Municipal tax freeze, a genuine gift?

In recent weeks, several big cities have announced that the economic crisis has prompted them to freeze their citizens' tax bills for 2021. In reality, cities have no emotion, so they are not giving a gift, they only have interests.

First, 2021 is an election year for municipal governments. Nothing like announcing a tax freeze to maintain voter support, or even trying to win it back by making people forget three years of service cuts, tax hikes or both at the same time.

If there is a gift, it will essentially be paid for by the Government of Canada and the Government of Quebec (thus invariably by taxpayers). The latter announced on October 13 that $800 million would be paid to cities to help them balance the 2020 budgets that have been undermined by the management of the pandemic and to prepare for the 2021 budgets. Montreal alone will get $263 million (out of the $477 million from the Metropolitan Community), Quebec City will receive $55 million (out of the $68 million for the Capitale-Nationale region), Laval $42 million, Longueuil $27 million, etc. All this is calculated according to their demographic weight and the impact of the pandemic. In addition, $2.3 billion has already been allocated for public transit, which is no longer generating revenue, or almost, while remaining in service.

There is something else to consider. Inflation in Quebec is now only 0.7%. Many municipal governments, Montreal first, are "selling" their budgets to citizens by making them believe every year that tax increases follow inflation. This is deceitful: they use the expected rate of inflation for the coming year when actual inflation is generally lower; however, they don't make a correction in the next budget, relying on the taxpayers forgetfulness.This strategy was confirmed to CORPIQ by a former elected member of the City of Montreal's executive committee. Thus, for a metropolis where the tax variation supposedly evolves at the rate of inflation, according to successive administrations, Montrealers pay tax bills that grow twice as fast as actual inflation.

In concrete terms, the cost of living has risen by 4.6% in Quebec over the past three years (1.7% in 2018, 2.2% in 2019 and 0.7% in 2020 according to the trend after eight months). However, since their arrival at Montreal City Hall, Valérie Plante's administration and that of the boroughs have invoiced tax increases totalling 7.6% in three installments (i.e. 3.3% in 2018, 2.0% in 2019 and 2.1% in 2020). Even with a freeze for 2021, the promise to keep taxes in line with inflation will not be kept.

What to think about this management of municipal public funds? Without the emergency assistance announced Tuesday by the Minister of Municipal Affairs and Housing, Andrée Laforest, the situation would be catastrophic.

 Postponing the inevitable

In an ideal world, everyone would like to see tighter management of municipal public finances, maintenance of services and frozen tax bills; however, there is a risk that one year of frozen taxes could be followed by a significant increase in the following year to make up for lost revenue.

With one year to go before the election, cities do not want to stand alone and the announcement of tax freezes by some cities has had a ripple effect. However, in Sherbrooke, which had the highest increase in 2020 with a salty tax increase of nearly 6%, reflection continues about the possibility of freezing tax accounts in 2021. This city will receive $16 million from the federal-provincial emergency assistance program. Saguenay is also thinking about 2021. The tax account has grown by 2.3% this year.

On the other hand, Gatineau, which will receive about thirty million dollars in emergency government assistance, has already indicated that a tax freeze is out of the question.  Every year for the past decade, its administration has increased Gatineau's tax bill by 2 to 3 per cent, well above inflation and well above what is seen in any other city in Quebec over a long period of time.

By freezing tax bills in these difficult times, cities are probably hoping that the year 2021 will be financially better for taxpayers to table a more significant increase in 2022, post-election. Will the economy be back on track by then? Nothing is less certain. We must therefore consider the fact that if a tax-freeze passes with enthusiasm, a significant increase passed on the following year could be even more difficult for owners and their tenants to swallow. Remember that under the Regulation respecting the criteria for fixing the rent, an increase in costs (taxes, insurance, work) that is not fully transferred to the rent at the first opportunity is then lost. The tenant therefore cannot benefit from an averaging increase, as would be desirable for everyone.

Examples of cities that have announced their intention to freeze tax accounts for 2021 :

• Longueuil
• Laval
• Quebec
• Repentigny
• Montreal - center
• Montreal - Verdun borough
• Montreal - Rivière-des-Prairies/Pointe-aux-Trembles borough
• Montreal - Ahuntsic-Catierville borough
• Brossard
• La Prairie
• Boisbriand