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Toronto's lack of tax flexibility makes it less competitive: Study

Cities would also function better if given the ability to set their own tax rates, argues the author.

John Tory at a city council meeting in June 2017.

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John Tory at a city council meeting in June 2017.

Toronto has less tax flexibility than other world cities, according to a new University of Toronto paper.

Authored by Enid Slack, the director for the school's Institute for Municipal Finance and Governance, the study compares Toronto's taxing powers to seven cities around the world, including New York, Frankfurt and Tokyo. Only London had less taxing flexibility.

While Toronto isn't particularly reliant on provincial transfers – a good sign of independence – the study says the city lacks diverse revenue streams to fund its needs.

"A mix of taxes would give large Canadian cities more flexibility to be internationally competitive," writes Slack.

Additionally, Slack argues that cities would also function better if given the ability to set their own tax rates.

"That ability is important for accountability: governments that raise their own revenues and set their own taxes to meet local expenditure requirements tend to be more responsible and more accountable to taxpayers."

Slack added that if Toronto had the ability to raise revenue through different sources, the city's budget would also become more predictable.

The province expanded Toronto's powers with the creation of the City of Toronto Act in 2006. One of the additional revenue tools granted to the city, the municipal land transfer tax, has proved lucrative and has helped the city balance the budget in recent years.

But the city has not used all of the taxation powers at its disposal. Council repealed the Vehicle Registration Tax in December 2010, and it has not chosen to implement smaller revenue tools like a tax on local beer sales.

In an interview with Metro, Slack criticized so-called "nuisance taxes" like a beer tax or dog tax because they bring "insignificant" revenue. She added that the taxes that would make the biggest difference would be an income or sales tax. She also said that while council has refused to raise property taxes more than inflation, thus eroding the city's purchasing power, a different revenue stream would be more appropriate to pay for big ticket items like social housing.

In an editorial board meeting with Metro last week, mayor John Tory expressed his frustration at limited municipal powers and the need to ask permission from Queen's Park for small things like extended liquor hours.

"I don't get it," the mayor said.

"It's a vestige of years gone by."

He argued that as a world city Toronto is different, and that the lack of provincial permission "is all about political control."

But the mayor did not seem optimistic that significant new revenue tools would be on the way.

"Are there new revenue producing measures that we would like to see that they would grant us? The answer would seem to be no."

The mayor added that he and the premier haven't discussed an income tax, and that a regional sales tax appears "not likely to happen" based on previous conversations.

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