With civic elections fast approaching, municipal business taxes are a hot-potato issue few candidates want to handle, but that hasn’t stopped it from being thrown their way.

“I call the business tax the biggest job killer in the country,” says former Calgary alderman Jon Lord, who has long campaigned against local business tax. He has quit municpal politics for the provincial scene and was elected MLA for Calgary Currie last spring.

The Canadian Federation of Independent Business (CFIB) has identified local taxes as the number one municipal problem in the province.

As with most elections, many candidates want to cut their tax and have the revenue, too. It’s no different in the mayoralty race in Calgary and Edmonton. On the one side are those who say the current system unfairly targets businesses. But underlying this complaint is the implication that revenue will have to be maintained on the backs of residential property owners, a dangerous proposition to put to an already tax-shy public.

At the other end of the spectrum are those who are largely content with the status quo – a stance which could make them appear unsympathetic to small businesses.

This is also a dangerous stance in a province with such a thriving, entrepreneurial sector.

It’s therefore no surprise that few candidates are taking this position for the record either.

Virtually all mayoralty hopefuls are left in an impossible bind, or Catch-22. Lord has lost none of his fire for what he sees as a serious threat to Canada’s economy since leaving municipal politics for the provincial legislature.

He has made this issue his crusade for many years. He draws a cause-and-effect connection between the trend to add extra municipal taxes on businesses (especially the “split mill rate” that allows for a steeper property tax on business than on residences) that started 20 or 25 years ago with the gradual slide in Canada’s productivity.

While there is much disagreement about municipal business-tax levels, there is a virtual consensus that businesses in both cities disproportionately bear the burden. Whether or not the situation is “fair” is controversial.

The actual ratio between what businesses versus residents pay per dollar of property value is five to one in Calgary and 3.5 to one in Edmonton.

“You recognize the problem that the municipal council has. Most of its voters are not businessmen,” says Dr. Melvin L. McMillan, a senior economist at the University of Alberta.

“(The voters) own houses that bear part of the property tax. And they’re very concerned about what the rates might do.

“They’re less concerned with what the business taxes are because somehow they think they’re not paying them (through the increased cost of goods and services). Part of it is pure optics, you know. And so it’s a difficult issue.”

In both cities, businesses pay two municipal taxes: one levied on the value of the property, and a second on the yearly rental value.

The former is calculated, as are residential property taxes, based on a mill rate (per $1 of assessed property value). The latter, typically known as the “business tax” (although both are fundamentally business taxes), is a percentage of a business’s assessed rental value.

In most cases, the property-tax portion is paid by landowners but forwarded to tenants in the operating costs or “common costs” line on their monthly lease statement.

In one corner are groups such as the CFIB, representing 8,700 Alberta businesses with fewer than 50 employees. It recently published a survey that concluded about 70 per cent of its membership identifies municipal taxes as the number-one local factor negatively affecting business. Dan Kelly, the CFIB’s vice-president for the prairie region, is leading a lobby to abolish business taxes Alberta-wide.

In the opposing corner is the status quo.

“While the residential taxpayer doesn’t get to write off any of his property taxes as an expense, the businessman can write off the property taxes, and he therefore passes it on to the government and the general taxpayer and so on,” says McMillan.

“So the after-tax cost of whatever tax it is that’s imposed by the local government is smaller than the before-tax costs.”

Therefore, with federal taxes as high as they are, sympathy has a tendency to shift away from the business owner.

This tug-of-war, and the perception of fairness that it entails, is what this debate is all about.

There is little disagreement that at the current levels of municipal taxation, most businesses get much less in services such as transportation, water or police protection than they pay for. That’s why many economists advocate increased user fees and lower business taxes that would truly reflect the cost of services cities provide. Though such a system would certainly create “efficiencies,” it would not necessarily lead to an “equitable” balance in the eyes of voters.

Almost every municipality in the world grapples with these issues. “We don’t have local income taxes here, whereas that is very common in the United States. Local property taxes hardly exist in Europe and many countries. They collect income taxes to some extent and there are grants and revenue sharing from the national governments,” says McMillan.

Whatever the politicians finally decide, McMillan has a word of caution.

When the tax system changes, it affects the dynamics of the entire market and someone will suffer, he said.

He, like all the candidates, advocates gradual change.

WHAT THE OTHER LEADING CANDIDATES SAY:

EDMONTON

* Mike Nickel: “I’ve stated very categorically that I would like to see the eventual elimination of business tax altogether . . . . Edmonton gets $72 million from the business taxes. So you don’t do it overnight. It’s best to change these things over time . . . . Edmonton’s industrial and commercial tax base has actually shrunk by $1.2 billion over the past decade, while Calgary’s industrial commercial tax base has grown by about four to $5 billion.

* Robert Noce: “I know a number of municipalities have done away with business taxes. At this point in time, I think the balance that exists is reasonably fair . . . . In the past six, years I’ve not had a lot of people asking us to complete the review or overhaul the business tax in the city of Edmonton. If there are businesses out there who feel that changes are necessary, then I would strongly urge them to come forward with their thoughts on the topic and I am more than receptive to . . . their views.”

* Incumbent Mayor Bill Smith: Unavailable for comment.

CALGARY

* Dave Bronconnier: “I don’t want to just throw those (tax-cutting) campaign slogans out there because they sound great. You’ve got to be realistic to implement them at the end of the day . . . . I think right now the take is not unreasonable. The reality is you’ve got a budget and payroll to meet and you either cut services or you don’t build infrastructure . . . . Calgary is a huge hub for distribution. For those truckers trying to move goods back and forth, if it’s not an efficient system, then it’s costing them a lot of money. So you’ve got to factor that into the equation.”

* Ray Clark: “I’d like to see, if it were achievable, the elimination of the business tax. I’m not going to stand here and tell people what I think they want to hear. I’m aware that we need to review it. And I’m working towards that as a goal. I’m not going to stand here and tell you something that is really not achievable today. Not overnight. You can’t really do that . . . . I don’t know what the options are. I suggest we bring a think-tank together of professionals in this city, business owners, academics, the media and other groups and bring them together as an advisory board to council and its policy-making process.”

* Bev Longstaff: “We know the mistake in the first place was putting in place (the business tax) initially. Because when you put in an unfair tax regime, it always comes back to haunt you. It’s really hard to get out of. And the haunting is here now because I would think most people would say it’s not fair. Because it has a big impact on lots of small businesses . . . . It needs to be reformed. How we do that I don’t know. But I really want to continue to work to do it.”

* Richard Magnus: “I think we can phase the business tax out as we grow . . . I’d like to see the ratio brought down to where we can at least compare to our nearest neighbour – that would be Edmonton, of course. We have to compete . . . . The Conference Board of Canada says Edmonton is going to come up another half point on us this year. The question becomes this: Why are they outgrowing us? I think the answer is quite straightforward. It’s because they have a better tax regime for businesses . . . . How many cities still have a business tax? Most don’t. We’ve got to compete with all of them.”