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Canada - economic aspects of the country's land use
American Journal of Economics and Sociology, The, Dec, 2000 by Garry B. Nixon
GARRY B. NIXON [*]
"LAND" IS A concept that is as much misunderstood in Canada as anywhere else in the industrialized world. Even economists often fail to point out that land includes all natural resources and that its return is called rent, not profit. "Canada collects perhaps five percent of the rent of its land," stated Mary Rawson, Vancouver town planner. [1] The various levels of government in Canada, be they national, provincial, or municipal, do collect land tax, but almost inadvertently.
I
Property Tax
THE PROPERTY TAX in Canada is usually levied by the municipality, but in more remote areas, by the provinces, or in the territories by the national government. As if to reflect the general confusion of land with capital (evidenced even by some economists) the property tax falls on improvements as well as land. [2]
"The four western provinces have, throughout their history, adopted site value assessment (i.e., excluding improvements) to a greater or lesser degree, though, and contrary to inherited misinformation in the Canadian tax literature, at no point did they ever fully implement this system." [3] Property tax in the four western provinces originally fell more heavily, even at times exclusively, on land. [4] But by the 1900s, this was no longer the case in British Columbia, [5] then Manitoba, [6] and Saskatchewan, [7] and finally Alberta [8] where exemptions for improvements were largely abolished and the improvements taxed the same as land. There have always been exemptions for farm improvements, partially in BC and Manitoba, and completely in Saskatchewan and Alberta. [9]
By the early twentieth century, land-value taxation was widespread in the four western provinces, which had been settled largely by homesteaders. Herbert T. Owens advances four reasons for this: First, "the power of the land-value tax, by exempting improvements, to encourage capital investment"; second, "the eagerness of residents to force a contribution from absentee landowners in proportion to the progress of the communities from which they benefited;" third, "the principle of 'equality of opportunity' inherent in the tax," which "appealed strongly to the instincts of the hardy pioneers;" and fourth, "the understandable desire to keep the improvements they made themselves out of the reach of taxation." [10]
The period between 1901 and 1906 was marked by a 260 percent increase in population in these provinces, with still greater augmentation of production, and massive spending on public buildings and infrastructure. Land values appreciated tremendously, especially in the urban areas. All of this might have translated into lasting prosperity if the land had been taxed sufficiently to discourage speculation, but it was not. Because it was not, the exemption of improvements, whether whole or partial, merely helped to fuel the mania for speculation, which inflated land prices to artificial heights that could not be sustained. The rate of the land tax never exceeded two percent until after the speculative boom collapsed with the cessation of European immigration. At that point, it became common for municipalities, many of which had incurred heavy indebtedness to fund lavish expenditure, to eliminate or reduce the exemption of improvements in order to recoup revenue lost because of shrinking land prices and tax delinq uency.
During the boom years, some over-enthusiastic single-taxers held up Western Canada as a model of their system in action. After the crash and subsequent depression, they were left looking foolish. Of course, it never was an example of anything remotely like the single-tax or even of land-value taxation in any thoroughgoing sense, but merely of the full or partial exemption of improvements from local property taxation. The fault, in Owen's trenchant words, "was not that land values were taxed as much as they were, but that land values were not taxed enough." [11]
As well as losing revenue, Canadian cities have lost much of their cohesion through development. Nowhere is this clearer than when one compares two adjoining suburbs in Greater Vancouver. New Westminster is a compact, well developed city. Its first century of development saw it tax improvements lightly and at times not at all. As they were lightly taxed, there were more improvements in relationship to the land, contributing to a highly developed sense of community. In contrast, the neighboring municipality of Surrey, largely developed after tax exemptions for improvements were abolished, is a sprawling eyesore reminiscent of Los Angeles. As buildings are taxed, there are fewer of them in relation to the land, large tracts of which are held for speculation, causing spiraling costs of municipal servicings. The resulting urban sprawl causes the suburb to have little cohesiveness and almost none of the sense of community which New Westminster has enjoyed for years. Indeed, one of the reasons for Vancouver's rela tively compact downtown area can be traced to a policy implemented by its eight-time mayor, L. D. "Single Tax" Taylor, of exempting buildings completely from taxation in the crucial years of its post-fire development in 1910-1918. In spite of his opponents' dilution of his policy, Vancouver taxed buildings less severely than land up to 1980, which further reinforced the pattern of compact development.
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