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

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.