Financial
Post, January 6, 2006
Consumption tax cure for revenue ‘gap’
PAUL
MCKEEVER
Gap-osis has become an all too common and embarrassing syndrome. A
government in one jurisdiction allows its expenditures to exceed
its revenues, then blames its deficit on “under-funding” by
a senior level of government. The asking government claims there
is a “gap” between the total tax paid by people who
live within its jurisdiction and the amount ultimately spent there.
Asserting that it is the “engine that drives” the economy,
the asking government demands its “fair share” of tax
revenues.
Canada’s
gap-osis poster boy has most certainly
become Ontario Premier Dalton McGuinty
who — with the politically correct
approval of the province’s Progressive
Conservative and NDP parties — has
been demanding a share of federal tax
revenues to make up for a $23-billion “gap.”
However,
gap-osis is also running amok at the
municipal level in Toronto. City councillors,
welfare advocates, the Toronto Board
of Trade: None are able (i.e., willing)
to escape a politically advantageous
gap-osis affliction. In addition to more
autonomy for Toronto council, they have
all been demanding provincial cash to
close a gap between the provincial taxes
paid by “Torontonians” (by
which they mean everyone living in or
around the City of Toronto) and the provincial
funds spent in Toronto (by which they
mean only the city).
What
is more, the city’s demands are
actually more justifiable than the province’s
when one considers the narrowness of
the city’s tax base and the breadth
of the province’s.
As
a result, with the province too strapped
to continue shelling out provincial revenues
to municipalities that are spending more
than they take in, McGuinty has been
put in an embarrassing situation: He
cannot very well argue that diverting
provincial revenues to municipalities
is wrong while arguing that diverting
federal revenues to Ontario is right.
McGuinty’s
problem has unmistakably influenced the
province’s newly introduced Bill
53, which facilitates governance and
financing reforms for the City of Toronto.
The bill is purportedly the result of
consultations and research, commenced
in 2004, to ensure a fiscally sustainable
and accountable governance of the province’s
largest city. Yet it has long been obvious
that the most effective way to make a
government
spend in a responsible, sustainable and accountable way is to ensure
that it pays for those expenditures with its own revenues, and raises
those revenues responsibly, sustainably and accountably.
Since
the election of 2003, my party has proposed
a set of municipal finance reforms that
acknowledge the effectiveness of that
approach. Specifically, we propose that
municipal property taxes be eliminated
and replaced, in each municipality, with
a consumption tax. In particular, we
propose that each municipality be permitted
to impose, within its boundaries, a municipal
premium collected as part of the Provincial
Income Tax (PST). Municipal taxes, hence
municipal spending, would be kept low
by market forces. Each municipality would
determine its own premium with knowledge
that, if the premium is raised too high,
customers and businesses will be encouraged
to do their shopping and selling out
of town.
Similar
proposals have more recently found their
way into recommendations by non-partisan
entities, such as the Toronto Board of
Trade. Yet, despite the broad appeal
of these proposed reforms, the McGuinty
government has decided to proceed with
legislation that aims to resolve its
own political dilemma by exposing taxpayers
to the possibility of even more irresponsible,
unsustainable and unaccountable taxing
and spending by the government of Toronto.
By
titling Bill 53 the Stronger City of
Toronto for a Stronger Ontario Act, 2005,
McGuinty has made a transparent attempt
to bolster his bid for federal cash.
He is suggesting that he walks his Ottawa
talk about a “stronger province
of Ontario for a stronger Canada.” However,
the bill does little to improve the lot
of taxpayers. It does not remedy municipal
reliance on property taxes, which are
both economically unsound and unjust.
It does not impose any checks or balances
on excessive municipal taxation or imprudent
municipal spending.
Rather,
the bill functions primarily to reduce
the likelihood of further demands by
Toronto for provincial revenue. Once
Bill 53 is passed, any Toronto demands
for provincial revenues can be met with
a response from McGuinty that the city
does not need provincial funds. He will
argue that, unlike other municipalities,
Toronto now wields some of the province’s
taxing power, such that the city now
has a broad enough tax base to satisfy
its own budgetary needs.
Given
that McGuinty wants federal cash even
though the province’s taxation
powers are already quite broad, it will
be a hypocritical response. However,
that response may function to quiet the
city’s council. With Toronto quieted,
McGuinty will be able to continue playing
the gap card with Ottawa without Toronto
calling him on his hypocrisy.
Paul McKeever is the leader of the
Freedom Party of Ontario.
freedomparty.on.ca