Canadian big cities need new revenue sources: experts
Large Canadian cities need access to a wide range of taxes to pay for municipal services, new paper argues

thestar.com
June 27, 2016
By Betsy Powell

Toronto and other big cities should rely more on revenue tools and less on property tax revenue to pay for municipal services and unfunded capital projects, write two leading municipal finance experts in a new paper.

“Although the challenges have increased over the last few decades, the revenues available to cities to meet those challenges have remained largely the same,” say the authors.

“Other cities around the world use a wider range of tax choices, including income, sales, fuel, and other vehicle taxes. It is time for Canadian cities to have access to some of those choices as well.”

The release of the paper, called “More Tax Sources for Canada’s Largest Cities: Why, What, and How,” comes a day before Tuesday’s executive committee meets to consider a range of ways to generate revenue for the cash-strapped city.

The mayor and some councillors are against raising property taxes above the rate of inflation, despite the fact Toronto’s are the lowest in the GTA.

The Institute on Municipal Finance and Governance at U of T’s Munk School of Globe Affairs published the paper co-authored by IMFG director Enid Slack and Harry Kitchen, professor emeritus at Trent University in Peterborough, Ont.

They looked at the advantages and disadvantages of possible revenue tools, focusing on a city income, sales and fuel tax. Last week, the city released a KPMG report that also analyzed various revenue tools.

Slack and Kitchen argue in their paper that for governments to operate efficiently, there must be a clear link between expenditure and revenue decisions.

“Those who make the expenditure decisions should also make the revenue decisions and the type of revenue (user, fees, property taxes, income taxes) should match the type of expenditure being funded (transit, policing, social assistance),” they write.

They note the City of Toronto Act limits what revenue tools Toronto is allowed to use.

The city, for instance, would need provincial approval to implement a surtax on personal income tax, which has huge revenue potential.

“It will take pressure off the property tax base and it might help individuals who are asset rich and income poor,” Kitchen said in an interview.

Kitchen said people may wrongly conclude that they are suggesting people dig further into their pockets. Property taxes could, in fact, come down, if other revenue streams are implemented.

“What we’re trying to say in this report...there are just better tax sources for funding some of the services that cities provide.”

Compared with cities in other countries, Canada is an extreme, with 100 per cent reliance on property tax, Kitchen said.

He says a municipal dedicated fuel tax would satisfy the most criteria for a good local tax, if revenues were earmarked for funding local roads, highways and public transit.

It would be the easiest and simplest to implement because it could be piggybacked onto the provincial tax rate. “It gets added on at the gas pump, the province collects the money and remits to the city the share of the revenue collected.”

A municipal income tax would also have huge revenue potential for the city, he said, though Mayor John Tory said last week, “I would think that's probably unlikely that’s going to happen any time in the short term."

In May 2013, council rejected many of the revenue tools to fund transit expansion that now appear to be back on the table.

Kitchen said it’s unfortunate that “tax,” for many people, is a four-letter word.

“Think of all the services that we use, that seem to us to be free,” he said, including the roads and sidewalks we use, street lighting, parks, policing and fire protection.