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.