Will a Hotel Tax Save Toronto’s Budget Woes?

Haha, nope.

By David Hains

Photo by Jack Landau from the Torontoist Flickr Pool.

The mayor and some of his closest Council allies would really like that to be “efficiencies,” in part because promising something for nothing is politically appealing. Actually solving the problem won’t be that easy. The City Manager has clearly laid out the case that efficiencies alone cannot pay for Toronto’s growth and infrastructure needs, and revenue tools need to be considered.

It’s an uncomfortable truth for a Council that is not willing to increase property tax revenue above inflation (effectively decreasing purchasing power, as property taxes don’t grow with the economy).

But news recently broke that John Tory and Kathleen Wynne discussed a potential hotel tax for the city. This sounds encouraging—maybe we’re starting to not bury our hands in the sand!—until you realize that a hotel tax would have very little impact, and is probably being considered not so much because it’s effective as it is politically expedient.

At Torontoist, we’re big fans of the things cost money mantra of city budgeting. The rule is that if you want to build a city that you’re proud of, you have to invest accordingly. Otherwise, don’t expect new transit lines to magically appear, or social housing to fix itself. There is a corollary to this rule that the more meaningful a budget fix is to the city, the greater the sacrifice borne by Torontonians. After all, things cost money budgeting acknowledges that we don’t get things for free.

Which brings us to a potential hotel tax. From a political perspective, this revenue tool is a relatively easy sell. It’s a tax that’s common in cities around the world, and it’s mostly paid by tourists. This is an especially great feature for politicians, who don’t have to ask their potential voters (the hotel industry aside) to make a sacrifice to solve the City’s problems.

Of course, there are a couple of shortcomings too. Because you’re not asking for any meaningful sacrifices, the payoff is small. A one per cent hotel tax would generate around $9 million a year (reports indicate it could generate up to $21 million a year depending on the fee). That’s not money to turn down, but in the context of a $10-billion operating budget, or $23 billion in unfunded capital projects, or a looming debt ceiling, it doesn’t really put a dent into the problems the City faces.

There are other revenue tools that would make a meaningful difference, but they fall within the things cost money philosophy, in that there are political tradeoffs.

A parking lot tax could generate somewhere between $175 million to $350 million, depending on the implementation. Malls, developers, and REITs wouldn’t really like this one, and talk radio probably wouldn’t either.

There are always tolls, which could generate anywhere from $10 million to $570 million also depending on how they’re implemented. But given that in the 2003 mayoral campaign John Tory accused David Miller of “highway robbery” for allegedly considering tolls, and made a website to boot, that’s probably not happening. Here’s guessing that this policy would also elicit accusations of the War on the Car, and we can’t have that.

A one per cent sales tax would be lucrative, and could generate $500 million to $1.3 billion depending on if it’s implemented in Toronto or the wider GTHA. That’s a lot more than $9 million, and unlike property taxes it would grow with the economy. But it would also affect all Torontonians. Businesses and voters would definitely complain.

Maybe a hotel tax is just a way to test the waters and get Torontonians used to the idea of new revenue tools. And maybe it will eventually be part of a broader package of tools to more evenly spread the pain. But we shouldn’t mistake a potential hotel tax for turning the page on a real conversation about city revenue tools, and how to make a meaningful difference to pay for all the things we want. There will eventually come a point when political leadership is needed, and Torontonians will have to pay for the priorities they want. After all, things cost money.

With files from Neville Park