CLOSE BUT NO CIGAR
How quickly things change.
Last month we noted the provincial government's commitment to fixing the property tax. This month
we note the likely postponement of the fix - and reasons why it should go ahead.
REALTORS® have always advocated a realistic two-pronged reform program: roll back the school
property tax and put a limit on it. Tackle the municipal property tax by widening the revenue base of
local government.
The only way property taxes will be cut back, so you pay less and not have to settle for a smaller rate
of increase, is to get the burden of school off property. The only way the cut-back will last is to keep
school boards from adding back what was taken off - and if the municipal council has no need to take
over the tax room schools vacate. That means adequate school funding from provincial sources, and
revenue sharing for municipalities.
Just after Christmas, Premier Wall hinted the government might do something about revenue sharing.
He also hinted the school tax cut might be put off.
Meetings with government
Our Government Relations committee reacted immediately. Meetings were set up with Jim Reiter,
the Rosetown MLA who is designing a school tax reduction plan, and with Hon Rod Gantefoer and
Hon Bill Hutchinson, the ministers of Finance and Municipal Affairs.
The committee made several important points:
Today is a very good time to reduce property taxes:
Saskatchewan is in better shape
other provinces today. We need to keep it that way.
than it was when the commitment was made, and it's in better shape than
A tax cut is an excellent "stimulus": reducing the school would put cash into pockets all
over the province.
Most of the cost is already in the budget: moving the province's share of school costs to
60% from 40% would cost $258 million. The temporary tax abatement (where the
government pays for a reduction on your tax notice) costs $157 million. That covers 61% of
the cost - and it will be higher than that when the abatement increase comes in. This money
should be contributing to reform rather than being lost on a patch-on-the-quilt program.
And the final point: whatever you do, announce the plan and a time frame for action. Otherwise
Mr. Reiter's work and the entire concept of reform could go the way of so many others in the past.
There is nothing wrong with a phased-in plan, just get it started now.
Last October's meltdown on Wall Street sent a jolt through the world. Some of the blame has rubbed
off on the real estate industry.
Some pundits seem to think strong house prices are a bad thing. They are not. Real property is most
families' biggest asset. We are never in trouble when wealth is widely distributed.
Good intentions, bad results
What got the Americans into mortgage trouble began with their government. Congress passed laws
requiring lenders to open their doors to low-income mortgages. It was not good enough just to offer to
lend. The mortgage companies had to show a result. And so was born the sub-prime mortgage.
Sub-primes typically charge higher fees or interest to compensate for the higher risk. Some of the
costs are back-loaded, so an under-qualified buyer can get started. Later he is hit with balloon
payments, escalated interest rates or fees.
Not that some lenders needed much encouragement. Recognizing an opportunity, they made a virtue
out of the legal necessity with store-front lending and minimal due diligence. Two governmentsponsored
bodies, Freddie Mac and Fannie Mae (something like CMHC in Canada) bought or
endorsed the sub-primes, which gave people confidence because of the implicit government
guarantee.
The resulting loans were parceled up and sold as asset-backed securities (we had some in Canada
too). Financial firms sliced the bundles into tranches and built derivative securities that sold separately
from the underlying mortgages. And thus was born the trade in grot-plus-gold securities.
When the grot in the mix started to smell, the meltdown began. The complexity of the instruments
meant no one could separate good from bad. Everything was tainted and the trade collapsed.
Unintended consequences
When banks have losses, they have to balance them against capital. As capital was eaten up with bad
debts, banks had to restrict loans to good clients, to preserve funds and keep their capital-to-asset
ratio in line. Thus the financial system started to seize up. The shortage of credit spread disease to all
parts of the economy.
A lesson in public policy: good intent isn't good enough. It's a lesson to keep in mind as we embark on
our own "stimulus" program.