Big Opportunity for the Green Tax Shift

An Exciting Tax Shift Plan for Winnipeg -- And the World

The city of Winnipeg is trying a "new deal," one that is extremely different from the Roosevelt New Deal in the USA in the 1930s. And we think they might just succeed.

Tax shifting's time has come Winnipeg's "New Deal" can help city improve economy, quality of life by Donna Morton Winnipeg may sit squarely in the middle of Canada, but when it comes to thinking about how to finance public services, this city is on the leading edge. Mayor Glen Murray, the city council, and their staff are literally going back to the drawing board, rethinking every aspect of how the city raises and spends money. The emerging plan, dubbed the New Deal, will reshape Winnipeg in the years to come. An important part of the New Deal is to use tax powers in a way that makes sense for everyone. The idea is simple: when you tax something, you increase its cost and you get less of it. But what do we mostly tax? We tax "goods" -- things like income, investment, labour and property improvements. As a result, we get fewer jobs, less innovation and less investment in property. Tax Bads Not Goods At the same time, our society produces lots of things we don't want -- let's call them "bads." These are things like pollution, traffic congestion and urban sprawl. Unfortunately, these things are seldom taxed; in fact, they are often subsidized. The result? Not surprisingly, we get too much pollution, too many traffic jams, and growing sprawl. With tax shifting, or what could simply be called smart taxes, we reduce tax on "goods" and increase tax on "bads." The overall effect is revenue neutral, but now the tax system is working for us -- helping us create the kinds of cities we want while providing incentives for a robust and efficient economy. In many European countries, and particularly Scandinavia, they have been applying the principles of tax shifting for many years and the results are showing. These countries are beginning to significantly outstrip Canada in terms of quality of life and economic development. We need to take a serious look at our outdated tax system, at all levels of government, if we want to compete in an increasingly global economy. As part of its New Deal, Winnipeg is considering some basic tax shift measures. For example, one shift being considered is around garbage collection. Right now the cost of garbage collection comes out of general revenue for the city and so there is no incentive for individuals to produce less waste. If garbage collection were funded by a small fee per bag, or a fee above a certain threshold, there would be an incentive to produce less garbage, the city would save on collection and landfill, and other taxes could be reduced. In Winnipeg and across Canada, the biggest source of municipal revenue is property tax and while it makes sense to use focused taxes and fees to take some of the pressure off property tax, it is likely to remain a significant source of dollars for the city. Property tax has the advantage of providing a large and stable base for budget planning. The problem is that, like many of our taxes, it also has some unintended and negative effects. Property tax, as homeowners well know, is based on the value of their property. Most of this value, in turn, depends on their house, or improvements that have been added to the land. As a result, land speculators can hold onto vacant lots, surface parking, and derelict buildings in the downtown core, waiting for the value of the land to increase, and pushing new development to the fringes of the city. When they sell, land speculators reap the profit but, in the meantime, everyone else suffers with a sluggish and sparse urban core. By the same token, property owners who want to improve their land by adding a secondary suite or undertaking renovations are discouraged by the prospect of an increased property tax burden. The result, again, is fewer construction jobs and a less vibrant city. With tax shifting, the majority of taxes are shifted onto the value of the land, while taxes on improvements are lowered. As with the garbage fee, the overall effects are revenue neutral, but now taxes are working for the good of everyone. Instead of a surface level parking lot downtown, you get a mixed commercial/residential development; instead of a derelict building, you get a community centre with low income housing. The increased vitality of the urban core has the added benefits of decreasing crime and making public transit more feasible. Save money Over time, as these taxes take effect, Winnipeg will actually save money as better development and better environmental conditions reduce health care and infrastructure costs. Taxes are like the rudder of a city, setting the direction of economic and social development and, over time, shaping the very life and character of a place. Most cities have inherited a muddled tax system full of inconsistencies and misdirections. As a result, many cities are floundering right now, searching for a way to get on course with economic development, livability, and sustainability. Tax shifting is an idea whose time has come, and Winnipeg has the opportunity, in the context of its New Deal, to make it happen. Winnipeg has its hands on the rudder and is about to set sail. The rest of Canada will be watching closely. -------------------- Donna Morton is the executive director of the Centre for Integral Economics, a Canadian non-profit organization that is conducting research for the city on some aspects of the New Deal. Her article originally appeared in the Winnipeg Free Press.

The new deal for cities by Paul Sullivan The Globe and Mail Are you ready for the transformation of Winnipeg from one of the coldest cities in Canada to the coolest? What's going on in Winnipeg right now makes it the city to watch, and Mayor Glen Murray the man to watch for cities struggling with mounting problems and a shortage of ready cash -- which is all of them. None is more deeply impaled on the horns of that dilemma than Winnipeg. Once Canada's third-largest city, it has watched others grow and prosper while its population hasn't changed for more than a decade -- stuck at about 675,000. And because 42 per cent of the city's revenue comes from property taxes, and as the tax base doesn't change much, those taxes keep going up. While taxes go up, services go down. Expenditures per capita have decreased 9 per cent from 1995 to 2001. Over the next 10 years, under its current structure, the city plans to spend $1.85-billion to support its infrastructure -- it should spend $3.68-billion. The bottom line: The city only has half the money it needs. If this keeps up, there won't be enough for police and fire, public transit, water and sewage, parks and recreation, neighbourhood revitalization. In other words, the services that make a city livable. But Winnipeg is not going down without a fight. So when Mayor Murray announced last Monday that they've been doing it all wrong and it's time to strike a new deal for Winnipeg, it became clear the people who blithely survive unendurable winters, floods, and the loss of their beloved hockey team, are once again ready to do what it takes, even if it means a complete change in the way the city works. The mayor's plan is deceptively simple -- figure out what kind of city we want, and then shift the entire economic mechanism to make it come to pass. The mayor outlined his vision in these pages last week, but here are the highlights: Instead of increasing taxes on existing properties and improvements, the mayor proposes a tax on land value. Homeowners and businesses will enjoy an immediate reduction in their property taxes, which will be offset by a whole raft of new taxes and user fees. So Winnipeggers would have to pay a buck a bag to get their garbage picked up, and pay tax on gasoline, liquor, hotels and natural gas and electricity (not used for heating), and a city sales tax. Lost in the outcry from those who accuse the city of launching a wholesale tax grab, is the shape of the shift. It's hard to believe, but the suburbs are growing even though the population hasn't -- a trend that has led to the desolation of the inner city. So the plan encourages developers to look to the downtown for new construction or to reclaim heritage buildings. If all of this happens, Winnipeg will become the North American poster boy for tax-shifting. And that fits in with the artful schemes of Donna Morton, the heretofore little-known doyenne of economic sustainability. Ms. Morton, who quietly plots to change the world behind the cover of the Centre For Integral Economics, based in her heritage home in Victoria, B.C., is a one-woman fifth column for tax-shifting. Last spring, she began commuting to Winnipeg, helping the mayor and council understand tax-shifting in all its complex glory, assuring the politicians they were on the right track -- tax-shifting is already well-established in the relentlessly progressive Scandinavian countries, and she's starting to field calls from the U.S. and Mexico. Next on the agenda: Ms. Morton is eager to bring the lessons learned in Winnipeg to the West Coast, specifically Vancouver -- which has its own bad case of sprawl, needs to transform the dismal Downtown East Side, and needs to find a way to relieve itself of an increasingly nasty traffic snarl. She even believes tax-shifting can induce the city's egregiously polarized city council to play nice. She's identified councillors on both sides of the fence who are at least interested in what she says is only "making prices tell the truth" -- revealing the true cost of services, and ensuring that the people who pay for them are the people who use them. Meanwhile, what has begun in Winnipeg could quickly escalate into a national program on its own -- especially if, as is widely predicted, Mayor Murray runs for the Liberals in the next election, wins, and is ushered into Paul Martin's cabinet as minister of urban affairs. Oh, so that's what he meant by a "new deal for cities."

For lots of further information on this subject see the Green Tax Shift Headquarters

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