Foreign buyer tax means uncertainty for Toronto budget

City council forecast a record $716 million in revenues from the land transfer tax to balance the budget this year. A cooling real estate market could mean the city has to cut costs or find more money.

Thestar.com
April 20, 2017
By David Rider

Provincial efforts to cool Toronto’s real-estate market could blow a hole in the city budget that relies heavily on tax revenue from property sales.

Mayor John Tory refused to speculate Thursday on the potential budget impacts of a new 15-per-cent foreign buyers’ levy and other steps aimed at slowing skyrocketing home prices in the Golden Horseshoe.

He acknowledged, however, there is at least uncertainty for the city’s 2017 spending blueprint that assumes Toronto will reap a record $716 million in land transfer tax revenues, up from $653 million last year.

Revenues lower than forecasted would force city council to scramble for other revenue sources or to cut spending.

“I guess we’re going to have to see,” Tory said in an interview. “I think there’s a big unknown here about what the impact of all of these measures are going to be and we’ll obviously watch it carefully … and see what happens.”

The mayor noted provincial efforts are aimed at reducing runaway prices, adding: “I think the Toronto housing market is going to remain healthy in terms of the number of people buying and selling units because there is demand created by people moving here.”

Ontario Finance Minister Charles Sousa expects any dip in provincial land-tax revenues will be offset by revenue from the foreign buyers’ tax. There is no plan, however, for any of that money to flow to Toronto.

Tory said he recently raised the risk for Toronto with Sousa, and got no response, but he will raise it again.

The steady rise in Toronto real estate prices has turned the transfer tax into a cash cow for Toronto, quadrupling revenues between 2009 and 2016.

Council has in recent years relied more and more on those revenues to balance the books, while heeding city staff warnings to forecast conservatively so Toronto isn’t stuck if the market takes a downturn.

This year, however, council baked the full revenue forecast into the budget.

Councillor Gord Perks, who warned during February budget debate that leaning so heavily on the land transfer tax is risky, said Thursday that Toronto is sailing in uncertain financial waters.

“It’s impossible to say how big the risk is,” Perks said, noting Vancouver saw a sudden, sharp decline in home sales last year after the B.C. government introduced its foreign buyers’ tax.

“We just don’t know what the budget impacts might be, and that’s because this mayor and the previous mayor used the land transfer tax to keep property taxes low.

“We might get a minor correction and sail through unscathed. If we get the worst case and a very sudden, sharp (home sales) decline, it would be a disaster for Toronto’s budget.”

British Columbia has a property transfer tax. Vancouver does not.

That tax pumped $2.025 billion into B.C. coffers in fiscal 2016-17. That province is forecasting a $483 million decline this year partly due to cooling sales as a result of the foreign buyers’ tax.

Sousa’s office said in a statement: “We look forward to continuing to work with Mayor Tory and the City of Toronto as we monitor the impact of the measures we introduced today.”