Mayor Chow’s municipal committee recently announced a potential sales tax for the city of Toronto to help the city conquer its $1.5 billion budget shortfall. Excalibur reached out to Professors Joanne E. Magee and Lorne Foster of the School of Public Policy and Administration at York University to find out more about this proposed tax and how it may affect students.
Providing context behind the proposal, Professor Magee explains that the city of Toronto is functioning under a $1.5 billion budget shortfall, and despite receiving some funds from the provincial (Ontario) and federal government, the city is compelled to raise its balance directly through taxes and other user fees.
“In January 2023, a City of Toronto Budget Committee briefing note looked at introducing a city sales tax,” Magee explains. “The introduction of a sales tax requires Ontario government approval and Mayor Olivia Chow recently met with Premier Doug Ford about this. After the meeting, Premier Ford announced a plan to work with the city to fund its shortfall and a city sales tax appears to be off the table. Since Ontario has a budget surplus, things seem promising,” adds Magee.
Professor Magee notes, “I think that Ontario was very smart to harmonize and introduce the HST several years ago as the costs of raising revenue using this one system are minimal. I also believe that introducing a city sales tax by increasing the HST by 1% rather than having a sales tax with a separate administrative structure (like the City of New York sales tax) makes sense.”
Many wonder whether the proposal for the new tax aligns with Mayor Chow’s campaign promises. Professor Foster has provided his comments on the matter below:
“Part of the public apprehension and questioning relates to the fact that her undertaking on a ‘modest’ tax increase is part of a deliberative process to work through Toronto’s dire fiscal deficit situation by considering each option examining appeals, concerns, costs, consequences, and trade-offs for each approach. Rather than predetermine her actions, I believe that Mayor Chow is attempting to carefully assess policy priorities and match them to effective revenue sources in real time,” says Foster.
Professor Foster explains that Olivia Chow’s role as Mayor has provided her an opportunity to explore revenue tools to mend the budget shortfall. Foster lists some examples of initiatives voted for by city councillors to create more revenue: “graduated increases to Municipal Land Transfer Tax on luxury homes worth $3 million and more, and the removal of a five dollar per hour cap for on-street parking. Councillors also approved further study of a commercial parking levy, a monthly mobile phone levy for 911 costs, and increasing the vacant home tax.”
According to Foster, Mayor Chow “could argue that the revenue tools are more heavily weighted toward ‘user fees’ for the use of many public services and facilities as opposed to broad-based taxes on income, sales, or property.” He further explains that the Mayor utilises a progressive tax approach to lessen the burden on low-income people.
Commenting on the tax’s impact on the residents of Toronto, especially those most vulnerable to food and housing insecurity, Professor Foster notes that an increased financial burden on low-income Torontonians and disproportionately racialised families is inevitable if a city-specific sales tax is introduced.
“The only way to mitigate the suffering and food insecurity tied to any municipal retail sales tax would be to take into account the disproportionate impact on lower income individuals and households through mechanisms such as tax exemptions on necessities or rebate programs,” Foster elaborates.“Instituting the administrative structures to allow for these types of ‘fairness’mechanisms may be prohibitive and even counterproductive to the principal goal of deficit reduction.”
Professor Magee breaks down the effects of the tax on low-income individuals in Toronto by explaining that the provincial and federal governments collect information on personal tax returns, and since low-income residents pay a larger portion of their income in sales and property taxes, the government rebates portions of the HST/property tax to low-income earners in quarterly GST credit payments or in the monthly Ontario Trillium Benefit, etc. Thus, Magee states, if HST were to go up by 1%, then the Ontario Trillium Benefit could also be increased, providing relief for low-income individuals.
Moreover, Magee explains that a 1% increase does not necessitate that all costs will rise. “Point of sales rebates” are applied onto items such as books, prepared meals costing $4 and less, which means that the only tax applicable to these items will be the 5% federal tax. Furthermore, the federal Excise Tax Act labels several items as either “exempt” or “zero-rated” to bypass the 13% HST. Some of these items comprise rent, prescription drugs, medical devices, and basic groceries.
Professor Magee cites the City briefing note when commenting on what the 1% increase would look like for households:“The average Torontonian household would see an increase of approximately $231 per year on their total expenditures with the introduction of a 1% sales tax,” Magee ascertains. “At the same tax rate, approximately $91.1 million of the potential tax revenue would be paid by non-residents. In order to generate $360 million in revenues – for comparison purposes a property tax increase of approximately 9.16% is required.
The Budget briefing note also indicates that the main disadvantage of a City sales tax would be tax avoidance — that is, people could easily avoid the sales tax by making purchases outside of the City (especially “big ticket items”), which would disadvantage retailers in the City.
Professor Mageee ends with, “For Ontario, the main disadvantage of allowing Toronto to have a portion of the HST would be the strong possibility that other cities would ask for it too!”
Finally, Professor Foster illustrates that a new sales tax could increase financial burden on students attending York University, who already reside in the most expensive city in the nation.
“Even at a proposed mere one-percent increase, the business challenges and impacts associated with a municipal sales tax would lead to increased downstream living costs – including housing, food and groceries, and other necessities.” says Foster.
As such, pursuing higher education comfortably, without having to work numerous jobs, may become difficult for lower-income individuals and students of colour, explains Foster.
The proposed tax is certainly polarising, at times imbued with benefits for the city and, on the other hand, suggesting financial strains for some. Ultimately, Torontonians await a final decision.
