A recent online news report indicated that government is seriously considering increasing the house and land tax. If implemented in its extreme, the increase could be as high as 4,000 percent. This is far from amusing. And, as is becoming common, the National Democratic Party government is lining itself up to place the blame on former premier Ralph O’Neal and his Virgin Islands Party.
At the present time, the house and land tax is based on some sort of assessment of what your house would bring if it were rented, presumably full-time. How the basis is derived is not clear, but the current tax for our rather small property on Belmont Estate is $300 per year. The tax is a combined tax, covering both house and land. It is paid once per year, usually in June. No notice is issued, either of assessment or when the tax is due.
We currently own a house on a covenanted estate in the West End. The house is fairly small (0.9 acres, 1,500 square feet, one bedroom, no pool) but it has been assessed for insurance purposes at $800,000. These data are given to illustrate the very high cost of housing here in the VI. Considering the figures given for the current initiative, the data are significant.
Our son, who lives in the Toronto, Ontario area, owned a house of roughly 1,700 square feet. The house was located in Mississauga, just outside Toronto. He paid approximately $3,800 per year on a house that sold for about $550,000. He replaced the house with another located in Campbellville, near Milton. The house is in a much more rural setting, on two acres of land, and it also cost roughly $500,000. The house is probably almost 2,000 square feet in area. And the taxes are very likely essentially the same as in Mississauga, where he receives fewer services.
‘Mil rate’
Tax rates in Ontario are set by the municipality and are based on a “mil rate,” which amounts to so much per thousand. In our son’s case, the rates would be something like $7 per thousand. This is apparently equivalent to a percentage rate of about 0.7 percent. The obvious difference is in the valuation of the house. In Ontario, there was a shift in the evaluation method: It was centralised and adjusted to a so-called “market value” method. There was a major upset in tax rates.
The tax picture really didn’t change much — the valuations rose sharply and the rates went down. So no real change was apparent, but taxes did indeed increase, if not by much.
For the municipal taxes, Ontario residents get the usual inefficient government at the municipal level. They get a consistent water supply. They get garbage pick-up at the home. They get a reasonably efficient police service in an environment that is reasonably crime free. They pay for all their utilities — water, electricity, sewage treatment, solid waste disposal — but the consistent supply of services makes the VI look sick by comparison. So perhaps they get something like value for money, which the VI does not!
Doing the math
One thing that the online article clearly shows is that the government ministers cannot do their math properly. Health and Social Development Minister Ronnie Skelton got it right once! A property evaluated at $1 million and at a rate of 1.5 percent would be assessed for an annual tax of $15,000 — quite possibly as compared to $500 at the present time. However, he later commented that, if the rate dropped to 0.5 percent, the tax would drop to $2,500. This is incorrect. The new tax rate would be $5,000. The $2,500 is equivalent to 0.25 percent on a $1 million evaluation.
And for what, other than a money grab by the government? There is absolutely no commitment on the part of the government to either improve existing service levels or to add any new ones. It must be admitted that current service levels are not appropriate to countries that like to consider themselves “first-world” entities.
There is no question that the government needs more money, which is nothing new. And there is no question that land and property taxes are probably too low. But the 4,000 percent possible increase is not sound.
Certainly raise taxes — and make it a level playing field by charging belongers the same as expatriates. The belongers put more load on the local infrastructure than do the expatriates, but they exercise much more political pressure since expatriates have virtually no say in how the territory is run.
Thinking it through
Again, the money-hungry government needs to think the situation through. If it goes ahead with reassessing the property, and if it raises tax rates at the same time, several results will follow.
1. The real estate market, already in trouble, will be in even more desperate straits. Houses below $1 million are selling, but very slowly. Houses between $1 million and $2 million are selling occasionally. Houses above $2 million are basically not selling at all. And, if I am faced with a tax rate of 1.5 percent — amounting to $30,000 per year on a $2 million house — I most certainly will look elsewhere, especially if I also consider what I get for my money.
2. The construction industry, which already is almost moribund, will tank completely.
3. Rent will increase sharply as the owners of rental property make up for their increased costs. This will hit the less affluent part of the population.
4. If, as can be expected, the taxes are apportioned disproportionately to the expatriate community, the victims will give even more serious consideration to splitting the scene. And like it or not, the territory does need some expatriate input to keep going.
5. What really are the possibilities of collecting $15,000 (or even $5,000) from a belonger? Who is going to willingly admit that he or she is rich enough to own a $1 million property? Here we go again with the Stamp Tax Act, which by the way is also reportedly mentioned as needing revision. (In that regard, we have a report that appears to be too embarrassing to even publish. So are we even applying it anymore? Revenues fell by three percent on stamp duty. As usual, there is foot shuffling when someone gets caught with fingers in the cookie jar.)
6. A well-paid worker in the construction industry gets something like $15 per hour. Based on a 2,000-hour working year, he or she will make $30,000. On that — barring cheating on income tax — he or she will pay something like $2,000. And now house tax on what Mr. Skelton reportedly called a “typical” $1 million property would take another $15,000 or more, leaving him with $13,000 of disposable income. That amounts to $250 per week to pay for everything else. My suspicion is that it cannot be done, especially with gasoline at $5.10 per US gallon and the typical big SUVs!
At some point in time, the government needs to start thinking about the downstream results of its money grabs. More and more taxes for the same thing will not fly forever.