Year after year, the city of Toronto struggles with a significant deficit. The economy of the Canadian metropolis is doing very well, but tax revenues are almost systematically not enough to cover growing expenses.
In the previous two fiscal years, under former Mayor John Tory, the city had to dip into its reserves to make up its deficit. This year, that gap widened even further to $1.78 billion, accounting for more than 10 per cent of Toronto's operating budget.
To balance Toronto's budget, it's not enough to postpone installing a new photo radar or cancel pothole repairs. As with our portfolios, inflation is weighing heavily on public finances.
This deficit is more or less equal to the total funds allocated to emergency services, namely the police ($1.18 billion), the fire department ($518 million) and emergency medical services ($111.8 million).
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Toronto's deficit is equal to the sum of the city's emergency services budget.
Photo: Radio-Canada / Camile Gauthier
City too wasteful?
Is the Queen City spending too much or is its hands simply tied when it comes to revenue? It could be a bit of both, says Pierre-Pascal Gendron, a professor of economics at Humber College in Toronto and a researcher at the CD Howe Institute.
In large cities there are not enough flexible instruments to increase revenue. The property tax is not enough for their needs. It is true that there are other mechanisms, such as usage fees and so on, but it is not enough, it is very small.
The economist points out that many social programs and many essential services fall into the hands of municipalities, even though they do not have the resources to adequately finance them.
There is an argument that cities are actually spending too much and that there are too many programs that affect these cities' ability to finance themselves independently, he adds.
According to McMaster University political scientist Peter Graefe, local governments still rely too heavily on property taxes to fund their services.
We still have more or less the same property tax base. It is not developing at the same pace as economic growth and is therefore very difficult, he explains.
Spending increases not only with the population, but also with the economic activity that needs to be supported.
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Peter Graefe, professor of political science at McMaster University in Hamilton
Photo: Radio-Canada
New sources of financing?
To redistribute the tax base, several options have recently been proposed that are better adapted to economic developments.
For example, municipalities could charge a percentage of sales taxes, like the HST in Ontario. This idea is generally viewed with great hostility by higher levels of government, points out economist Pierre-Pascal Gendron.
Another solution would be to introduce an income tax at the local level, which exists particularly in New York City, points out political scientist Geneviève Tellier. However, this option would certainly have political costs. People already pay a lot of federal and provincial taxes. After all, they are the same taxpayers, she said.
Toronto city council is already considering a few options this year, such as a gradual increase in the transfer tax on homes over $3 million, an increase in the tax on vacant homes and an increase in on-street parking fees.
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Geneviève Tellier, Professor at the School of Political Studies at the University of Ottawa
Photo: Radio-Canada
Mr. Graefe also points out that Toronto has not increased its property taxes much in recent years compared to many other Canadian cities, which he says is exacerbating the problem.
We've had 15 years of mayors demanding property tax increases below the rate of inflation, and so now it's finally being acknowledged that there are costs to the city in the form of subway overcrowding, access to housing, and even health care , he says.
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A Toyota Corolla sells for a base price of $26,595, the average price of a home in the Queen City was $1,084,692 as of December 2023, according to the Toronto Regional Real Estate Board, and William Nylander just signed his contract with the Maples Leafs extend salary equivalent to CA$15,385,792 per season by one month.
Photo: Radio-Canada / Camile Gauthier
To illustrate the extent of the deficit, the Queen City budget document states that a 42% increase in property taxes would be required to close the gap.
If we were to hypothetically postulate a 42% increase, the current government would be overwhelmed in the next election, says economist Pierre-Pascal Gendron.
This year's planned property tax increase in Toronto (9%) may therefore seem high compared to Montreal (4.9%) and Vancouver (7.5%), but it is still well below what would be needed to meet the budget of the city without intervention from the province or the federal government.
The 2024 budgets of the major metropolises
| Increase in property taxes | Overall operating budget | |
|---|---|---|
| Toronto | 9% | $17.0 billion |
| Montreal | 4.9% | $6.99 billion |
| Vancouver | 7.5% | $2.16 billion |
Source: Toronto, Montreal and Vancouver websites
Deficit, a political lever?
After some resistance from the Ford government, the city of Toronto finally reached a funding agreement with the province last month that includes $1.2 billion over three years. This money will help offset a small portion of the deficit for the current year.
The Queen City is also putting pressure on the federal government by demanding $250 million to accommodate refugees and asylum seekers, a responsibility for which Ottawa must pay its fair share, emphasizes Mayor Olivia Chow.
If Ottawa provides the requested amount, Toronto residents' municipal taxes would rise by 10.5% this year. Otherwise, a 16.5% increase would be considered, the budget document says.
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Pierre-Pascal Gendron, professor of economics at Humber College and researcher at the CD Howe Institute
Photo: Jason Mortlock
Economist Pierre-Pascal Gendron fears the city of Toronto has made a habit of begging the province and federal government for money. By having governments that have complied with these demands, we have created moral hazard on the part of the City of Toronto because we will simply be rewarded, he warns.
For his part, Peter Graefe believes Toronto's elected officials have bargaining power that many other local governments don't have. They would continue to play their blackmail game, saying they were in a financial abyss and trying to look for subsidies, says the political scientist.
Ontario cities such as Ottawa, Hamilton and Kitchener-Waterloo are in fairly difficult financial situations and do not have the capacity to raise these funds.