For 2nd straight year, inflation pushes P.E.I. property tax up to the max

For the second year in a row, residential property tax assessments in P.E.I. will increase by five per cent, the maximum allowed under provincial legislation.

That means property taxes owed by Island homeowners will increase by the same amount, all other things being equal.

Under the Real Property Assessment Act, increases in the assessment value by which owner-occupied residences are taxed is tied to the rate of inflation, as measured by the annual all-items consumer price index calculated by Statistics Canada.

For 2022 the index for P.E.I. was 7.7 per cent. The annual increase in assessment caps out at five per cent.

The inflation rate in P.E.I. has been the highest in the country since March 2021.

No commitment so far to offset increase

Last year the P.E.I. government offered a one-time subsidy to help offset the increase in property tax charges for homeowners. But the province has made no commitment to do the same this year.

"The 2022 Property Tax Subsidy was administered to further support Islanders during a time of unprecedented inflation coupled with transitional pandemic challenges," a spokesperson from the Department of Finance told CBC via email.

"Moving forward, the province will continue to assess and evaluate the economic landscape, and will continue to make decisions that support Islanders during times of need and drive the local economy, while remaining fiscally responsible."

In January the province distributed an estimated $58 million in inflation relief payments through the Canada Revenue Agency, with individuals receiving up to $500, couples and single parents up to $1,000.

The province has also offered a property tax rebate for P.E.I. landlords this year, but only if they don't increase their rents.

10.25% increase over 2 years

With no property tax subsidy for homeownersthis year, they would end up paying, compounded, 10.25 per cent more in property taxes than they did in 2021, assuming the tax rate in their municipality remains unchanged and there were no further changes in their assessment values.

There was no increase in residential assessments in 2021, after consumer prices remained flat through 2020, the first year of the pandemic.

The following table tracks changes in value for a home assessed at $350,000 in 2021, along with the corresponding increase in property taxes due on that home in either of the province's two largest communities, or in an unincorporated area (with no municipal property taxes, only provincial taxes charged).

'Debt elastic stretched as far as it will go'

One Charlottetown insolvency trustee said he's seen an uptickin inquiries from people seeking his services since the start of the year, as Christmas bills come in for people already struggling under inflation and rising interest rates.

"Depending on where the person already finds themselves, if they've already got this debt elastic stretched as far as it will go, another five per cent increase... that could be the straw that breaks the camel's back," said WalterMacKinnon, a licensed insolvency trustee with MNP in Charlottetown.

"It might not be, but it's certainly more continued debt pressure that people just have to deal with."

The most recent iteration of a quarterly survey MNP commissions from Ipsos scored confidence among Canadians on their ability to repay their current debt at its lowest point since the survey began five years ago.

The increase in assessments will boost coffers at both the provincial and municipal levels.

But UPEI professor of economics Jim Sentance said with a five per cent cap, assessments "are going up at a slower rate than most house values."

Municipalities are also facing rising costs, and Sentance said the boost could prevent some from boosting their tax rates, "maybe even lower rates, though I wouldn't hold my breath."

In the last provincial budget passed in the spring of 2022, with residential assessments set to go up five per cent, the provincial government projected just a 2.5 per cent increase in property tax revenues. Even without an increase in assessed values, property tax revenues would naturally rise to account for new construction in the province.

Sentence has long criticized the provincial government for underestimating revenues.

Last October the province revealed a surprise $84-million surplus for the fiscal year that ended March 31, 2022. The government's initial budget for that year had projected a $112-million deficit.

In a fiscal update released in December, the province boosted both its revenue and expense projections and said it's on track to post a $95-million deficit in the current fiscal year.

"Given some real growth and the inflation we've had I think that's still an underestimate," said Sentance.

'Prices go up, workers ask for higher wages'

George Jia, another economist at UPEI, said basing property tax assessments on last year's CPI creates an inflationary "spiral," where last year's inflation pushes up costs for the year ahead, creating more inflation.

It's a type of inflation often associated with wage increases, Jia explained.

"When prices go up, workers ask for higher wages, and producers have to raise prices further" in order to recoup the costs of higher wages, Jia said.

"In the same way, if taxes themselves increase with CPI, it will contribute to a further increase in prices."

Property tax assessments for 2023 will be sent out by the province on May 5, with the first of three instalment payments due May 31.