners taxed according to an annual income and those taxed according to capital value approach.

In terms of tax theory, a net income base can reasonably be justified on the basis of equity since it is related to the owner's ability to pay. Like the present property tax,

[ Page 1131 ]

however, a net income tax discriminates against those who invest their wealth in realty. The adequacy of net income tax revenues would appear to be satisfactory when compared to the yield of the present real property tax. Most questionable may be the stability of the yield over the business cycle. The yield should not, however, be greatly affected by short-term fluctuations, particularly since long-term leases are so prevalent in commercial practice. In brief, the yield stability of a net income tax probably depends on the avoidance of major depressions.

The most telling criticism of the taxes using an income base in place of a capital value base are the administrative problems entailed. I am trying to be fair; with any particular system there are problems to be ironed out, but I think the current real property tax system is indefensible. We have to work on some new systems.

The administration of a net income tax would only be relatively simple for rental or business properties. Even if income tax returns could not be used to compute this tax, the tax could feasibly be self-assessed, although this might raise problems of evasion. In case of owner-occupied properties, the difficulties involved could well be insurmountable. Assessment officials would be obliged to rely on imputed net income, which is a very difficult concept to understand and administer. In terms of government expense, public confusion and probable litigation — I emphasize this — the costs of this approach appear on balance to outweigh its benefits.

With respect to land use, the net income tax appears to be neutral in its impact. The percentage tax on profits takes a uniform percentage no matter what the profits are derived from, whether from office buildings or retail outlets or residential units. The property owner or builder therefore will base his development decisions not on their tax advantages or disadvantages, since these are the same for all decisions, but on their overall efficiency and profitability. Consequently new construction, redevelopment and remodelling decisions should not be affected by anything other than the usual planning and zoning regulations and market considerations.

That's a little insight into the net income taxation system, one that has some merit and that could, indeed, be the subject of analysis by a select standing committee of this House with the power to discuss it with interested parties in the province and the opportunity to bring into effect in the province of British Columbia in the next year or two a taxation system for municipalities that is fair and equitable and based more upon the ability to pay. That's what we need in the province of British Columbia, Mr. Speaker.

Now what about the gross rental tax system? Let's take a look at that. This is another of the income, as opposed to capital, approaches to value. In effect, this is a tax on the consumption of real estate services as reflected by gross rents. It is a proportional tax imposed on an annual property value which is related, if not equal, to gross rental from the combined uses of the site and the improvements. This tax is common in western Europe and is used in St. John's, Newfoundland, the only jurisdiction in Canada which does not use a composite capital value approach.

The yield of a gross rental tax, while perhaps less stable than the present norm, since rent is more unstable than assessed market value, has proven to generate adequate revenue to cover municipal expenditures. It is important to note, however, that both in Europe and in St. John's, local taxation generally plays a far smaller role than in most other jurisdictions.

For example, St. John's the city is not responsible for funding education or police services, and I would remind the members that I talked yesterday about the problems of policing costs. In time we'll hopefully get back to that to give this government the opportunity to peruse the options for funding municipal police forces, because I believe that if this government is serious about helping the municipal governments in their revenue problems, it has to address itself to the problems of revenue in municipal operations. That's a major problem that we are all involved in.

The yield from the gross rental tax would be stable over the business cycle. As Mr. J. Heilbrun, in the real estate taxes and urban housing report tabled in New York in 1966, reflected:

"During a depressed business cycle, a gross rental tax may stimulate abandonment, but the tax yield will not be significantly affected since tenants will move to other buildings. As a result, the gross rents of these buildings will be increased. With respect to owner-occupied properties, the difficulties of administration are similar to those in the present tax structure. Faced with a lack of reliable rental evidence, officers would have to impute the gross rental incomes. This introduces such common problems as public misunderstanding, subjective calculation" — which we already have with the assessment system we have in effect now — "and a distorted assessment lag" — which we are going to have because of Bill 22, currently before us.

"Since the tax is assessed on a gross and not on a net base, the difficulties of determining and auditing expenses are eliminated. But on the other hand, the application of the tax to rented properties would, at first glance, seem to be a simple task, provided the municipality has access to the financial statements of the owner."

"Beyond the matter of administration lies the more basic question of equity."

I have come into this at length in terms of trying to encourage this government to introduce the principle and concept of equity into the taxation systems in use by municipal operations. It is the important element that is currently missing under the real property taxation system.

Is a tax based on gross rentals fair? Although the gross rental base is presumably based on ability to pay, in some situations it may be inequitable to allow the base to be market-determined. The contract rent may not take into consideration the fact that different landlords provide different levels of services and therefore incur different levels of expenses, These expenses may or may not be accurately reflected in the gross rental income. If this variance is deemed common and substantial enough to make this consideration something more than a philosophical nicety, the base would then have to be imputed or self-assessed.

The gross rental tax, in my estimation and in the estimation of this report, does not have a neutral impact on land use decisions. As the tax is levied purely on actual gross rent, vacant property would be totally tax-exempt. That is something the government should take a look at, certainly in this city where we have many pieces of property sitting idle, not being developed properly or moved on, basically because of a taxation system which does not encourage those owners to get on and develop those properties. Of course, we see ugly sites all over certain municipalities because of the system that

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encourages property holders not to develop their sites, and they become a real eyesore to the communities they are located in.

In any case, the tax on vacant land would be low, and this would encourage land speculation. Suboptimal use would also be encouraged, since the tax is proportional to rental income. The speculative owner, therefore, would tend to minimize his or her payments by putting the land to some unproductive use. Finally, although rents would tend to stabilize, if not fall, the quality of operation and the rate of maintenance and remodelling would also probably decline as the owner attempted to reduce operating costs.

I would assume that any standing or select committee charged with taking a look and coming to a long-term solution of the tax problems municipalities face would come to the conclusion that the gross rental tax would not be an advantage. However, it's worth looking at because there are certain things that may indeed be useful for consideration.

[11:15]

What about the British rate system of taxation? It's been in place for many years. I'm sure some of us, or at least some of our parents or grandparents, lived under that British rate system. There are many in the province of British Columbia who could give us some insights into the British rates taxation system. I don't know, maybe it's something we could take a look at, but I'm saying today that there are at least seven forms of taxation that could be seriously and intelligently looked at as an alternative to the archaic, unfair and unjust real-property taxation system that I think every British Columbian wishes was removed as the basis of generating revenue for municipal operations.

Now what about the British rates taxation system? The British rates tax is a third alternative to the capital value approach of property taxation. The tax is generally imposed directly on the occupier and not the owner of the property. The base of the tax is the annual rental value of the occupied property, minus costs of maintenance. These deductions are not for actual expenses but are statutorily determined according to a graduated scale. Thus the permissible deductions decline as gross rents increase. With few exceptions, the British rates tax operates in a similar manner to the gross rental tax. The same considerations apply with respect to revenue productivity, since the base is the gross rent minus statutory expenses. It's similar, I suppose, in terms of statutory requirements, to the rentalsman act. The Minister of Consumer and Corporate Affairs (Hon. Mr. Hewitt) is aware of the various statutory allowances landlords can apply for as eligible additional expenditures, and therefore can get increased rents. In the British tax rates system there are statutory allowances for eligible expenditures, and therefore they are exempt. As these deductions are a percentage of the gross rent, the base cannot fall to zero, which could happen if a net rent were used.

The yield will tend to be less stable than that of the present tax. The current gross earning power of a piece of property is likely to be more volatile than its capital value, because the latter is related to all expected future returns, while the former is only related to the current yield. Again, however, this tendency must be stabilized by long-term leases and assessment lags. The British experience has demonstrated that this tax system is feasible, and it is certainly one that could be looked at as an adjunct to the current property tax system. My colleagues and I are not saying that the property taxation system for some particular services should not be maintained. What we are saying is that there is certainly room for looking at a second track of taxation at the local level, as an adjunct to property tax.

In the British rates system of taxation its administration is simplified in the case of rented properties, because the contract rent is an objective, although potentially inequitable, measure. For the non-rented property, however, the tax must be subjectively determined. Yet even where the assigned rental value of the property is not tested by the market, since the property is never in fact rented, the large number of rentals each year should provide sufficient comparable data to ensure that the rental income imputed to the property is not out of line.

Some of the land use implications are similar to those for gross rental taxation — and I admit that — since the rental value and therefore the tax imposed on vacant land is zero. Speculation as well as underuse are encouraged, although this has not been proven to be a significant problem in Britain where land is a scarce commodity. It could reach serious and undesirable proportions in certain provinces, and maybe in British Columbia where we still do have large tracts of unused land, and that would have to be taken into consideration by a select standing committee given the mandate to look at a new system of taxation for municipal purposes.

In addition, this form of taxation would tend to discourage both maintenance and remodelling, a serious flaw and one that would have to be taken into consideration. First, the tax is levied on the tenant-occupier, and that would have to be seriously thought about. Although rents will be proportionately lower, public demand for high-quality housing will probably be reduced. Secondly, since actual costs and expenses are not deducted from the tax, these will be kept to the minimum and will result in lower maintenance standards, another serious consideration and one that the standing committee would be charged with taking a look at.

What I'm really trying to suggest to this government is that there are a lot of things that a select task force, or whatever you want to call it, would have the opportunity to peruse and, I think, work on in a non-partisan fashion on behalf of all British Columbians to try to bring in a fair and equitable taxation system for municipal purposes. That's the challenge, the chore that we all face, because every single member here represents property tax payers — and they're beleaguered property tax payers. I think that in a non-partisan fashion, in an intelligent and rational way, we can do great service to the property tax payers of British Columbia by, for once, saying we agree to take this problem of taxation out of the partisan arena and put it into a problem-solving committee where we will ask the right questions.

Mr. Speaker, we will ask the right questions. If you don't ask the right questions about a particular problem, it doesn't matter what solution you find. Again, although Bill 7 may be an honest attempt by this government to try to do something for the property tax payer, in reality it does very little. It doesn't ask the right questions. It doesn't get to the root problem, the inadequacies and inequalities in that taxation system. That's our chore; that's our responsibility as legislators, because taxation unfortunately is one of the most irritating components of living in a modern society. We have the responsibility of ensuring that every taxation system in place is fair, equitable and that it reflects common good, the general welfare and equity under the law. The property taxation system has nothing to do with equity at all. We all recognize that, and I think we all admit it.

[ Page 1133 ]

Mr. Speaker, I'm asking this government not to just leave reform at the property level with Bill 7 and Bill 12 but to have the courage to ask the right questions and bring to British Columbia a model taxation system that could be followed in other jurisdictions across Canada, in North America and even in Britain, where they currently have the British rate system. It does have its problems and I'm not necessarily saying that that be the one we should endorse 100 percent.

Back to the British rate system. Actual costs and expenses are not deducted from the tax and these will be kept to a minimum and will result in lower maintenance standards, which is a problem. During times of economic growth, however, new construction and investment would be attracted and properties with high profit-to-rent ratios would be taxed relatively less. Mr. Speaker, that's my little discussion of the British rate system. There are more ideas, but I don't want to go into that today. We'll leave that to when the government perhaps decides that we need a task force on the property tax problem.

How about the fourth alternative to tax structure? I would like to also remind my colleagues in the chamber that I'm not necessarily endorsing these; I'm just putting these out as concepts for exploration, which I think is something we should all be trying to do in terms of problem-solving for the people of British Columbia.

How about user charges? That's something we all hear about these days from right-wing governments. But to be fair, I'm prepared to take a look at user charges and all alternatives.

AN HON. MEMBER: We're always fair.

MR. BLENCOE: We're always fair on the New Democrat side. We try to maintain truth, ideals and principles, and to uphold the democratic process.

MR. MITCHELL: An open opposition.

MR. BLENCOE: Correct. Thank you, to the member for Esquimalt–Port Renfrew.

MR. REID: Allow somebody else to debate this bill then; that would show democracy.

MR. BLENCOE: I'll tell you what, Mr. Speaker. Here's an offer to the government: if, under the Minister of Municipal Affairs, the government will promise this House and the people of British Columbia that within the next month or two they will undertake to establish a task force on property taxation in British Columbia that will seriously get to the root problems of this inequitable taxation system; that they will undertake to consult the people of British Columbia and those institutions undergoing attack in terms of unfair taxation; that they will bring that into the House and pass it here, then we on this side will seriously consider Bill 7 — sections of it, anyway — as a temporary measure to try to help the beleaguered local taxpayer. We will try to accommodate this government. We are prepared to be helpful, because we all represent local taxpayers as well, and we all hear their problems,

Mr. Speaker, that's an offer. We will support the sections in Bill 7 that refer directly to the variable mill rate, but we won't support certain sections that erode local autonomy. We will support certain sections that for the time being introduce the variable mill rate as a temporary solution.

[Mr. Strachan in the chair.]

If the government will promise the people of British Columbia that once and for all they are prepared to look at a task force that can resolve the taxation problems faced by local taxpayers, we will do our best to help you in that endeavour. We want to be fair and helpful. We represent 50 percent of the residents of British Columbia, and we are prepared to enter into intelligent and rational discussion in a task force environment in order to come to the root problems, and prepared to question the deeply ingrained unfairness in the real property taxation system. That's an offer, Mr. Speaker, and we will stand by that.

[11:30]

What about user charges as an alternative to real property taxation? It's a possible supplementary or benefits tax, one used in several European countries where the tax structure has been divided into two parts. As Mr. Speaker and members may remember, I've already suggested that we have a two-track system for municipal operations. The primary tax structure finances soft services, while user charges fund hard services. A charge is levied in much the same way as gas and hydro charges are made in Ontario and British Columbia. The tax paid is therefore directly related to the benefit received, since the charge is proportionate to the services it finances. The drawbacks of a benefit or user charge tax are the difficult problems of classification of services and the allocation of costs. To fairly administer the charge, a decision must first be made about whether the benefit was received by a resident or a property owner. That's difficult, I admit. I think we would all admit that. But again, I think we have the ability to come to terms with many of these small problems.

[Mr. Strachan in the chair.]

Some of the best financial minds in the country live in this province, many of them working for the province of British Columbia. I think we should give them, along with ourselves and representatives of municipalities, towns and villages, the opportunity to devise a fair taxation system for municipal purposes. I think that's a tremendous challenge, and I'm sure one where we will triumph.

This distinction between personal services and property oriented services is not an easy one to draw. In response to the problem of allocating costs for services provided, a well-known financier, William Vickrey, presents a discussion of public expenditure decisions in the urban community, in a document called General and Specific Financing of Urban Services. Vickrey presents an interesting proposal in which cost criteria for each hard service are established. For example, a sewage charge could be levied on the basis of the frontage of the land, since the cost of the sewage mains is proportionate to their length and relatively independent of the required volume of flow. An interesting concept. I'm not sure it's one that in the long-term we would perhaps see in place in British Columbia, but an interesting concept, one that certainly could he considered and discussed in a task force or select committee of this House. Presumably, if a user charge fee were adopted in this province, other such cost-benefit connections could be determined.

I'll leave the user charge concept for now and go to another particular concept, the land value increment taxation system. I'm trying to bring an international flavour to this debate, in terms of taxation systems. I've referred to the

[ Page 1134 ]

United Kingdom and the United States; I believe I've referred to Sweden and Germany. Now I will refer to the land value improvement taxation that is used in both Denmark and Spain. I think it's very important that as legislators in British Columbia we don't isolate ourselves from other parts of the world and how they try to resolve their taxation problems. I think we have a lot to learn from studying other areas and other jurisdictions, so at this point I want to give the government an insight into what happens in Denmark and Spain. I would say they actually have two different types of government, both utilizing the land value improvement taxation system.

In both Denmark and Spain a tax is imposed on the increase in the market value of land. It can be either imposed annually or deferred until the date the property is transferred in order to ease the burden on the taxpayer. Boy, Mr. Speaker, that's the long-term challenge: to ease the burden on the taxpayer. I refer to the local taxpayer, of course.

The rationale behind this tax is that the increase in value is a social product unearned by the individual owner. This unearned increment is caused primarily by the municipal provisions of services, and therefore at least part of the publicly given benefit should be returned to the community. Property value increases, however, are not wholly determined by the provision of public services. Consequently, unless the earned and unearned portions of the increase could be separated out it would be a difficult administrative task and many taxpayers would be penalized.

Again, I'm indicating that it is a difficult chore to resolve this taxation problem at the local level. But I'm trying to give the government some insights into what happens in other jurisdictions. There are other areas we can study. There are learned men and women in this particular area who could give their expertise, not only in Canada but in other countries. I hope the government is listening to some of these other options that are available to study.

Something I particular like, an increment tax, would probably reduce speculation, although many landlords could easily absorb the tax if the land values appreciated significantly. It is this particular kind of speculation, the kind we have witnessed in the last few years in this province, which has caused some deep concern to local taxpayers. In my estimation and in the estimation of our party, we have to try to resolve this speculation on this unearned wealth syndrome that plagues our local governments, because when that speculation is in force taxes and assessments dramatically rise. I believe 98 percent of the local taxpayers are not involved in that kind of speculation, yet are forced to pay taxes because of those who are participating in that unearned-wealth syndrome. That speculation has to be controlled; it has to be tackled, because we all suffer because of it and our taxes reflect it.

I referred yesterday to the situation on Fort Street in the city of Victoria, where $162 a square foot was recently achieved for a particular property. That's creating great concern for those small businesses on that street. Many of them will not be able to stay in business because of that speculation, and their taxes will reflect that speculation — the unearned wealth that plagues not only this province but plagues Canada.

Taxing this gain on real estate investments, however, would have the effect of depressing land prices and thus encouraging development. That's not something particularly bad, Mr. Speaker. I would say that the land value increment taxation has some things that could be looked at. Certainly as part of our party and critic on this particular area, I believe we have to tackle this speculation problem that plagues us. Most people want to remain in their homes all their lives, yet they don't want to be hounded because of the few who force their taxes up because of the speculation game. That's a serious plague that we all must try to tackle.

Because this tax relies on such an unpredictable and restricted base, its revenue yield would, of necessity, be unstable and totally inadequate. Therefore an increment tax could only be used as part of the total tax structure. What I've been saying for the last few days is that it may not necessarily be a matter of totally obliterating property tax but, indeed, it may be that the solution is to introduce other structures so we create a two-tiered system. Therefore an increment tax could be used as part of the total tax structure. I've already said that.

In the supplementary role, however, it may be a useful means of financing municipal capital improvements. That's a particularly important topic, because, as we know, this government in its wisdom has removed itself — a major shift by the current minister — from helping municipalities out with such capital improvements. It is a major shift away, from the longstanding tradition of the senior government being the mother or the father to municipalities. It's been a family environment but with the parents cutting themselves off from local government and not paying their fair share of such capital improvements. As someone who was involved for a number of years at the local level and as chairman of finance in this beautiful city of Victoria, I'm sure glad that I don't have to administer the books for the city of Victoria now, given what this government is doing to the revenues at the local level. Great hardships are being forced upon local taxpayers and governments because of this government. They are removing themselves from their longstanding tradition of helping in the financial arrangements of municipal government, and in our estimation this is something they should seriously reconsider.

Another option for all of us to think about is the concept of site value taxation. This is a little longer one and will probably take us to noon today, but it is an interesting one and worth reflecting upon in this House. The alternative tax structure which is most often proposed is site value taxation. It's the one that's talked about the most, except for the municipal income tax concept. This tax separates realty and improvements for the purposes of valuation and exempts the latter. The philosophy of site value has its underpinnings in the scholarly writings of Henry George, before the turn of the last century. Since then the single tax debate has been carried on at a highly emotional and somewhat dogmatic pitch. In recent years, however, the site value tax has found renewed support in both history and practice, and this has encouraged officials and academics once again to give the tax serious consideration. I wish us to do that today as part of the seven alternatives that I am presenting to this House.

[11:45]

Let's give a brief outline of the theory behind site value taxation. It's based on the conceptual division of land and capital. Site valuists criticize contemporary economics for

[ Page 1135 ]

combining these two distinct economy entities which they claim react totally differently to taxation. They postulate that land is a fixed asset of original and indestructable powers — to quote Henry George — which cannot be consumed or created. Any increase in the value of raw land would then only be an unearned increment, which I referred to a few minutes ago, which the community is entitled to recoup through taxation. I believe the community is entitled to recoup through taxation those unearned speculative moneys that affect all of us, certainly those on fixed income being able to hold onto their homes, because there are a select few in our society who participate in arbitrarily forcing up assessments that do not really reflect the value of people's property in terms of what they could get in a normal market.

The improvement, on the other hand, is the result of individual enterprise and capital investment, which should be stimulated rather than discouraged. Yet they claim that this is precisely what our present property tax does. By assessing improvements a disincentive tax is actually being levied. That is a real irritant for local taxpayers. If a family puts on a little family room or adds a rumpus room, a study or a place where the children can play, their assessment and taxes go up. Someone tries to improve the family environment, a safe haven for children and family, and gets hammered through taxation when he does it. That is just one area that is ridiculous. There are many others, but that is one area that is really annoying to local taxpayers, and something that has to be resolved. Consequently, a property owner is tempted to underuse his or her property, and allow the improvements to deteriorate, for which he or she will be rewarded with a reduced assessment — because they allowed things to fall down.

I have to reflect on that in this city. In the neighbourhood in which I live, we have absentee owners and landlords who, because they know they will get lower assessments and lower taxation, allow their rental properties to deteriorate to the point where they are unsightly and unsafe, and they are rewarded by lower taxes and lower assessments. My estimation and that of my party is that landlords who do that sort of thing should not get away with it; they should be penalized. In this beautiful city we have certain owners who constantly do that. They come to the local council and say: "My property is so dilapidated and falling apart...." They're trying to convince the local council that it's not their fault. "Please rezone my property so I can put up a multiple dwelling" — right in the middle of a single-family environment. They use it, but they're not penalized. That is really a disincentive in the property taxation system which we have to try to come to terms with.

However, it's argued that by exempting improvements from taxation, either totally or partially, each taxpayer would be encouraged to put his property to the most profitable use that the market will bear. Since it would be economically unwise to underuse property in view of the tax load it must carry, speculation and slow urban sprawl would be replaced by rapid and orderly development. Boy, could that be done in certain municipalities! — Surrey being one of them.

To turn to the established criteria for tax equity, does site taxation treat persons who are apparently situated in equal circumstances in a similar fashion? This depends on the index of taxpaying capacity which is adopted. There's no question about that.

[Mr. Speaker in the chair.]

If the value of real property owned by a taxpayer is used as the measure, the tax is an equitable one. However, if income is accepted as the basis of judgment, the argument is quite different. Since the tax places the highest relative burden on those whose property is vacant and therefore generating no income at all, the tax becomes regressive in nature. The question then becomes, under site value taxation, which is the more desirable index of taxpaying capacity? For the proponents of site value, the choice is obvious. Since a high percentage of land value is due to population growth and public improvements, the community is entitled to recapture this unearned profit. But the issue remains: why single out this one particular increment for the basis of tax capacity? A good point, but again it is one that could be looked at in a special select committee or task force of this House. Not only does the site value taxation penalize less intensive uses of land, such as farms or low-rise accommodation, but it also prejudices those persons who have just put their funds into realty rather than into other kinds of wealth. This is especially unjustifiable for present owners who have paid full price for the property, even though past owners may have reaped the unearned increments in value.

James Heilbrun, in Real Estate Taxes and Urban Housing, which I quoted just a short while ago — published in New York in 1966 — pointed out that the untaxing of improvements will stimulate new construction. This may in turn increase land rent, thereby offsetting the increased burden; but the actual extent of the offset is uncertain. The best that the site valuists can offer to avoid these transitional kinds of prejudices is to suggest that the tax system be adopted over a period of years. Again, I suggest that that task force, chaired by the Minister of Municipal Affairs (Hon. Mr. Ritchie) if he so desires, could take a look at this concept.

What about the revenue yield from this site value? The revenue yield from site value tax should be stable, but because realty is a fixed and non-deteriorating base, its adequacy is questionable. Admittedly, the revenue adequacy has been proven in South Africa and Australia where the tax is used by some jurisdictions. I referred earlier to the land value increment taxation used by Denmark and Spain, and now to the site value taxation used in South Africa and Australia by some jurisdictions. These site value areas, however, tend to be rural in nature and are not called upon to fund urban services. Perhaps that's a major shortfall of this particular concept. In more heavily populated centres where this tax has been enacted, it has been found that only a partial exemption could be given to improvements; otherwise, the base would be too narrow.

Both Heilbrun and Netzer, who write favourably on site value taxation, criticize it for its inability to support the services necessary in urbanized areas. That would be a major consideration for the task force that I am suggesting today, or have suggested before. Certainly I'm trying to talk a little bit more about it today. Specifically Heilbrun states that due to organization, the sum of all public expenditures in the United States has long since outdistanced the rest of the land. Because only the original and indestructible nature of the soil is to be taxed in theory, the tax becomes almost impossible to administer in practice. The purists of site-value theory contend that the assessment of land must be made according to a

[ Page 1136 ]

standard state. The standard state of land would be defined in physical terms, which are independent of the actual state and use of the particular parcel of land. Even where the base state of the land — i.e., the actual state at the time of assessment — is inferior to the standard state due to swamps or mining or something like that, an assessment would be made of the market value of this land at its standard state, and tax credits would be awarded to encourage the owner to improve the physical condition of the land up to the standard state value. A new owner's cost of demolishing a negative improvement would similarly be taken into account.

Presumably, man-made realty, such as land-filled areas, would be deemed a capital improvement and therefore not taxed, and obviously the administrative problems involved in calculations of this theoretical value....

MR. HOWARD: On a point of order, Mr. Speaker, pursuant to the appropriate standing order, I would like to draw to your attention that the clock is now at 12 o'clock, noon.

MR. SPEAKER: My attention having been drawn to the clock, I recognize the government House Leader.

Hon. Mr. Neilsen moved adjournment of the House.

Motion approved.

The House adjourned at 12 p.m.