The City of Winnipeg has tabled their 2018 budget. It includes a 2.33% property tax increase, and no frontage levy increases or new fees. In addition, this budget didn’t draw on the fiscal stabilization reserve fund, and includes a record $116 million for regional and local road repair, over $10 million more than last year.
The Winnipeg Chamber applauds the City for taking further steps to reduce the business tax, cutting it from 5.25% to 5.14% in this budget. As well, the rebate threshold increased to $33,300, up over $1,000 from last year. These steps will help put more money back into the pockets of small business owners, the job creators of our economy. From 2005-2015 the private sector created 1.2 million jobs in Canada, with almost 90% of those coming from small businesses.
The City of Winnipeg limited expenditure increases to only 1.2% this year, the lowest increase in over a decade. To put that in perspective, the Province of Manitoba had expenditure increases of 3.1% in their most recent budget. If the Province would have maintained the same level of expenditure restraint as the city did in their most recent budget, they would be facing a $478 million deficit (a $362 million improvement over the current projections).
Unlike the Province, the City is required to balance their books each year. Once again, they achieved balance, but there are storm clouds on the horizon.
Winnipeg is forecasting an almost $86 million deficit in their 2019 budget, and an over $100 million deficit in 2020. Those are large structural deficits the City has to face each year. Unfortunately, they are fighting with one hand behind their back due to the broken revenue model that hampers Canadian cities.
Our city generates over 54% of its revenues from property taxes, an antiquated form of taxation that was developed over 100 years ago when our country looked very different. When Canada was first formed, over 80% of the population lived in rural areas. Now those ratios have switched, with over 80% of Canadians living in urban areas.
Property taxes have many warts. They are more difficult to administer than most taxes. They don’t automatically grow with the economy. Property taxes also don’t take into account the ability of an individual to pay them.
Canada is an outlier in this area. In Sweden, Germany and Switzerland, for example, over 80% of municipal tax revenues come from income taxes. Amongst the 35 OECD countries, in only 3 are property taxes equivalent to over 3% of GDP, Canada amongst them.
People have been flocking to cities like Winnipeg for decades, to take advantage of economies of scale, which leads to increased productivity, better job creation and higher economic outcomes. By 2025, almost 60% of global GDP is expected to come from just 600 cities. We need to modernize the municipal revenue model in Canada if we are to remain globally competitive.
The City of Winnipeg should be applauded for their 2018 budget, but they can’t go it alone. They are doing what they can, setting aside $2 million in capital spending in the 2018 and 2019 budgets to continue developing their innovation strategy, as well as to conduct several pilot projects.
This shows the City is putting their money where their mouth is, and looking at ways to more efficiently and better deliver services. However, they are still trapped by a revenue model that is handcuffing them at every turn. Now is the time to have the conversation with all levels of government about reviewing the municipal revenue model.