politics Toronto’s Problem? Our Public Sector is Poor While Our Private Sector is Booming

The City needs new revenue streams to change that. One sure fix? A progressive property tax.

Sometimes events collide to reveal truths too long unspoken. Now we know.

Toronto’s real problem is an impoverished municipal government in a city of unprecedented private wealth. It is odd that mounting evidence of municipal dysfunction now occurs at the same time that new records are set month after month for city real estate values. Public services and infrastructure in Toronto have hit crisis point at the same time that City Council refuses to adequately tax the higher reaches of record level residential property values.

The most recent list of Toronto troubles is long. Sweltering subway cars. Sweltering, perhaps soon to be freezing, school classrooms. New condo towers with recurring power blackouts due to inadequate city infrastructure. Not enough crossing guards at our schools. Not enough bus drivers to get kids there.

Then there’s the unfulfilled dream list. No money for long overdue transit improvements, for the glitzy new downtown park recently “announced,” or the City’s entire capital spending backlog now pegged at $29 billion. There is also the recurring annual hole of $500 million in the City’s operating budget to cover day-to-day expenses.

The City quite simply does not have enough money to go around. Public facilities literally crumble and break down, public services decline, public jobs can’t find people willing to work for wages that put even the poverty line out of sight. And our infrastructure deficit grows.

Expect things to get worse. Mayor John Tory is asking all City departments to reduce their spending next year.

Meanwhile, residential real estate values have soared by close to 20 per cent this year compared to last. The average detached home in Toronto is now valued at $1.2 million. This is important because the city’s main revenue source is the property tax. Toronto’s problems stem from the fact it won’t sufficiently tax the massive wealth of its real estate market. This needs to be done by making the property tax progressive, with rising tax rates at escalating property values.

Toronto has the lowest residential property tax rate in the GTA. Over the past decade the tax rate has increased at a tiny fraction of the hike in property values. In the last year year, sales of homes valued over $1 million in Toronto have almost doubled. Sales of homes valued over $4 million have climbed 79 per cent.

We now seem to be at a breaking point. Toronto’s budget problems are not just numbers on an accounting sheet. Now, they are the problems Torontonians are living through day after day.

To the City’s credit, some municipal voices are now sounding the financial alarm. Toronto City Manager Peter Wallace has declared the need to establish new revenue streams for the city. Several have been identified. These include a municipal sales or income tax, road tolls, parking levies, and a hotel tax. None of them will be painless. Worse, none come close to providing the revenue needed to fund Toronto’s future.

The surest rescue of Toronto municipal finances and services lies in revising the property tax along the lines of our income tax system. Canadians do not all pay income tax at the same rate. Instead higher rates apply at higher levels of income.

The principle here is that fairness requires a different tax bite for the more and less affluent. Several jurisdictions have progressive, variable rate property tax systems: Ireland, England, Singapore, and several Scandinavian countries.

A progressive property tax would do wonders for Toronto’s municipal revenue. A recent study in Vancouver found that a progressive property tax system there could bring in an extra $1.7 billion each year. This would come from the top 30 per cent of property owners, with homes valued over $1 million.

What could a city do with an extra $1.7 billion per year? Many things! Consider that Toronto’s current total operating budget is just under $12 billion.

A progressive property tax is the quickest, fairest way to fix Toronto’s revenue and public poverty problem. It would give city infrastructure and services an immediate boost.

Moreover, the City could decide to use some of its new revenue to lower taxes for owners of less valued property. This would share the taxation burden more fairly, at a time when a recent study declared Toronto the most unequal city in Canada. It would also make buying a home more accessible, if property taxes could be reduced on lower valued properties.

Recently, Nobel Prize winning economist Joseph Stiglitz urged Canada’s largest cities to adopt “a very progressive tax” on property in order to combat rising inequality and provide local governments the funds they require.

How much more evidence do we need that the time is now?

Myer Siemiatycki is a professor of Politics and Public Administration at Ryerson University.