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Eyes at City Hall turn to Queen's Park after council asks for sales tax
Sept. 11, 2023

After a marathon Toronto council meeting this week to address the city's deep financial crisis, focus now shifts to Queen's Park to see if Premier Doug Ford's government will approve a controversial request for a municipal sales tax.

Experts who closely follow municipal politics say they'll be watching how Toronto politicians make their case to Ford and the political headwinds they encounter. Mayor Olivia Chow was positive, if candid, in her speech to fellow councillors just moments ahead of the vote to endorse the request for a sales tax.

Part of the solution to address Toronto's $46.5 billion in budget pressure over the next decade is out of the city's hands, the new mayor conceded.

"We'll see what kind of campaign we can put together," Chow said. "It's not up to us to decide, it's up to the provincial and the federal government."

On Wednesday, council endorsed a plan to implement some tax measures immediately, study others, and make the sales tax request of the province. But council added a new caveat to its request, and is now asking the province to also consider giving Toronto a cut of the harmonized sales tax (HST) as an alternative to the municipal sales tax.

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Former city councillor Joe Mihevc said the change could be important because instead of asking the tax-averse Ford to give Toronto permission to levy a new fee, he would be sharing the revenue from something people already pay.

"It makes political sense, which is probably the most important point for this provincial government, that you asked for an existing penny, rather than a new tax," he said.

Mihevc said Chow's hints about a broader campaign to convince Ford to help the city could be in the early stages of development. It could come by way of a combined public relations blitz and personal influence campaigns between councillors and their elected counter-parts at the provincial level, he said.

"It's not just advocacy, it's not just a campaign where we're holding placards," he said. "It's sitting down with folks and educating folks and showing them the books … and saying this doesn't make sense."

But Mihevc said he's still not convinced Ford will grant Toronto permission to levy the tax or grant the city a cut of the HST.

"My crystal ball says that it might be a bridge too far for this premier," he said. "That doesn't mean you don't make the attempt. And it doesn't mean you don't do the campaign."

Toronto councillors are asking the Ontario government for permission to implement a municipal sales tax and/or receive a cut of the existing harmonized sales tax. Such a tax would be applied to the purchase of goods and services in Toronto and could generate as much as $1 billion per year. Shawn Jeffords breaks down how the revenue tool could help address the city’s grim financial situation and some of the other creative ideas – like a Toronto city lottery – brought forward by councillors.
City council may have to take a long-term view on the request, he said.

"You might not score the goal with this premier. You might set the stage for a new government at a later point of getting that tool implemented," he added.

But with a provincial surplus of over $20 billion and his government embroiled in a scandal over Greenbelt development, the premier could try to change the channel on that controversy.

"If Doug Ford gives the penny … this might be an auspicious moment to change the headlines right now," he said. "And he needs to change the headlines."

Municipalities have pushed for slice of HST before
Toronto's ask for a cut of the sales tax isn't the first time Ontario municipalities have made such a request. The latest was in 2017, when the group that represents most of Ontario's 444 municipalities pushed for a one per cent increase to the HST to help communities build infrastructure.

At the time, the Association of Municipalities of Ontario (AMO) projected that cities and towns across Ontario were facing a multi-billion dollar fiscal gap -- with the cost to provide services growing at a rate that could not be funded by existing property taxes and fees alone.

"This one per cent would help close the municipal fiscal gap, reduce pressure on property taxes and create more stable funding," AMO's 2017 Local Share report said.

In pre-budget submissions to the provincial government last November, AMO once again advocated for a number of new funding options, including providing a portion of the HST to municipalities.

Last month at the annual AMO conference, the group's president, Colin Best, stressed that municipalities across the province want the government to "stand on a solid fiscal foundation." But he was also critical of the way the province provides funding to lower-level governments.

"We should always be asking ourselves which order of government has the capacity to fund key public services and responsibilities," he said. "We know that the current provincial-municipal fiscal framework in Ontario is failing us. It is failing our residents, our small businesses and our major industries.

"It needs to be updated for the 21st century."

Toronto Metropolitan University politics professor Myer Siemiatycki said if Toronto is asking for a cut of the HST, it's only natural that other cities and towns across Ontario will make the same request. They are faced with many of the same challenges as Toronto to provide services beyond their scope with limited means beyond property tax hikes to fund them, he said.

Siemiatycki said sharing a portion of the HST would also be more cost effective than creating a new municipal sales tax because setting up an administrative regime to create, collect and police the sales tax will cut into its efficiency.

"I think the harmonization route implemented across the entire province would be the ideal," he said. "The ball is now in Premier Ford's court."

Province concerned about cost of living
A spokesperson for Premier Doug Ford's office re-iterated an earlier message on Toronto's request, stressing the need to keep life affordable. But she did not directly answer a question about whether Ontario would grant the city the ability to levy the tax or give it a slice of the HST.

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

On the request for the HST, weeks earlier, Finance Minister Peter Bethlenfalvy seemed cool to the idea of giving all municipalities in Ontario a share of the existing tax.

"As you know, our government is not in favour of tax increases. There may be a time. Not now," he said. "A lot of people are hurting in this province and we have to work on the various things the citizens want."