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Lowest corporate taxes in the world at heart of Vancouver’s housing crisis

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The City of Vancouver currently has the lowest business taxes in the world. A report published by the global financial auditor KPMG places Vancouver first out a list of 41 global cities. The main finding of the report, called “Competitive Alternatives 2010 Special Report: Focus on Tax,” is that Vancouver has a tax system more favorable to corporations and the wealthy than anywhere else in the world.

Although the report was released last May, including a press release, it has not received attention in Vancouver’s corporate and alternative press. Instead, local media have placed the international rankings spotlight on Vancouver’s real-estate market, with wide reports that people living in Vancouver currently experience one of the most unaffordable housing markets in the world. It is becoming common knowledge that through high-profile events like the Olympics – which the real-estate executives termed a “$6b ad campaign” for Vancouver – the municipal government has been making an effort to attract global financial investment to Vancouver, with direct effects on the cost of housing. The important background of this policy, however, has been the creation of a corporate sanctuary – the national and global elites are being drawn to Vancouver for its low levels of taxation.

<a title="IMGP7662 by seanantrim, on Flickr" href="http://www.flickr.com/photos/38555555@N08/5270629884/"><img src="http://farm6.static.flickr.com/5281/5270629884_e87737ed75.jpg" alt="IMGP7662" width="570" height="380" /></a> The City of Vancouver currently has the lowest business taxes in the world. A report published by the global financial auditor KPMG places Vancouver first out a list of 41 global cities. The main finding of the <a href="ftp://ftp.competitivealternatives.com/2010_compalt_report_tax_en.pdf">report</a>, called “Competitive Alternatives 2010 Special Report: Focus on Tax,” is that Vancouver has a tax system more favorable to corporations and the wealthy than anywhere else in the world. Although the report was released last May, including a <a href="http://www.kpmg.com/ca/en/issuesandinsights/articlespublications/press-releases/pages/vancouverhascanadaslowestbusinesstaxcosts,placingfirstoutof41globalcities-kpmgstudy.aspx" target="_blank">press release</a>, it has not received attention in Vancouver’s corporate and alternative press. Instead, local media have placed the international rankings spotlight on Vancouver’s real-estate market, with wide <a href="http://www.vancouversun.com/life/Vancouver+home+prices+rated+most+unaffordable/2482683/story.html">reports</a> that people living in Vancouver currently experience one of the most unaffordable housing markets in the world. It is becoming common knowledge that through high-profile events like the Olympics - which the real-estate executives <a href="http://www.canada.com/vancouversun/news/editorial/story.html?id=869503f7-d323-4491-b477-4f2a845ec051">termed</a> a “$6b ad campaign” for Vancouver - the municipal government has been making an effort to attract global financial investment to Vancouver, with direct effects on the cost of housing. The important background of this policy, however, has been the creation of a corporate sanctuary - the national and global elites are being drawn to Vancouver for its low levels of taxation.

IMGP7662

The City of Vancouver currently has the lowest business taxes in the world. A report published by the global financial auditor KPMG places Vancouver first out a list of 41 global cities. The main finding of the report, called “Competitive Alternatives 2010 Special Report: Focus on Tax,” is that Vancouver has a tax system more favorable to corporations and the wealthy than anywhere else in the world.

Although the report was released last May, including a press release, it has not received attention in Vancouver’s corporate and alternative press. Instead, local media have placed the international rankings spotlight on Vancouver’s real-estate market, with wide reports that people living in Vancouver currently experience one of the most unaffordable housing markets in the world. It is becoming common knowledge that through high-profile events like the Olympics – which the real-estate executives termed a “$6b ad campaign” for Vancouver – the municipal government has been making an effort to attract global financial investment to Vancouver, with direct effects on the cost of housing. The important background of this policy, however, has been the creation of a corporate sanctuary: national and global elites are being drawn to Vancouver for its low levels of taxation.

Tax exemptions for billionaires

In addition to a low overall rate for wealthy corporations, the municipal government has implemented a policy of property tax breaks and exemptions for real-estate developers and billionaires, adding up to tens of millions of dollars. One example is the two wealthiest billionaires in British Columbia – Brandt Louie and Jim Pattison – who have received ten-year tax exemptions for their corporations’ participation in the new Woodward’s development (London Drugs and Nesters).

Property owners at Woodward’s will also be receiving three-year tax exemptions. But although Woodward’s stands out as an exception, the reality is that these exemptions are becoming the rule. Down the street from Woodward’s at the Gastown Terminus condos, the City has also offered property tax exemptions for new condo purchasers. And although mainstream and alternative journalists have not written about the city’s policy of exemptions, it is possible to open the pages of Canadian Architect to learn about The Keefer, a four-unit boutique hotel where rooms cost $700 a night. “The entire project,” Canadian Architect casually reveals, “would not have been possible were it not for financial incentives offered by the City of Vancouver. A 10-year property tax exemption.” The owner of that Chinatown property is millionaire Cam Watt, who made his money selling bottled water as the owner of Canadian Springs.

Legislated poverty

What this means is worsening conditions for low-income people across Vancouver. What a project like Woodward’s presents, with its tax exemptions and aggressive gentrification, is a double inequality. The projects currently evicting people from their homes are the very same ones being used – through tax exemptions – to eliminate the funding for public services. It means that the poor are being confronted on two fronts: firstly by rising housing costs, renovictions and demolitions (such as with the several low-income hotels that have closed down at the 100 block of West Hastings since the opening of Woodward’s); secondly, through the elimination of tax revenues used to fund social and affordable housing.

To make up for millions of dollars in lost revenues, the City has recently tried – unsuccessfully – to gain quick “cash” by selling off promised social housing at the Olympic Village. The history of this decision matters because in 2008, Vision Vancouver won the municipal elections by claiming to “strongly oppose the previous NPA administration’s cuts of middle and low-income housing from the Olympic Village site.” Mayoral candidate Gregor Robertson himself stated: “Peter Ladner and the NPA made a big mistake when they cut social housing from the Olympic Village and replaced it with high-end luxury housing.” Last April, however, Gregor and Vision voted to do exactly what they had condemned a year earlier, slashing the  project’s affordable housing component in half in order to fund newly-introduced world-record tax rates.

Building a tax haven

It was only last year that Mayor Robertson stated, “we have the advantage of an extremely competitive tax regime here. Within a few years we’ll be the lowest corporate tax rate combined in the G8.” As the May 2010 KPMG report now demonstrates, the Mayor’s long-term goal has come true years in advance. Within the Vision party there was some internal disagreement about shifting business taxes onto residents, with some councilors mildly opposing the shift. Quickly, however, councilors fell in line behind the Mayor.

There was some limited criticism from the COPE party, with David Cadman stating: “Four per cent [taxation] for residents, one per cent for businesses. We cannot put the entire onus of taxes on the residents.” Cadman did not suggest that while business taxes are low for corporations, they are also low overall. One former real-estate professional estimates, for example, that on a $1 million home in Vancouver, property taxes are “40 per cent less than the same value house in Toronto.”

To worsen the situation, Gregor Robertson has forced through the Short Term Incentives for Rental (STIR) program, a system designed to exempt property developers from taxation (Roberston himself calls STIR a “stimulus package” for the development industry). Although the program is depicted by the Mayor as a solution to the affordability crisis and lack of rental housing, the reality is that STIR places no upper limit on rental rates whatsoever. In one recent project (a BlueSky Properties tower in the West End, which has been exempted from nearly $0.7 million in construction fees under STIR), 320-square-foot units will rent for between $1,500 and $2,000 per month.

Neoliberal harmonization

The BC Liberal government has spent the last few years trying to ram through the implementation of the HST, in order to regain revenues lost through tax cuts made since coming to power in 2001. According to a recent report by the BC Federation of Labour, tax cuts to the wealthy have cost the Province $3.5 billion annually since the election of the Liberals.  “After cutting taxes,” the report states, “the Liberals responded by increasing other taxes (like MSP premiums)” and the HST.

Mayor Gregor Robertson has meanwhile attempted to “harmonize” the Vancouver tax system with the decade-long entrenchment of right-wing neoliberal provincial policies. To implement the policy of creating a tax haven, the city and the province collaborated last April to amend the Vancouver Charter itself, allowing City Council to approve more tax exemptions. The announcement of the amendment came on the same week the Mayor announced that he would be cutting the number of social housing units in half at the Olympic Village.

In addition to aligning with the policies of the BC Liberals, the Vancouver tax shift, which seeks to transfer a total of $23.8 million in taxes from nonresidential properties to residential ones over a period of five years, is similar to Prime Minister Harper’s federal tax policy, which aims for a 10% cut in the tax rate over 10 years. According to economist Armine Yalnizyan, “the Harper team’s commitment to reducing the corporate tax rate to 15 per cent ultimately reduces the size of the public purse by $13.7-billion annually by 2012.”

In each case, the goal is to make a neoliberal move away from a system of progressive taxation towards a system of “classless” flat taxation. As Cristy Clark recently said in her campaign to lead the BC Liberals, “there is only one taxpayer in British Columbia.” The BC Liberal agenda is to shift to a system that can recover lost funds through anti-poor flat taxes like the HST. In Vancouver, the Mayor’s version of the HST is a collaboration with BC Housing on the destruction of Little Mountain while eliminating taxes on the rich by selling off social housing at the Olympic Village.

7 Comments

7 Comments

  1. Blake

    February 6, 2011 at 6:46 pm

    You mentioned Cadman, but where is Ellen Woodsworth in all of this?

  2. Nick Harper

    February 10, 2011 at 4:08 pm

    Could you please elaborate on the ‘neoliberal’ orientation of Vancouver’s policies? I’ve only heard this used to describe national-level economic policy, not at the provincial or municipal level. From what I understand NeoLiberalism is based on austerity measures to cut all Public spending, but usually associated with an INCREASE in tax collection to balance the government’s budget book. Admittedly, I don’t know very much at all about Vancouver and BC government’s budgets and their levels of public expenditures.
    Perhaps by neoliberal you mean the lessening of the tax burden from the wealthy towards the middle and poorer classes?

    Also, you raise the alarm over the ability for Vancouver to grant its own property-tax exemptions. Yet in the document you cite from the BC Government website, it says that the exemptions are only for philanthropic organizations, the types which would help those in the DTES. It’s a little misleading to offer this as evidence of the Vancouver/BC governments bias towards property-owners generally. I would have imagined that tax exemptions for philanthropic purposes would be a progressive policy right up the NDP’s/ Center-Left’s alley.

    Otherwise I appreciated reading your article and found it to be informative of local tax regimes and trends in policy.

    Thanks!

  3. Sean Antrim

    February 10, 2011 at 8:28 pm

    I don’t think non-profit necessarily means “philanthropic”.

  4. Maxim

    February 11, 2011 at 3:01 pm

    Regarding Vancouver’s neoliberal policies, off the top of my mind I think of the taxes shifting from business to residents, bare-bones social services, privatization of public amenities (translink), increased police funding, scapegoating the poor and homeless, and policy dictated by the interests of capital and developers, not the citizenry.

    Tax exemptions have been given to businesses who have ‘bravely’ opened their expensive franchises in the DTES – I personally don’t see how this falls under philathropic, maybe we should ask the city?

    ps: Great article!

  5. Paulo

    July 19, 2011 at 12:24 pm

    You mention several hotels have closed on the 100 block west since the opening of Woodwards. Are you sure? I can only think of one, and it had less than 40 rooms. Can you check your facts please?

    Also, you neglect to mention that Woodwards is not all market housing. 1 tower is market housing. 1 tower is partially subsidized family housing for low income families and 5 floors above SFU are low income housing, including people who were former residents at other DTES hotels, and homeless activists of the Woodwards squat. Can you check your facts please?

  6. Julia

    October 14, 2011 at 4:53 pm

    Tax shifting of the property tax burden in the city of Vancouver to rectify gross inequity has absolutely NOTHING to do with the income tax policies of the federal and provincial governments.

    Property tax is paid in exchange for services rendered and is not tied to profit. Income tax is paid on profits.

  7. Brett

    October 16, 2011 at 9:28 pm

    1.: Hypothetical Situation – I work for a fake corporate based in New York. I’ve been tasked with figuring out where to locate our west coast operations. I have a $15,000,000 budget to set up and I need to fill 250 positions with locals.

    I’ve short-listed four cities with great ports: Oakland, Los Angeles, Portland and Vancouver. Although Vancouver’s port is smaller, the tax burden is lower so I decide to take my business there. The other cities, which desperately need jobs and capital, have lost out because they are not deemed as financially competitive (according to the KPMG report).

    2.: The B.C. unemployment rate fell by 0.8 percentage points to 6.7% in September 2011. Canada’s unemployment is the lowest since Dec 2008.
    http://www.statcan.gc.ca/subjects-sujets/labour-travail/lfs-epa/lfs-epa-eng.htm?WT.mc_id=twtB0063

    Third Point : I’m don’t agree with your arguement that low corporate tax structure is the reason for Vancouver’s real estate market. China’s economic growth and the desire for those folks to put their money in hard assets plus the city’s desirability are the real drivers.. Regardless, if you are in the market in this city, you can afford to pay for property taxes.

    I do agree with you that is sad the those with little means struggle to find affordable accommodation. Progressive social housing projects that are sustainable are definitely required.

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