Tax breaks don’t patch potholes

AACI | Vice President, The Regional Group of Companies Inc.
  • Nov. 12, 2014

John ClarkHere we are, once again riding the tax break train thanks to a federal budget surplus. But how long before it runs off the rails because the bridge is out from lack of repair?

The federal Conservatives have been teasing since the 2011 election about the goodies they will offer taxpayers once the books are balanced.

They delivered on many of those promises last week, as they projected a $1.9-billion surplus for next year. Just in time, too, as Canadians head to the polls next fall and the Liberals make gains in the polls.

But as helpful as this laundry list of tax cuts and credits may seem to cash-strapped Canadian families, the windfall simply won’t have any long-term benefit. In fact, it likely does more harm than good.

Easy money is too easily disposed of

Take income splitting. I’ve written before why I think this is a bad idea, and not for the reasons most critics espouse. Most people won’t put that additional cash flow to good use. They’ll simply use it to lever more debt. By the time the next tax year rolls around, the decreased income tax burden will have already become old hat. Having that additional disposable income will now be status quo and, quite likely, taken for granted.

More disposable income will also motivate people to lever more debt to buy more housing. And every time the government makes it easier to buy housing, housing gets more expensive because demand rises. Those of more modest means, or widowed/single-parent households, are the first to feel the pinch.

But this is only the tip of the iceberg. We should be asking ourselves where else this largesse could be invested.

Crumbling roads won’t fix themselves

Take transportation infrastructure as an example. It is overbuilt by a factor of at least three times the actual economic demand. Few projects, such as bridges and roads, were ever built with reserve funds that would provide for eventual repair and replacement. This continues to be a significant oversight today, despite the common knowledge bridges are things with a predictable life expectancy and will eventually collapse if not repaired or replaced.

I was recently out East, and noted how the state of repair on the road I travelled abruptly changed when I crossed from Nova Scotia to New Brunswick. Federal money built the road, upkeep was handed off to the provinces. It’s easy to see who could afford that, and who could not. Some communities out there are actually looking at depaving hardtop roads because they can’t afford to maintain them.

Governments too often dodge the issue of an infrastructure reserve fund. It’s always dismissed as “the next generation’s problem,” out of political expediency. Instead, it’s about wooing the electorate with short-term gains that make for good headlines.

Even now, with all of the infrastructure investment being made in my hometown of Ottawa, with new bridges, highway widening, and the new LRT system, what is the long-term plan to break even on repair and upkeep in a timely manner?

Such things are always a political football – the city pays for this, the province pays for that, the feds kick in a little more.

You, yes, you, will ultimately pay for everything: there is only one taxpayer, and it’s you

But people must realize there is only one source of government revenue – them. It doesn’t matter which level of government foots the bill. Ultimately, it comes out of the pocket of the taxpaying Canadian.

Taxpayers must connect the dots between the services they receive and take for granted, the taxes they pay, and the costs of delivering and maintaining those services. We must decide what we consider to be an acceptable level of service and budget accordingly to ensure we break even.

At the same time, we need to have 21st-century infrastructure to allow Canada to compete with the rest of the world.

No piece of transportation infrastructure is an asset. It’s a liability. The only exceptions to that rule are toll roads and bridges and freight rail. Politicians are addicted to those ribbon-cutting photo ops you see on the 6 o’clock news, but you’ll never see any of them gracing a pothole-patching party.

Which brings us back to budget surpluses and what should be done with them.

Have I said Norway often enough?

I can’t help but again point to the example of Norway and its huge sovereign wealth fund. Twenty-four years ago, Norway set up a national oil fund that levers the income from its national oil company. Only four per cent of that fund each year is used for general government revenue, and then, only to fund important initiatives for infrastructure, education and research.

The rest has been invested, and reinvested and has reached almost $850 billion in value, or about $170,000 per Norwegian citizen – the largest sovereign wealth fund in the world.

Meanwhile, our government’s projected surplus for next year is less than previously expected due to, you guessed it, falling oil prices. Does it decide to invest that money for a rainy day, to repair crumbling roads or in ways to cut the costs of our bloated healthcare system?

No. It just gives it away.

No wonder Canadians have such a challenge managing their spending and debt levels. Look at who’s leading by example.

To discuss this or any other valuation topic in the context of your property, please contact me at [email protected]. I am also interested in your feedback and suggestions for future articles.

John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

Read more

John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

Read more

Industry Events