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Torontoist vs. Torontoist in… Property Taxes!

In this occasional feature, two Torontoist staffers face off to debate an issue that is important to our city. We invite our readers to join in the debate in the comments section after the post.
For the first time since amalgamation, City Council has been presented with a budget that doesn’t require a new round of hand-outs from Queen’s Park in order to balance. The price of this achievement is high. Along with new land-transfer and vehicle-registration fees, there is also a 3.75% increase in residential property taxes. Does this budget herald a new era of fiscal responsibility at City Hall, or is this yet another outrage upon the taxpayer? Read on as Torontoist wades into the property tax debate…



Toronto is an amazingly wealthy city. New multi-million-dollar condos seem to pop up out of the ground every month and there also appears to be no end to our love of $5 lattes and $37 hamburgers. One of the things behind our amazing growth is a decade-long property boom that has gentrified our traditional mixed-income neighbourhoods, pushed poor people out of the core of the city, and created an immense amount of wealth for Toronto’s land owners.
Despite all this new wealth, the city itself is in a constant state of financial crisis. Our public transportation system has been on the verge of a meltdown for years because we have lacked the funds to properly maintain it. The general cleanliness of the city, once our pride and joy, diminishes every day. Pot-holes go unfilled for months. Libraries have been forced to cut back hours, staff, and resources. Just about everywhere you look, it seems like the city is falling apart. Our quality of life is disappearing. The idea that we could allow our great city to crumble while so many of us have never been wealthier should be a source of immense shame.
Yet, rather than stepping up to the plate to pay their fair share, or searching for real solutions to our problems, the conservative numbskulls on city council, along with a gang of professional tax-o-phobes, want you to believe that any increase in taxes can only be due to the incompetence of those in power, the plague of Cadillac-driving welfare moms, and a cabal of lazy, thieving union-types. These people want you to buy into the idea that we can run a great city through a savvy combination of belt-tightening, the miracle of free-enterprise, and by harvesting the stream of rainbow skittles and unicorns that is coming out of their collective asses.
David Miller and Budget Chief Shelley Carroll, on the other hand are leading the way into a future where Toronto can once again pay its own way and reattain some of our former greatness. No politician likes to raise taxes; everyone knows it can be a career-limiting move. Doing so required courage, and we should applaud them. Really though, they didn’t have any other choice.
From a financial perspective, the status quo sets cities up for failure. At the heart of the problem of city finances is the mechanism behind property taxes themselves. At every other level of government, as the economy grows, so do tax receipts. As Canadians grow wealthier, the amount they pay in income taxes increases. As Canadian spend more, the amount the government collects in consumption taxes increases. One thing that no one seems to understand, however, is this: as property values increase, the city doesn’t collect more money. In fact, if every house in Toronto doubled in value next year, no one would pay a single dollar more in taxes.
This happens because, by law, as property values go up, the tax rate must be adjusted downwards to compensate. So, the actual rate of tax that Toronto’s property owners pay has been in freefall for years. In 1998, residential tax rates in Toronto were about 0.8%. Today that figure has dropped to below 0.59%. Torontonians are actually paying 30% less in taxes today for every dollar of real estate they own than they were paying a decade ago. Keep that in mind the next time someone complains that taxes are going up.

Nobody likes paying taxes, but except for the most committed survivalist-libertarian, most people will acknowledge that it’s nice to have someone who comes around and picks up the recycling, or shows up in a big truck with hoses when your house is on fire. Taxes are a necessary evil to maintain society. The question we need to ask is whether the right people are paying the right price for the right services.
So who’s paying, and how much? The single biggest chunk of Toronto’s revenue, about $3.3 billion of the overall $8.2 billion, comes from property taxes. Toronto already has the highest property taxes of any city in the country and 2008 will see a residential property tax increase of 3.75%, about 50% higher than last year’s inflation rate of 2.4%. Mayor David Miller inexplicably considers these figures consistent with his campaign promise to keep increases in line with inflation. The hike also comes on top of last year’s infamous land transfer tax, which penalizes Toronto residents by effectively reducing the value of their homes even as the economy heads south. Finally, adding insult to highway robbery, Premier Dalton McGuinty has announced that he will not continue the property assessment freeze, meaning that most homeowners will see a substantial increase in their assessments unbalanced by any accompanying rise in income.
Leaving aside the inherent problem of property taxes as a principal revenue source (a US survey found that taxpayers considered them, by more than a 2-1 margin, to be the most “unfair” form of taxation ), let’s consider what Torontonians will get for the $276 million more that we’ll pay in taxes this year than last year. Only about $12 million of those dollars will go to new programs , with the rest vanishing into the fiscal abyss of City Hall business as usual.
Most of the overall budget increase of 5.1%—more than double the rate of inflation—will go to pay city workers. That doesn’t account for possible surprises in union contracts being negotiated this year, including the police, currently the highest paid in Canada and the largest single budget item at about 10% of expenditures. Those stats alone should convince you that something is wrong with the way City Hall spends money. If they’re not, consider the fact that after all the Chicken Littling and rec centre closing during last year’s fiscal hysteria, the mayor’s office wants to increase its budget by 6.6% this year, and a grab-bag of City Hall expenses called “Internal Services” will see a 6.8% pop.
Miller’s not wrong about everything. Torontonians deserve more of the revenue that Ottawa and Queen’s Park hoover out of us every year to pay off their debt and support regions with more per capita voting clout. In that regard, Miller’s solo good cop/bad cop routine with Dalton McGuinty, alternately slamming and spooning with him, has paid some dividends—last year the province agreed to take back costs for the Ontario Disability Support payments and the Ontario Drug Benefit Plan that were downloaded under Mike Harris.
However, the city can’t survive on the faint hope of more largesse from other levels of government, and it can’t thrive by milking residents dry or driving them to more tax-friendly locations. It’s time for the Mayor, City Hall, and the big unions to start cutting a little closer to home.


  • the goggles do nothing

    Re Ken’s comment: “Torontonians are actually paying 30% less in taxes today for every dollar of real estate they own than they were paying a decade ago. Keep that in mind the next time someone complains that taxes are going up.”
    Why should the increase in the value of a property result in an increase in cash taxes? You don’t actually have any additional cash flow, and there is no guarantee that you will actually see additional cash flow equal to what your assessment says your property is worth (e.g., it could be wrong, either at the end or at any particular year; in addition, there is no allowance for the time value of money, which relates to the disconnect between the cash flows – you pay in current dollars for value that will be realized in the future). That is the question that needs to be addressed.

  • Ken Hunt

    Goggles, you’re asking a very fundamental question.
    Why should the value of a home be tied to the amount of taxes someone pays at all? Just because you live in a house worth a million, doesn’t necessarily mean that you have income to cover the taxes on that property.
    Many glorious estates have been lost in just this way.
    A property tax is a tax on a held asset. The more valuable that asset is, the more taxes you pay. It makes perfect sense that if the value of that asset goes up over time that the amount of taxes owed on that asset would also increase.
    All of that assumes that property taxes of any kind are ‘fair’. This is a question that is widely debated. But, fair or not, the property tax system is the one that we have. Royson James, who I’ve linked above has some discussion about debates about the fairness of the system. A brief look around will find many discussions of the topic.
    At the end of the day there are no easy answers to this question.

  • Svend

    Tenants pay a disproportional rate as well.
    Property taxes aren’t the way to go for the reasons the previous people noted.
    It makes as much sense to tax people based on the value of their car or furniture, too bad it’s impossible to change this.

  • rapi

    instead of polling “the people” after the fact…what’s the relevance??/ poll “the people” on issues that are still in proposal stage…just a thought

  • southofsteeles

    They both make valid points and at the same time miss some.
    Ken Hunt,
    While you acknowledge the political reality that [quote] No politician likes to raise taxes; everyone knows it can be a career-limiting move [/quote]. Current and past councils have hidden this reality be emptying the reserves and relying on other levels of government, and the non residential property tax payer to pay the bills. Toronto City Hall finds itself in the unenviable position of providing $8,200 of services for nearly the half price and its residents still think that they are over charged.
    Patrick Metzger,
    Kevin Aduet was being very opportunistic in his use of the city of Edmonton Data. Kevin, attempts to link Municipal Spending in Toronto Property to property tax in the city. In this regard his is wrong. While Toronto property tax payers may have a high burden, that is only the case of those in the non residential sector. Toronto home owners pay far less taxes than most cities. The average household in Toronto pays $2,176 per year in property taxes. Not the $3,912 derived from the Edmonton study. For the $3,912 figure quoted to be accurate it means that the average residential assessment in Toronto would be over $650,000. Clearly that is wrong. According to the Toronto Real estate Board (aside from the city’s own data) it shows that the average selling price in Toronto is near $400,000. While Kevin argues that the methodology used in the report portrays a more accurate picture, again this argument falls flat as the example used is a near pathological one in Toronto. The only way to ascertain what tax ‘fairness’ is is to compare the value of services received vs. the amount of tax payed to cover that expense. Here in Toronto the city spends over $8,200 per household while it collects an average of $2,176. The difference comes from user fees, higher government grants and property taxes paid by the non residential sector.
    The uneven burden of tax between the residential and non residential classes has been a disaster for the city. Primarily the fallout has been in employment. Toronto is in a sad state. While the regions surrounding it have created over 800,00 jobs in the last fifteen years, Toronto has continued to loose jobs. This has exasberated urban sprawl and poverty and congestion.
    The saddest part about all this is that the city’s commercial tax rate, which is nearly double that of the surrounding regions, does not bring in extra revenue. The higher rates have been fully capitalized into the market values. So while Mississauga might collect $50,000 property tax on a commercial property a comparable property in Toronto would be worth half as much.
    Lets see how this works in reality. If in 1986 one was to have spent $1,000,000 on industrial land in Mississauga today it would be worth over $4,000,000. By comparison if that money was spent in Toronto it would be worth on average today $1,800,000. Applying commercial tax rates on the current values would mean that Mississauga would receive 42,678.84 from that property (4,000,000 * 1.066971%). By comparison Toronto would receive 41,278.13 (1,800,000 * 2.2932294%). All the while it misses out on the development and other charges which net the city a lot of revenue. In the end, even though Mississauga has a much lower tax rate, it makes up for the 2% difference in net property tax ( realized income ) by increased development charges and volume.

  • Ken Hunt

    Wow. Southofsteeles once again proves that Torontoist has some of the smartest and most well-informed readers out there. Thanks for the post!

  • Patrick Metzger

    SOS – What you’ve said is exactly my point. You observe that City Hall is “providing $8200 of services.” My point is that they’re spending $8200 per household on services when those services could be provided more cheaply.

  • southofsteeles

    I have re-read your essay a number of times and I can come to no other conclusion that you are attempting to make the point by using ‘high’ property taxes to make your point. As I showed they are not high and not truly reflective of spending.
    While I do agree with you that the city spends to much money. Relying on Kevin’s flawed analysis of the data does a disservice to your point. So does trying to say an 276 million budgetary increase with only 12 million in new services is a bad deal without crediting past budgets for doing the exact opposite. When Miller and Lastman were increasing spending but not taxes should they have been credited for performing miracles? Of course not.
    Again I do agree with you about City Hall’s wasteful ways. I also agree with you and most others that property tax (as most all capital taxes) are ill conceived. The last thing this very complex issue needs is more confusion though.
    The worst part about this current disconnect between residential property taxes and non residential is that the financial impact of policy decisions are not felt equally. As such, those with whom the voting power lies are not as apt to be as discerning. Just like how everybody becomes a lush when drinks are on the house.

  • Mark Ostler

    “last year’s infamous land transfer tax, which penalizes Toronto residents by effectively reducing the value of their homes”
    “will not continue the property assessment freeze, meaning that most homeowners will see a substantial increase in their assessments”
    I’m wondering if Patrick (or anyone else in the know) could clarify how both of these statements from Patrick’s essay work. The value of homes in Toronto will allegedly go down (because or partly because of the land transfer tax) but they will be assessed at a higher value by MPAC. Are the assessments wrong? Is the value of homes actually being reduced and if so, why?

  • the goggles do nothing

    Assessments were frozen, so they did not increase. The assessment is an estimate of value, so if the overall trend is that values are going up, then assessments will go up. They were not increasing due to the freeze – the freeze is lifted, so assessments go up.
    Values may have been increasing, but if the cost to a purchaser goes up due to an additional levy or tax, then the price for the property alone that a purchaser could otherwise afford is reduced. Thus the price for each property, theoretically, would fall to adjust the relative components of the total cost to purchase so that the total cost is the same as it was immediately prior to the new tax or levy.

  • andrew

    Did anybody else wake up in bizzaro alternate universe like me this morning?
    Although, it’s worth noting that they are requesting business properties be exempt. But still. Woah.