Another way to look at Toronto’s budget debate
TheStar.com – Opinion/Commentary – Inflation has been going up faster than taxes, so every year since amalgamation in 1998 the City of Toronto has been losing money.
Jan 10 2015. By: Gord Perks
Most of us have had years when our incomes didn’t keep up with inflation. Falling real incomes is one of our biggest economic problems and relates to our income inequality crisis. Others can pursue that debate. For now I want to take a parochial look at inflation’s impact on city finances.
I’ll wager right now that “property taxes are going up” will be the top line news coverage of Toronto’s pending budget launch. Be suspicious.
Here are two facts. Since amalgamation in 1998 the city has never announced a single cut in property taxes. However, over that period property taxes in Toronto have been cut by a cumulative 12.4 per cent. Weird isn’t it? We never cut taxes, but they have gone down — down a lot.
This is simply explained. Inflation is going up faster than taxes. During the election you heard promises to keep property tax increases at or below inflation. It’s a nice turn of phrase, but it’s misleading. An “increase” below inflation is not an increase. It is a decrease. It is a cut.
That 12.4 per cent is worth roughly $310 million a year. For context, Toronto’s net spending on operating the TTC is $429 million; libraries are $168 million; daycare is $77 million; firefighting $409 million; parks, recreation and forestry $288 million.
If you are waiting for a bus, tax cuts (“increases” below inflation) had a role. Can’t get daycare? Same. Waiting a little longer for emergency services? Same.
It doesn’t stop there. Toronto wisely has a policy that keeps debt costs to no more than 15 per cent of our annual tax revenue. Most municipalities have a similar rule although many push it to the 20-25 per cent range. Here’s the rub: if we shrink the tax pie, we also shrink the amount of debt we can carry.
If property taxes had kept up with inflation, we would have $45 million more available for debt servicing.
You may have heard that as of today the capital repair backlog at Toronto Community Housing is just over $850 million. If we borrowed on a 20-year term and immediately did all the repairs, $45 million per year would be within spitting distance of covering the payments.
Put another way: choosing to keep property taxes “at or below inflation” can also be seen as a choice to be a bad landlord.
Many of you will swear your taxes are going up faster than inflation. Some will be right. Our property tax system has a few oddities.
Toronto policy limits business tax “increases” to one-third of the “increases” homeowners face. Some feel this attracts business and jobs to the city. Personally, I think our competitive advantage lies in having a thriving, densely populated (read: full of customers and skilled workers) urban area. I’d also point out that spending on infrastructure and services attracts business. Whoever you agree with, homeowners’ taxes climb faster than the overall tax base.
A second peculiarity is the provincially mandated current value assessment. CVA ties taxes to property values. Some property owners see their taxes go up, while other see their taxes go down. A second (and often forgotten) fact is that overall CVA is revenue neutral to the city. CVA is designed so that downs cancel ups and the city’s coffers do not benefit.
So, while there are individual winners and losers, overall property tax income is shrinking. That’s why we struggle to maintain the infrastructure and services that make Toronto livable and thriving.
What about efficiency and eliminating waste? Briefly, we’ve pretty much picked that tree clean. For more than a year city manager Joe Pennachetti has been telling anyone who will listen that the efficiency fruit was harvested over the last 10 years.
Now, about the land transfer tax. Last year it was worth almost exactly the same amount as the cumulative post-amalgamation tax cut. Doesn’t that make it a wash? Sadly, no. When the tax was introduced it was part of a plan to accomplish two things: keep up with inflation and fill the hole created by downloading housing, transit and some social services.
The tax was among several tools needed to do the job: uploading, land transfer tax, efficiency and a share of the sales tax. Does anyone remember the “One Cent Now!” effort? Probably not. In any event, because the city didn’t get one cent of the sales tax, the land transfer tax hasn’t backstopped our downward tax slide. Instead, it has been a band-aid on the gaping downloading wound.
A concluding word. We seem to have a collective cognitive impairment. Even though we rationally understand that a dollar doesn’t buy what it used to, we fixate on the city collecting a larger number of dollars. As we enter this year’s budget debate, Torontonians would do well to remember the continuing downward slide of Toronto’s real tax income.
Gord Perks is the Toronto city councillor for Ward 14, Parkdale-High Park.
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