Dismay expressed by real estate agents earlier this week over proposed changes to property taxes on P.E.I. was the result of a misunderstanding, the P.E.I. Real Estate Association says.

Association president Danny Moase told CBC News on Thursday that after meeting with provincial Treasurer Wes Sheridan, he is now comfortable with the proposed changes.

The amendments would adjust the assessed value of a home when it is sold to something Sheridan described as market value. Sheridan has since clarified that does not mean what the house sold for, but instead is based on an assessment of market value made by the province.

"It was a misunderstanding regarding terminology," Moase said.

"If you buy a house for 150,000, you're not going to pay taxes on 150,000. People are going to know when they're buying a home what they're going to be paying for taxes."

Moase said the real estate association is now comfortable with the proposed changes to the Real Property Assessment Act.

Oh really - so now the market value of my house is set by a bureaucrat? Oh yea - I feel fine now.

The larger point remains - as we move into a time when the base of the pyramid shrinks - and the bills come due - something is going to have to give on the tax and spend front.

The Goose, the middle class, that pay the taxes, can only lay so many Golden Eggs. But they don't have the votes to change anything.

A P.E.I. government plan to cap property tax for as long as a residence remains in the hands of one owner is bad policy, says a tax economist from Trent University.

Harry Kitchen met with Provincial Treasurer Wes Sheridan in July when he was here on behalf of the Federation of P.E.I. Municipalities to discuss several issues.

Under the new system introduced Tuesday, homeowners' property taxes will be capped at their 2007 assessment level. Any increases will be indexed to P.E.I.'s consumer price index.

But when the home is sold the property tax will be re-assessed based on market value. This will likely cause a sharp increase in the taxes for the new owner. Kitchen said for property tax to work properly it has to be fair.

"The properties that are not capped are paying proportionately more in taxes, property taxes, for the local services, than the properties that are capped," Kitchen told CBC News Wednesday.

"This just seems to me you are treating similar or identical properties in an unfair way."

Sheridan has argued that the difference between the current assessed value and the proposed market value on P.E.I. is only about four per cent.

But Kitchen noted the longer a person holds on to their home, the more unfair the system becomes. Keeping your home for 40 years would likely lead to a huge increase in taxes for whoever buys it from you, and probably would depress the price you could get for it.

Kitchen said a similar approach has been used in some jurisdictions in the United States, and people have taken advantage of the unfair structure. Homeowners with capped taxes lobbied for more or better services, knowing they would pay proportionally less for those services than their neighbours.

I think that this will be "gamed" as well - one commenter asked if you price the property way below market and also sell a painting for a lot of money would this get around this - thinking the same myself. Get a cheap place and a very expensive lawn tractor?

There has to be equity in taxation - the taxes are meant to be to fund the general good and therefore have to be levied on the general population.

They also has to be a balance between what people can afford and what they pay.

We have seen this in the credit crunch. Most people can no longer borrow any more. Many Have to start paying back.

The same will apply to government.

A new plan for property taxes on P.E.I. will cost homebuyers a lot of money, say real estate agents.

Provincial Treasurer Wes Sheridan called the change good news for Islanders. (CBC)

The changes, announced in the legislature Tuesday, follow a two-year freeze on Island property taxes, brought in when the current Liberal government was elected in 2007. That freeze is being lifted next year. Tax increases are now being tied to the P.E.I. Consumer Price Index.

"This is virtually a good news story right across the board where people can now see very transparently how their assessments are going to go up," said Provincial Treasurer Wes Sheridan.

But those controlled increases will only apply until the home is sold, at which time the taxes could go up substantially.

That's because after a home is purchased, the taxes would be based on the market value, which is often much higher than the assessed value.

Real estate agent Steve Yoston says in many cases that will result in a big hit for people buying a house.

"It will have a huge effect," said Yoston.

"Personally, with our home, that would put the taxes up by over $100 per month for a new buyer. And it would make it that much harder to find someone to buy our house because they'd have to be able to afford 100 more dollars per month."

Joel Ives, who sits on the executive of the P.E.I. Real Estate Association, said the changes will have a negative effect on unsuspecting Islanders.

"It's just going to come and hit the everyday person right in their pocketbook after they find the house that they want to buy," said Ives.

Sheridan said the system will remain transparent, because property tax bills will include both the assessed value and market value for all residential properties. Homeowners will be able to appeal either figure to the tax department.

Bills with the two taxable values will go out in the spring.

Property tax based on a value on your house - without any link to what you can afford - with the power to evict you should you not pay is not a "good" tax any way.

For years it has had the effect of pushing the elderly out of their homes as their fixed incomes could not cope with rising assessments.

The new plan for PEI will have all sorts of consequences.

It will drive people from away away - just as the Province is seeking to attract more people to offset our demographics. Being unique to PEI, it will bias people from away to other jurisdictions. Is this the intent? I doubt it but have people planning this thought of this? I doubt it.

It will freeze the property market on PEI. We all know that we all buy a bit more house than we can afford - especially at the lower end of the market - the new house buyer. Every penny counts. When property tax approaches your mortgage payment something is out of wack. Has this been modeled? I doubt it.

So what you ask? When do many people have to sell? Divorce, loss of a job, death in the family. Major life events cause many people to sell. What if they cannot now because of the freeze?

What are the major reasons for not paying property taxes? Major life events again. So the Province now can evict you for becoming a widow, losing your job or getting ill. Wow that is going to play well at the ballot box. Did any thought go into this? I doubt it.

The two really bad aspects of property tax is that they are not based on income or ability to pay and that the penalty of foreclosure is too steep a social price to pay.

This is the kind of idea that can balloon into a 7% pay cut kind of reaction from every home owner on PEI. Remember that?

There is no doubt that the Province needs more tax revenue - find a way to get it from a link to people's ability to pay.

There is no reason to believe that the PEI economy will inflate in the next 3 years to keep up with the inflation in house prices over the last 10 years.

Put the thinking caps back on folks.