Property Matters – more Property Tax FAQs part three

property-tax-logoApart from the strong objections to the re-introduction of property tax, there are tantalising points emerging on the need for those taxes to be used to pay for local government services. Local government is one of the sectors which is in most frequent contact with the needs of communities, such as maintenance of drains and playing-fields; garbage collection; road repairs and many other such services.

One of the common positions on this tax is one in which there is no real objection to property tax as such, but there are local government and property valuation concerns expressed. Most of those persons seem to have a strong preference for the property tax to be used to fund their local government services, which then leads to an objection to the valuation approach. Those persons seem to hold the view that the extent to which one property is more valuable than another ought not to be the basis for setting the property taxes, if those properties are using broadly similar levels of local services. One can understand that this approach would appeal to those who own the more valuable properties, but one can equally say that those who own more modest properties would be displeased if their property tax bills were the same as their neighbours with larger and more valuable properties. It is complicated.

Having dealt with the principal ‘Axe the Tax‘ objections, I am going to examine this local government funding aspect in this article.

In the previous article I stated that the 2017 estimated property tax revenue of $503M would represent about about 55% of the cost of local government based on 2009 estimates, but that was a defective approach in that two important elements were overlooked.

  1. The first being the juxtaposition of 2009 estimates with 2017 estimates, and
  2. the second being that my estimates were limited to the figures for Municipal Corporations.

In this article, I have corrected both those oversights by using the estimated expenditures for all the local government bodies for 2018 as shown in this table.

Estimated Expenditure for Local Government 2018

Local Government Body $ millions
 Tobago House of Assembly (THA)  1,860.0
 Port of Spain City Corp. (POS)  241.0
 San Fernando City Corp. (SFO)  139.6
 Arima Borough Corp. (ARI)  83.8
 Point Fortin Borough Corp. (PTF)  67.3
 Chaguanas Borough Corp. (CHA)  86.6
 Diego Martin Reg. Corp. (DGM)  106.9
 San Juan/Laventille Reg. Corp. (SJL)  179.4
 Tunapuna/Piarco Reg. Corp. (TUP)  190.2
 Sangre Grande Reg. Corp. (SGE)  85.5
 Couva/Tabaquite/Talparo Reg. Corp. (CTT)  118.2
 Mayaro/Rio Claro Reg. Corp. (MRC)  86.7
 Siparia Reg. Corp. (SIP)  80.8
 Penal/Debe Reg. Corp. (PED)  68.9
 Princes Town Reg. Corp. (PRT)  88.7
TOTAL  3,483.6

Source – Numbered Final Estimates of Statutory Boards 2018 (pgs viii & ix)

The total estimated expenditure for local government bodies in T&T in 2018 is $3.48 Billion and the estimated property tax for 2017 is $503M. I am using the 2017 estimate since the 2018 estimate was halved to $250M, likely to allow for the delays caused by ongoing litigation and the need to pass the amended laws now before the Parliament.

What those figures show is that property tax of $503M is 14.4% of the total cost of local government. That figure is roughly in line with the 2009 picture, since at that time the rates and taxes contributed 15.75% of the cost of the Municipal Corporations.

A note of caution is needed here, as the recent statements (pp. 17-18) by the Minister of Finance indicate that the property taxes for only residential property will be passed to local government, while the other elements (land, industrial and commercial) will be passed to the Consolidated Fund. I am not sure what is the justification for that proposed split, but it seems to me that all the property taxes from a local government area should be collected by the relevant local government body.

In my view the approach of funding local government via property taxes could be an extremely effective means of revitalising the entire practice of local government politics.

To fund local government entirely from property taxes would be a real stretch, since if we use the official estimates, that would mean that property owners would altogether have to pay seven times more than currently estimated. Given the state of our economy and the sharp objections to the property tax, I think that kind of property tax increase would be impossible to attain.

If property taxes were levied at that kind of level and were the sole source of funding for local government, that would be a close fit to what prevails in the first world jurisdictions. That kind of property tax increase would certainly shift taxpayers’ attention onto the local government bodies who were receiving all this money and that kind of keen attention is no bad thing. In my view it would be a substantial public good if we could cultivate greater taxpayer participation in the local government system. That would certainly go a long way to reduce the corruption and mis-management which afflicts so many of our public institutions.

I have been careful to restrict this series of points to taxpayers in accordance with my position that many persons who own substantial investment property do not declare those streams of income or in fact pay any income tax on those earnings. The proper implementation of the property tax will require an open database of all properties, with ownership, physical details, rentals and so on provided. That is a strong measure to achieve transparency and accountability in the system since tenants will be able to see what is the assessment given to their landlords and make the necessary corrective comments, anonymously, of course. So that is one of the reasons for this strident opposition from those tax-evading owners, all disguised as concern for the poor man and so on. I tell you.

In my view a greater level of tax transparency would also be a substantial public good to emerge from this new property tax system.

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3 thoughts on “Property Matters – more Property Tax FAQs part three

  1. The Tobago number seems completely out of line. Tobago receives revenue almost as if it were a statelet. Perhaps it should be removed.

    1. Yes, Stephen, well-spotted…that is what I call the ‘Tobago element’ but it has to stay in if one is to avoid the alternative – i.e. being accused of ‘leaving Tobago out’…these figures are derived from the original official records….

  2. To avoid my response being longer than your article I shall briefly address a few matters:-
    (1) In parts of the USA property tax contributes up to 80% of local government expenditure because it pays for Education, Fire Service, Water, Police, Traffic Management, Roads etc.. NOT SO IN MOST OTHER COUNTRIES OR IN T&T.
    (2) There is no correlation between the services provided by local government and accessed by taxpayers and the amount of property tax levied and paid.
    (3) In the UK the residential property tax is retained by Local Authorities for the provision of additional goods and services while other elements of the tax are passed to the Treasury and used by a “separate” Ministry of Rural Development and Communities for the creation of job opportunities and facilities in poorer areas.
    (4) The property tax affairs of individual owners are their ‘private’ business and should NOT be open to and shared with every Tom, Dick and Harry. Owners are free to ask others who may or may not reveal that information. Form a residents/tenants association in your area for that and other purposes.
    (5) Change of Use ::It should be mandatory for property owners to register with the Local/Tax Authorities the circumstances under which their properties are not used for their sole/private use, then we can become nosey neighbours. If the owner becomes a single occupant he informs the Local Authority and automatically gets a 25% property tax discount.

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