Property Taxes: Hate ’em but Pay ‘em
Canadian municipalities, particularly large cities seem to have received the short end of the stick when it comes to their fiscal democracy. Canadian municipalities operate under a myriad of legislative constraints — they are prohibited from running operational deficits, have limited discretion to reduce operating expenditures and have very few tools to raise revenue. Property taxes are the largest sources of municipal funding. However, provincial legislation governs property taxation that significantly impacts the level of municipal autonomy in setting property tax rates.
Recent news about the City of Toronto proposing a 4.6% increase in residential property taxes in 2022 has caused some concerns to homeowners — at least two members of my own family have grumbled about this news among other general complaints of inflation and the housing market. But what else can the city do to increase its source of revenue given the rising expenditures exacerbated by the COVID-19 pandemic?
Even if we skip over the pandemic entirely, there has been a growing concern on the ability of large municipalities like Toronto to continue to afford providing services that people need and remain economically competitive while still trying to maintain reasonable tax rates. Over the years, Ontario has offloaded some of its social services, such as social housing to municipalities. Another example is that the City of Toronto tops up the provincial funding to long-term care homes owned and operated by the city, often to maintain a higher standard of services compared to for-profit long-term care homes. Municipalities also bear the brunt of expenditure of other services such as some immigration and settlement services, offloaded from the federal level. Toronto is the fastest growing municipality in Canada, attracting over 100,000 immigrants each year. All these place fiscal pressures on the local governments. Given the constraints on revenue-raising mechanisms and rising expenditures, can large cities like Toronto remain sustainable in their delivery of required services?
The provincial control over municipalities in Canada means that municipal governments are constrained from autonomously solving any real fiscal problems they may have. While the prohibition on running deficits may prevent a fiscal crisis, large Canadian cities might be headed towards a crisis of deteriorating infrastructure and service delivery, with increasing pressures to deliver more and better services to a growing population under a limited operating budget. Yes, property taxes are problematic due to their regressive nature that ignores the ability to pay and privileges homeowners, and are a politically contentious subject, but without other tools to collect revenue, increasing property taxes may be the only way for cities like Toronto to cope to meet their expenditure. Only the provinces can grant cities more fiscal power. And more fiscal power seems to be exactly what cities are increasingly in need of.
