Ask Your Candidate: The Economy

By: Seb FoxAllen

Should the City have the right to create a municipal sales or hotel tax?

The Toronto region is a major contributor to Ontario’s overall economy, representing almost half of the province’s GDP. The Province collects revenue from this output through their share of the HST (8% provincial, 5% federal), but also places limits on the ability for the City to consider creating its own sales tax.

A municipal sales tax would work almost exactly like the provincial and federal HST (currently 13%), except the money would go directly to the City. It would be comparatively low, likely 1 or 2 percent, bringing Toronto’s sales tax to roughly where it was before the federal government reduced the GST from 7% to 5% back in 2008. In practice, this would mean that the actual cost of, say, a $2 cup of coffee would rise from $2.26 to $2.30.

The proceeds of the tax could be used for whatever purpose City Council decided, and could even be isolated for a specific purpose, like transit spending or debt reduction.

The implementation of a sales taxes could, however, have drawbacks. Critics argue that new municipal taxes discourage consumer spending, investment and tourism (Data from Austin, TX, which levies hotel, venue, and a sales tax, seems to ease some of those concerns).

More significantly, because sales taxes impose the same rate on everybody regardless of how much money they make, people with lower incomes end up paying a higher percentage of their earnings than people who earn more. In most cases, this is corrected by exempting basic items (groceries, clothing, gasoline, etc.) that lower income consumers spend more of their income on. Some jurisdictions also offer exemptions or credits for lower-income residents (many Canadians receive a quarterly HST rebate cheque depending on their yearly income, for instance).

Sales taxes (and/or hotel and visitor’s taxes, in place in cities like San Francisco, Chicago, and New York) could also be particularly efficient in raising revenue from Toronto’s expanding tourism industry. In 2012, 9.9 million hotel room nights were sold across the region (Toronto hotels do currently actually charge a 3% hotel tax, however all proceeds go directly to the Province’s Tourism Ontario).

Of the $5.1 billion visitors spend annually in Toronto, federal and provincial governments collect $1.8 billion in taxes. Yet, because of the limits placed on municipal revenue options, the City is only able to directly raise $14.4 million.

Outgoing City Manager Joe Pennachetti has been increasingly blunt in his insistence that the current set of options the Province allows Council are not sufficient to sustain the service expectations of Torontonians. “We do not have the revenue tools we should have,” he told a crowd this spring. The provincial government considered giving City Council these new powers as recently as last year, but opted instead to find revenue in corporate and gas taxes.

Ask your candidate whether they support provincial legislation to give Toronto the same range of revenue options available to other major cities across North America and, if so, what types of proposals they would explore if given that power.

With files from Christina Marciano.

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