Ian Peach: Gathering good data only part of property tax challenge

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The government announced this week that Service New Brunswick is beginning to develop and implement a new property tax assessment technology. It is good that Service New Brunswick is planning to take three years to develop and implement their new assessment technology, rather than rush out something faulty, like the government did in 2017.

Good data is a foundation of good decision-making. Modern technology can assist decision-makers in having good, accurate data to work with. Unfortunately, the 2017 experiment with a computer-assisted mass appraisal system generated a number of obvious mistakes that could have been avoided had the technology’s roll-out not been rushed.

The principle underlying fair market assessments for determining property tax owed is, indeed, to fairly approximate annually how much a property would sell for if it were put on the market. For residences, though, the market value of a property is a poor proxy for the ability of the homeowner to pay tax. In the case of commercial properties, including rental residences, the value of a property is reasonably connected to its ability to generate income for the property owner. Homeowners, however, do not buy the homes they live in to generate revenues for them; they buy them to occupy.

You may well see the value of your home increase without seeing your income, from which you have to pay your property taxes, increase. Thus, market value assessments of owner-occupied residential properties really do not align with the owners’ ability to pay property taxes. Only at the point when someone sells their house does the theoretical value of the property become money in their hands.

As a matter of good tax policy, then, what do municipalities do to fairly generate tax revenues to run on. One option would be for municipalities to have access to other forms of taxation, such as municipal income taxes. Municipalities in Canada, though, do not. How, then can governments at least somewhat better align residential property assessments with residents’ ability to pay tax?

The value of individual homes is a function of the housing market. If a homeowner’s income does not go up when their house’s value does, their ability to pay their property tax gets stretched, sometimes painfully. One way to temper the financial pain of housing market fluctuations for homeowners is to base the assessment of their house’s value on a three-year, or even five-year, moving average value. A multi-year moving average assessment will temper the effects of market fluctuations and more accurately reflect the true value of a home.

While this is not a perfect solution to the inherent imperfection of property values as a proxy for a homeowner’s ability to pay, it is, at least, an improvement. This, though, is, a policy decision about how to be fair; it requires judgement. No property tax assessment technology, no matter how accurate, can create a fair tax system; only people can do that.

Ian Peach has worked in senior positions in federal, provincial, and territorial governments, at universities across Canada, in non-governmental organizations, and as a public policy consultant.