As Ontario continues to ponder new tax powers for its municipalities, a paper from a University of Toronto think tank says fresh revenue tools could give Canadian cities the cash they need to replace aging infrastructure and keep delivering a wide swath of services.
The paper, released Monday by the Institute on Municipal Finance and Governance (IMFG), makes the case for new tax powers for Canadian cities and towns.
“Cities around the world levy a wide range of taxes, including income, sales, fuel and hotel taxes,” said Enid Slack, who co-authored the paper with fellow professor Harry Kitchen, in a release. “It is time for Canadian cities to have access to some of those taxes as well.”
The Ontario government has been reviewing the Municipal Act, including the tax powers currently wielded by the province’s cities and towns. The Liberals have already ruled out wider use of a land transfer tax — which only Toronto can levy at this point — but other options, such as allowing municipalities to implement a vehicle registration fee, are presumably still a possibility.
New Municipal Affairs Minister Bill Mauro says his ministry is going over the feedback it received from the municipal sector. If changes to the legislation are needed, the minister said they would come this year.
“As part of the review of the Municipal Act, we consulted with the municipal sector to discuss how municipalities can better use their existing financial tools, and to determine what, if any, barriers exist in the Act,” said Mauro in a statement to QP Briefing. “We also heard concerns regarding the adequacy of existing revenue tools to meet infrastructure and other needs.”
Premier Kathleen Wynne met with Toronto Mayor John Tory on Monday morning at Queen's Park. Tory and Toronto council are in the thick of a debate over new revenue tools, and the mayor told reporters that “the premier reiterated her co-operative approach with respect to the hotel tax” that's being considered. Tory said a written request for the tax had been made.
The IMFG report examines a hotel tax, noting "the advantage of a hotel and motel occupancy tax over income and sales taxes is that it falls primarily on visitors," but that it could potentially affect demand for rooms.
The paper says big Canadian cities are seeing their workloads grow due to “changing demographics, increased income inequality, increasingly complex expenditure demands and deteriorating infrastructure.” But while those pressures have intensified, municipal revenues have remained flat, the paper says.
The report explores a variety of moneymakers municipalities could be using, rather than just a property tax, to allow for more flexibility, more revenue, and to avoid knock-down, drag-out politics over a single tax-hike debate. Those options include a personal income tax, road pricing, a city sales tax, a hotel tax and a vehicle registration fee. As an example, the paper estimates Toronto could collect between $524 million and $546 million from a 1-per-cent municipal sales tax.
But the paper also states that the most economical way of increasing municipal revenues is by having the cities and towns partner with the provinces.
“Although setting up their own tax systems would grant cities the most fiscal autonomy, this option would be costly,” says the report. “For this reason, it is advisable that cities piggyback new taxes onto provincial taxes, with the province collecting the revenue and remitting it to cities. To promote local accountability, however, it is essential that local governments set their own tax rates. In this way, taxes levied could be linked to services consumed.”
Again, Ontario's Liberal government has already kiboshed any spread of land transfer taxes outside of Toronto. The IMFG paper says that levy “is not considered to be a good local tax,” for several reasons, such as giving people a reason not to move out of their homes.
However, the report also states that a broader range of taxes “may not be appropriate” for smaller municipalities. “Because residents and businesses can easily cross municipal borders to do their shopping or buy their gas, many of these new taxes would have to be levied on a metropolitan or region-wide basis,” it cautions, adding that the cost to small towns of collecting the new taxes may not be worth it.
To read the paper, click here.
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