Transcript (PDF, 2118KB). - Local Government NSW

Financing Local Governments in the
21st Century:
Going Back to First Principles
Presentation to the LGNSW Finance Summit
Sydney, Australia
August 27, 2015
Enid Slack
Institute on Municipal Finance and Governance
University of Toronto
Financing Local Governments
 Need for “hard” services (water, sewers, and roads)
and “soft” services (cultural facilities, parks, and
libraries) to maintain quality of life
 Local governments that fail to provide these services
will lose their economic advantage
 Local governments need adequate revenues to provide
services and infrastructure – which revenues?
Outline of Presentation
 Linking revenues and expenditures
 Municipal finance in Canada and elsewhere
 Property rates
 User fees
 Federal and state transfers
 Final observations
3
Linking Revenues and Expenditures
Linking Revenues to Expenditures
 People want to see what they are getting for
their taxes
 Linking taxes and services increases public
support
 Examples of ballot initiatives in the US to pay
for transit
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DIFFERENT SERVICES –
DIFFERENT REVENUE TOOLS
Private
Public
Redistributive
Spillovers
Water
Police
Social assistance
Roads/transit
Sewers
Fire
Social housing
Culture
Garbage
Local parks
Social assistance
Transit
Street lights
__________________________________________________
User fees Property tax
Sales tax
Income tax
Intergovernmental
Transfers
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DIFFERENT INFRASTRUCTURE –
DIFFERENT FISCAL TOOLS
Taxes
User fees
Borrowing
______________________________________________
short asset life
(police cars,
computers)
identifiable beneficiaries
(transit, water)
large scale assets
with long life
(roads, bridges)
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DIFFERENT INFRASTRUCTURE –
DIFFERENT FISCAL TOOLS
Development charges
Land value capture
taxes
______________________________________________
growth-related costs;
new development or
redevelopment
(water, roads, sewers)
P3s
large in scale;
increase property values
revenue stream;
(transit)
measurable results
(toll roads)
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Municipal Finance in Canada and
Other Countries
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The Canadian Constitution
 Federation with three levels of government: 10
provincial governments, 3 territorial governments
and about 3,750 municipal governments
 Constitution divides powers between the federal
and provincial governments
 Municipalities not recognized in the Constitution
except to the extent that they are the responsibility
of provinces
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Role of the Province
 Provincial legislation determines municipal
responsibilities and what taxes municipalities can levy
 Provincial governments set standards for service
provision
 Municipalities cannot run an operating deficit
 Municipal borrowing is restricted
 Unconditional transfers: per capita and equalization
 Conditional transfers: e.g. for social services, roads,
transit, water, sewer, solid waste
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Role of the Federal Government
 Provides some limited transfers to municipalities,
including:




gas tax transfer
infrastructure grants
homelessness grants
economic stimulus grants
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Municipal Expenditures, Ontario, 2013
Planning and
Recreation and Development
Cultural Services
2%
10%
Other
1%
Social Housing
4%
Social and Family
Services
18%
General
Government
5%
Protection to
Persons and
Property
18%
Transportation
23%
Environment
14%
Health and
Emergency
Services
5%
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Municipal Revenues, Ontario, 2013
Licenses and
permits 2.6%
Other revenues
14.4%
Property Taxes
41.7%
Transfers 21.3%
User Fees 19.9%
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Other Municipal Taxes in Selected Provinces







Land transfer tax
(stamp duty)
Amusement taxes
Hotel taxes
Poll tax
Vehicle registration tax
Billboard tax
Revenue sharing e.g.
fuel tax sharing
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International Experience
 More than 80% of local tax revenues from property
rates in Australia, New Zealand, Ireland, United
Kingdom, Canada, US
 More than 80% of local tax revenues from personal
and corporate income taxes in Sweden, Germany,
Switzerland
 Sales taxes are levied mainly by cities in the US
 Mix of taxes in Spain (40% of local tax revenues
from sales tax; 30% from property taxes; 20% from
income tax and 10% from other)
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Property Rates
17
Property Rates – A Good Tax?






Property is immovable
Adequate, stable, predictable yield
Visible/accountable
Fair - related to benefits received; regressive?
Residential rates not exported to other jurisdictions
Minimum inter-municipal competition
 Costly to administer -- arbitrariness of tax base
 Volatile for individual taxpayers
 Inelastic – doesn’t automatically grow with
economy
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Property Rates – Is It Enough?
 Property tax (2010) yielded 3% or more of GDP in
only three OECD countries: Canada, UK, US
 More than 2% of GDP in only four OECD countries:
France, Israel, Japan, New Zealand
 Less than 1 percent of GDP in 22 countries
The Political Economy of Property Tax Reform -- report prepared for
OECD by Enid Slack and Richard Bird, 2014
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Property Rates– Can They be Reformed?
 It’s hard to increase or reform a visible tax.
 It’s difficult to shift tax burdens onto residential
properties.
 Taxpayers need to have confidence in the
valuation process.
 It’s crucial to determine the impact in advance.
 Phase-ins and tax deferrals are essential... but
they need to be simple.
 Link property rates to broader reforms to
improvements in public services.
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User Fees
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User Fees -- Pricing Services Correctly
 How we pay for services affects our behaviour (e.g. how
much water we consume, how much waste we generate)
 Pricing also affects nature, location and density of
development
 Local governments need to price services and
infrastructure correctly – reduce demand for services
and infrastructure
22
Federal and State Transfers
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Rationale for Equalization
 Some local governments are unable to provide an
adequate level of services at reasonable tax rates
 Why?
 costs may be higher
 needs may be greater
 tax base may be smaller
 Equalization allows local governments with a
relatively small tax base and high needs/costs to provide
a comparable level of service at comparable tax rates
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Federal and State Transfers
 Equalization and grants to address spillovers are important
but:
 break the link between those who benefit and those who pay
 not stable and predictable funding (depends on resources
available)
 no incentive to use proper pricing
 conditional transfers distort local decision-making
 accountability problems with conditional transfers when two or
more levels of government fund the same service
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Final Observations
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Final Observations
 Link decisions on spending and financing to determine
whether policy decisions accord with what citizens want
 User fees should fund services where beneficiaries can be
identified e.g. water, sewers, waste collection, transit, roads
 Local taxes – and possibly a range of taxes -- should fund
services that provide collective benefits to the local
community
 Intergovernmental transfers should be used for equalization,
spillovers
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