Toronto’s revenue problem: Why the city has left some cash-generating tools in its back pocket

Last year, Star readers voted on 10 big ideas that would make the city better. One was increasing the city’s capacity to bring in new revenue.

Thestar.com
Jan. 4, 2016
By Verity Stevenson

Last year, Star readers voted on their Top 10 Big Ideas to make Toronto better. One was increasing the city’s capacity to bring in new revenue. We check in on what, if any, progress has been made.

The city could jack up its yearly revenue at a relatively small cost to individual taxpayers and without dipping into the province’s pockets. But it isn’t doing half of what it could.

A council decision under former mayor Rob Ford to cut the vehicle registration tax cost the city $64 million, even though the tax represented only a $60-per-year expense for car owners.

The revenue it brought in is only a sliver of Toronto’s $11.4 billion revenue pie, most of which comes from the province.

But it was one of three main taxes the city had in place for raising its own revenue. The others are a city land transfer tax, which Ford also wanted to end, and property taxes, which bring in $3.8 billion a year despite lower rates than those of many other GTA municipalities.

The City of Toronto Act limits the city’s money-generating abilities, but does give it potential powers it has yet to use: sales taxes on alcohol, tobacco and entertainment, for example, and direct taxes such as parking levies, congestion charges and higher development charges.

“The moment calls for political courage,” says Councillor Joe Mihevc, who thinks the city should implement its full revenue powers and ask the province for more.

Council has voted down most efforts at getting more taxing powers from the province - and even at implementing taxes it already has authority to create, says Councillor Mike Layton, a member of the budget committee.

Taxes on alcohol served in restaurants and bars, as well as a hotel room tax, have been considered. The problem is, the province controls collection of such taxes, which would cost the city as much or more than the taxes would render, according to Layton.

“Just makes no sense. Why would we collect the tax when we wouldn’t actually be able to benefit from it?” he said.

Dr. Enid Slack, director of the Institute on Municipal Finance and Governance at the University of Toronto’s Munk School of Global Affairs, published a report leading up to last year’s municipal election that deemed the city’s debt low, but its infrastructure needs high. Toronto could bring in more money by simply increasing the property tax, it found.

That’s what Mayor John Tory proposed this December: a 0.5 per cent increase added to property tax bills that would take effect in 2017, adding about $13 to the average annual bill and increasing to a minimum of $65 by 2021. At that point, the increase would rake in an estimated $70 million extra each year.

Bringing back the vehicle registration tax would help, too, Slack said. “I think it’s more about politics than it is about economics,” she said.

The three councillors the Star spoke with - two of whom are on the budget committee - independently suggested the best way to fund the city is through an income tax.

But it’s one means the city is not allowed to implement under current legislation.

“It is a progressive (adjusted to income) tax and it’s much better at redistributing income than, say, a property tax,” said Slack.

Cities in the United States and Europe often levy income taxes as well as sales-related taxes such as a parking tax, Slack said.

“Look to the Nordic countries ... they provide a lot of social services at the local level; they levy income taxes to pay for that,” she said.

Budget committee member and Etobicoke-Centre Councillor John Campbell said no cities in Canada have the benefit of collecting an income tax. This despite the fact that Toronto’s budget is “larger than most provinces,” he said, adding that he favours such a tax.

But before the city increases its own revenue powers, Campbell said, Queen’s Park and Ottawa should chip in more to help with infrastructure needs. The “biggest holes” in the city’s budget come from a shortfall in provincial help on social housing needs and from the federal government on transit.

“If we could plug a couple of those holes, then we wouldn’t need to be looking at alternate revenue streams,” Campbell said.

Mihevc said a parking tax was also something the city had considered and is within its powers to implement, but never came to fruition. Another option he believes would give the city a boost is a fuel tax, but it isn’t mandated by the act.

“If anything, what council has been good at is ducking the issue,” he said.