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Queen’s Park Watch: Why “No New Taxes” Doesn’t Work
Another year, another trip to Queen's Park to ask for a handout.
When Mayor Rob Ford sashayed up up to Queen’s Park yesterday to see what money Premier Dalton McGuinty might funnel Hogtown-ward should the Liberals win the October election, he wasn’t just tacitly acknowledging that his whole “spending-problem-not-revenue-problem” platform was nonsense, but reiterating the structural problems around financing Toronto.
Although the chat was evidently cordial, the request for $650 million to start digging tunnels under Sheppard Avenue was met with equivocation rather than enthusiasm. Still, an unbowed Ford waxed uncommonly diplomatic, referring to McGuinty as “professional,” and mentioning only casually future meetings with Tim Hudak and Andrea Horwath which could determine in which direction the zombie armies of Ford Nation are directed come polling time.
But the specific context of our latest collective panhandling effort isn’t the real issue. Rob Ford isn’t the first and won’t be the last mayor of Toronto to have to beg Queen’s Park for a little extra gruel; the annual walk of shame is a rite of passage that comes along with the mayoral sash.
Why? Because the game is fixed. The province and feds retain the unique right to apply sales and income taxes to Ontarians until we all look like stock photos of sad businessmen with pockets turned inside out. This money is then reallocated to highways, hospitals, and schools from Sarnia to Sudbury, with the remainder being doled out at the whim of the senior governments to build subways in Toronto or skating rinks in Huntsville.
Toronto, of course, has far fewer ways to transfer funds from your wallet to theirs. Beyond some new “revenue tools” (including the Vehicle Registration Tax imposed by David Miller and subsequently rescinded by driver-friendly Rob Ford), the city has traditionally been dependent on property taxes and user fees to keep its citizens serviced.
This unbalanced state of affairs has its roots in history. When Canada was cobbled together back in 1867, cities were few and unimpressive and it didn’t make sense for every muddy collection of barns and outhouses to build its own tax collection infrastructure. The Baldwin Act of 1849 had given some small autonomy to nascent cities, but it wasn’t until 1954 that the creation of Metropolitan Toronto united what had been a bunch of squabbling towns and villages into one great thing and gave the new level of government the right to levy property taxes.
While the arrangement did allow for the planning of subway lines more than three blocks long, it didn’t provide much in the way of new revenue sources for a city that was about to morph from a sleepy post-agricultural backwater into the glittering multiculturopolis we know today.
Nevertheless, successive governments muddled along with the status quo until the wheels started to wobble in the 1990s. That was when the Progressive Conservative administration of Mike Harris introduced changes to funding formulas which gave municipalities a bigger chunk share of their own property tax dollars and greater autonomy to spend it. In return, cities took on more financial responsibility for areas that had previously been mostly the realm of the province, notably social assistance and transit.
The changes, referred to angrily as “downloading” by cities and euphemistically as “local services realignment” by the Harris Common Sense Revolutionaries, were supposed to be revenue-neutral. However, the tendency of costs to bloat beyond the practical limitations on property tax increases led to cities, and Toronto in particular, being more dependent than ever on arbitrary handouts from the other levels of government.
Some of the Harris changes have been mitigated (the McGuinty government has slowly been reclaiming some of the welfare costs previously pushed onto municipalities). The transit situation, however, hasn’t been helped by a civic administration simultaneously hostile to spending money and to any form of public transport not in an expensive tunnel, nor by a provincial predilection for funding shiny new infrastructure projects but not their corresponding (and much less photo-op friendly) operating costs. Regardless, the fact that generations of Toronto mayors have had to slink north to beg for money to run the city indicates that we have a structural problem with our finances.
The solution to our recurring budget crisis is simple: allow Toronto to impose a one-cent sales tax on goods and services within the city. The idea has been proposed before, notably by then–budget chief Shelley Carroll back in 2009, but has failed to gain traction in an era where politicians routinely whip themselves and voters into a frenzy at the suggestion that services should actually be paid for by the people who use them. However, it’s a common funding source for cities outside Canada, and could even be made taxpayer-neutral by skimming a penny off the provincial or federal take (notionally this might lead to a reduction in transfer payments to Toronto, but better to have a guaranteed revenue stream than the whimsy-based subsidies that cities get now.).
It’s unclear what kind of hoops the city would have to jump through to get the senior levels of government to sign off on a municipal sales tax, assuming a politician were brave enough to advocate for one. But until something gives, we can look forward to the annual spectacle of our elected officials trudging up to Queen’s Park to do tricks for treats.