Saturday, August 4, 2007

A city sales tax?

Unlike US cities, municipalities in Canada are severely limited in the kinds of revenue they can raise. Montréal and Vancouver do have a special gas tax and a levy from parking metres and garages that funds public transit, and some cities in Canada have a hotel tax; but for the most part the vast majority of the burden is on property taxes -- putting the burden on residents and corporations which settles in wherever they are. And when they do get taxing authority, it's very limited too. Look in Toronto. They tried raising the land transfer tax and vehicle registration fees -- it failed, now they're looking at basically destroying public transit in the Meeting Place.

There may be a "better way," pardon the expression. I don't like raising taxes, but I'm also against cutting them unless a significant part of the debt burden has been permanaently retired. Cities have been demanding one percent of the GST. I say, why not take the one percent that was cut last year and give that authority back to the cities to raise it?

It makes sense because it can be tacked on to the provincial sales tax. And it would be painless for business since they could remit it as part of the PST and the province in turn would send the money right back to the cities where they came from. This is how many US cities get their bread and butter -- not from ratepayers (which in many cities is less than half of the population) but consumers (which means everyone). Thus both residents and transients would share the pain. In New York state, for example, the state sales tax is 4 % but cities can tack on up to 4.5% on top of that. Some cities choose to put in as little as 0.5% while major centres like Buffalo and New York City elect for the maximum increment.

There is a downside of course -- consumption taxes tend to hit lower income people the most. But those taxes would tend to be less than property taxes in the first place, so in the end there would be a net benefit.

I'd also like to see all cities, not just some, allowed to have a hotel tax. There will always be tourists and business travellers and they will be willing to pay the going rate. Some cities' transient lodging fees in the States can be as much as 20% -- which may be absurd to us Canadians on the surface; but how else can they afford to build new stadia for "free"?

Our cities are facing a funding crisis, and it's time we thought outside the box. Provinces should give cities home rule and let them run their affairs, their way. It's past time to do so.

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Johnny said...

I think the cities should be able to use (tax-payer/government-owned) Bank of Canada funds on interest, below the market rate. The government used to do this.

That would cut out the interest part of the city budgets, at least.

PS: I wish you would allow anonymous comments ;) I don't like Google accounts because it's a little too Big Brother for me.

Mark Dowling said...

Municipalities are creatures of the Provinces, therefore PST is the more appropriate tax. Unfortunately the cities have targeted GST because Edmonton and Calgary can't ask for a penny in a province with no sales tax, despite the fact that provinces have historically had issues with direct funding of cities by the feds.

Ontario should raise PST to 9% and give its municipalities 1/9th of the take rather than introduce a new municipal tax which would put huge administrative burdens changing cash registers, accounting systems etc. This will provide municipalities with a tax that grows proportionately with the economy.

BlastFurnace said...

Johnny: Your suggestion about below prime interest rates is a good one; I'd go one further and allow tax-free munibonds like what they have in the States. As for allowing anonymous comments -- I tried that for a while but I got some pretty nasty flamers, so unfortunately I had to put in the filter.

Mark: You have a good point about Alberta -- there I'd give the cities a share of the oil and gas royalties. As for your concerns about having multiple accounting systems, it's addressed in my point about having a local sales tax blended in with the PST; the province would collect it on behalf of the cities. But for now, yes: the one percent taken off the GST should be tacked on to the PST which would raise it to 9%.