Toronto to explore municipal sales tax as part of plan to tackle 'unprecedented financial crisis'

New staff report outlines grim short and long-term fiscal outlook for Toronto

cbc.ca
Aug. 18, 2023

Toronto is proposing a municipal sales tax as part of a slew of new measures aimed at easing a projected $46.5 billion in budget pressures over the next decade, an "unprecedented financial crisis" that if left unaddressed threatens the fiscal foundations of the city.

The recommendation to pursue a one per cent sales tax applied to existing HST/GST was one of the key items included in a long-awaited staff report released Thursday. The document paints a dire picture of the city's future without significant new revenue tools and additional assistance from the province and Ottawa as it tries to dig out from the COVID-19 pandemic.

"There will be devastating consequences for the City of Toronto and the greater region and country without serious attention given to address the city's financial challenges," the report says, noting the region accounts for 20 per cent of Canada's gross domestic product (GDP) and 53 per cent of Ontario's GDP.

"This is not just because Toronto is Canada's economic engine and will see a ripple effect from reduced investments, job losses and reduced income taxes, but because the city will not be equipped to deliver goals on behalf of other orders of government such as housing priorities, transit expansion, refugee response or climate action," it adds.

Speaking at a news conference later Thursday, Toronto Mayor Olivia Chow noted that even if the city adopts all of the various possible revenue tools outlined by staff in the report, they still would not generate enough money to make up for projected budget shortfalls in the long-term. Chow said Toronto taxpayers are covering the costs of programs and initiatives that should fall to the province or federal government.

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"To build a city we deserve, after years of debate, we need to face facts. Including the fact that time and time again the city has been asked to step up and fund things that are a responsibility of other levels of government," she said. Chow pointed to housing refugees, which make up one-third of the city's 9,000 shelter residents, and long-term care, as examples.

According to the staff report, $1.1 billion of Toronto's annual property tax revenue is spent on "extensions of federal and provincial responsibilities."

Also speaking at the news conference, councillor and Deputy Mayor Jennifer McKelvie noted that 1.3 per cent of Ontario's annual spending and 0.3 per cent of federal government spending goes toward services in Toronto.

"We cannot tax our way out of this structural deficit. And the revenue tools currently available to us will not fill the void alone. It is not sustainable to continue using property taxes to fund provincial and federal responsibilities," McKelvie said.

Both federal Finance Minister Chrystia Freeland and Ontario Premier Doug Ford have repeatedly declined previous requests from the city for additional funding to address its budget hole.

On Thursday, a spokesperson for the premier's office said the province is providing "unprecedented financial support" to cities and will continue to do so.

"We are working with Toronto on the third-party review of their finances to ensure taxpayers receive maximum value for money and the best possible service," spokesperson Caitlin Clark said in an email.

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City staff estimates a municipal sales tax would generate between $800 million and $1 billion annually, but would require the province to amend the City of Toronto Act. Toronto is facing projected budget shortfalls of between $1.5 billion and $1.7 billion for both this year and next, the report says.

Coun. Shelley Carroll, the city's budget chief, said some large American cities already have a city sales tax.

"We'd be the first people in Canada doing that, but I dare say that is the future of Canada or any G7 country with major cities of three million or more," Caroll said.

Asked if the province would allow the city to levy a sales tax, the spokesperson for the premier's office did not answer directly.

"Our government is focused on keeping costs down for people, especially at a time when the cost of living is going up," said Clark.

Sales tax could help Toronto deliver on goals around transit expansion, shelter strategy and housing, according to budget chief Coun. Shelley Carroll. “If you don’t spend any money you don’t pay that tax. If you spend a lot of money you pay more of that tax. That’s why it’s the most fair way,” she said.

Explaining the reasoning for the proposed new tax at a media briefing, City Manager Paul Johnson told reporters that the city needs "something that is a game changer."

The report also details measures the city could quickly pursue under its own authority, such as progressively higher rates of land-transfer tax on homes that sell for more than $3 million and increasing the existing vacant homes tax from one to three per cent, both pledges Chow made on the campaign trail.

Toronto city hall.
Other steps include a municipal land transfer tax on foreign buyers of residential real estate, higher on-street parking fees, the implementation of a commercial parking levy --- an idea floated by former mayor John Tory earlier this year before he resigned --- and selling off surplus real estate assets.

"Inaction is no longer an option. And we must move forward on some of these. It's why our recommendations in this report are action-oriented," Johnson said.

"The failure to do so, means that we will have to take a look at other metrics, which will be devastatingly impactful to the people who live, work, play and learn in this community," he added.

Toronto needs additional assistance from the provincial and federal government, along with new revenue tools, City Manager Paul Johnson said at a media briefing on Thursday.
The report also asks council to adopt a motion to have city staff develop a multi-year approach for recommending property tax rates and policies.

Searching for more funding
Staff also repeatedly stressed more funding from other levels of government is needed to prevent "significant tax increases," major service reductions or the outright cancellations of capital projects that "align with shared goals." They similarly noted that while some of the municipal measures could see additional revenue in city coffers as early as next year, they will not be enough to "address the city's fiscal risks in 2024" or over the next decade.

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"We need new deals, we need new ways of working with the provincial and federal government. There simply is not a pathway locally, that we can get to a stronger point of sustainability," said Johnson.

Staff are also urging council to notify the province that "in the absence of a revised funding model," the city will not be able to move forward with 978 new long-term care beds set to be introduced in coming years. They are also cautioning that the city could need to halt work with the provincial government on future transit projects.

Pandemic affected finances
Tory requested in February that staff look into new tools to generate more revenue, as the city faces projected $1.5 billion budget shortfalls for this year and next in the wake of the COVID-19 pandemic and a grim long-term outlook.

High-level staff have warned for years that city finances were vulnerable to a crisis. During the pandemic, costs for things like public health soared while revenues, such as those garnered from TTC fares, collapsed.

After winning a byelection in June, Chow asked that the report be expedited. Her executive committee will consider the recommendations at a special meeting on Aug. 24 before the report goes to council on Sept. 6.