Could a two-per-cent sales tax solve Toronto’s budget woes?

TheStar.com
Jan 25, 2019
David Rider

Toronto’s shrunken city council faces ballooning financial headaches Monday when deliberations start on 2019 spending plans totalling almost $40 billion.

Residents’ demands on homeless shelters, the overtaxed and malfunctioning TTC services, anti-violence youth programs, policing, affordable housing and more are surging in a city that is booming for some and getting more difficult and expensive for others.

City manager Chris Murray’s expected answer to Toronto’s budget woes is to shift next year’s expected revenue shortfall from the city’s operating budget, which funds current services and operations, to its capital budget.

Meanwhile, the annual gush of land transfer tax revenues that has, in recent years, kept the budget afloat, as Mayor John Tory expanded some services, while keeping a tight lid on property taxes, is slowing along with Toronto’s real estate market.

City manager Chris Murray’s expected answer to surging demand and shrinking resources is essentially accounting -- shifting over time the shortfall in expected revenues from the $11-billion-plus operating budget, which funds immediate, continuing services and operations, to the $26-billion-plus capital budget for roads, equipment and projects that are more easily delayed.

The Canadian Centre for Policy Alternatives, a left-leaning think tank, will release a report Friday that suggests another solution, lucrative, long-term, politically risky and unlikely to find support from the right-leaning Tory.
The best answer, say the economists who wrote the report, is a new sales tax, either just in Toronto or across the Toronto-Hamilton area, piggybacking one or two percentage points on top of the 13-per-cent harmonized sales tax, with revenues flowing directly into the coffers of cash-starved cities.

“A two-per-cent sales tax in the city of Toronto would raise a billion dollars (a year) and a one-per-cent sales tax would raise half a billion dollars,” said study co-author Sheila Block.

“A two-per-cent sales tax in the Greater Toronto Hamilton Area would raise $2.5 billion (shared by municipalities annually) and a one-per-cent sales tax across the GTHA would raise more than $1.3 billon.”

Sales tax revenues increase with economic activity and population growth, Block added, while the impact on low-income earners’ pocketbooks could be offset through the existing Ontario sales tax credit.

“The city of Toronto is reaching a breaking point in terms of a low-tax strategy,” Block said. “If Mayor Tory has dug in so deep in his position on property taxes, maybe another approach will see a political opening.”

Ontario municipalities around Toronto, including Mississauga, have lobbied the province for the right to impose a sales tax.

When Councillor Josh Matlow suggested Toronto follow suit during 2018 budget deliberations, Tory supported the idea of asking senior governments for a slice of the existing HST, but voted against asking the province for new sales tax powers specifically to fund transit and housing.

Asked Thursday about the idea of Toronto imposing a sales tax, Tory’s budget chief, Councillor Gary Crawford, said, “I try to keep any tax increases that impact residents to a minimum. I’m generally not in favour of those overall tax increases.”

Crawford described 2019 as a “tough budget year” thanks to land transfer revenues, and said the administration’s focus will be protecting past investments in anti-poverty initiatives, TTC improvements such as the two-hour transfer, and more, without big new spending plans.

The budget chief said the expected shortfall in revenue from the municipal land transfer tax, which, in previous years, has been a significant help in balancing the budget, would be $80 million to $85 million.

“There will be no service cuts,” Crawford said, and the proposed property tax hike will likely be just over two per cent, depending on the inflation rate. He noted much of the budget will be crafted by city staff, because 2018 was an election year, so his budget committee wasn’t sitting for months.

The city manager’s expected suggestion for gradually weaning the operating budget off land transfer revenues makes sense, Crawford said, because “operating is sometimes month to month or year to year, but (with) capital, there’s a lot of flexibility in when we can do projects, so we can absorb changes in the land transfer tax.”

Councillor Gord Perks, a frequent critic of Tory’s administration, said slowing down spending on infrastructure, rather than raising more revenue through property taxes or other taxes, is reckless.

“The mayor has widened and deepened a hole caused by eight years of austerity (under Tory and predecessor Rob Ford) by refusing to look at a property-tax increase,” Perks said.

“Slowing down capital spending means less money to repair Toronto Community Housing units, less money to keep the transit system operating in its current rickety state, less money for libraries and all the services Torontonians depend on while the population of Toronto continues to explode.”