Nobody likes property taxes, but Toronto turns hating them into an art form

ANALYSIS: Why is the provincial capital so acutely, unusually tax-averse?
By John Michael McGrath - Published on February 8, 2017
Toronto's row houses
Throughout John Tory’s term in office, Toronto’s residential property taxes have mostly increased at the rate of inflation. (Juan/Creative Commons)

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Why does Toronto hate raising property taxes so much? This might seem like a question with an obvious answer: few elected officials make it their job to defend taxes, and even fewer are willing to risk an explicit defence of actually raising them. But even given that political truism, Toronto is notable for its recalcitrance. As the city gears up for this year's budget debate it’s worth unpacking why, and why it matters.

First of all, Toronto really is an outlier in the GTA. For all of Mayor John Tory’s term in office, and all of predecessor Rob Ford’s, Toronto’s residential property taxes have generally gone up at the rate of inflation. (Ford tacked on an extra levy for the Scarborough subway extension, and Tory added one for new infrastructure spending, but those were somewhat offset by the 2011 budget year, for which Ford froze property taxes altogether.)

While Toronto’s been phobic about raising taxes, other cities in the GTA have had to make different choices. Even accounting for the city's land transfer tax (which only Toronto has permission from Queen’s Park to levy), Toronto is still at or near the bottom of the pack in terms of overall property taxation, by pretty much any measure. In 2016, the city’s chief administrator estimated that using the broadest assessment (including land transfer taxes and garbage fees) the average Toronto property owner paid $3,588 in taxes, compared with $4,782 in Richmond Hill, $4,348 in Brampton, and $3,880 in Mississauga. Only three of the GTA's 25 municipalities came in lower than Toronto: Milton, Georgina, and Burlington.

Toronto's obsession with the inflation rate is a problem, because the city's growing population has infrastructure and service needs that don’t perfectly correspond with the official consumer price index. For example, the city, through the TTC, is an enormous consumer of electricity and diesel and is far more sensitive to fluctuations in those prices than the average household. Toronto is also growing and wants to build ambitious and expensive new projects (a new subway line, a massive downtown park) and has huge unfunded infrastructure deficits (in transit and housing, especially) — none of which are addressed by keeping tax rates at inflation. In short, the cost of living isn’t the city’s cost of doing business.

How did this fixation with sticking at or below inflation develop? First of all, there is some historical context framing the issue in Toronto. Mel Lastman defeated Barbara Hall in the first mayoral election in the amalgamated city in 1997 by promising to freeze taxes over the entirety of his first term. Running on the slogan “Mel Makes It Work,” Lastman promised the efficiencies from amalgamation would make it possible to keep taxes low. The claim was contentious even at the time — projections of a savings bonanza never really materialized — but Lastman won, then won again in 2000.

His second term did see some tax increases, in part to release some of the budget pressure that had built up in the early years. But a precedent had been set, and it was entrenched by the councils that followed him. Under David Miller, property taxes went up more than they did under Lastman, and faster than inflation, but still not by much: the all-time high was 4 per cent in 2009; most years under Miller it was 3 per cent or less. That precedent was reaffirmed under the tax-hating Ford, and has so far been maintained by Tory.


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There are also structural reasons that Toronto has been more tight-fisted than its neighbours. One is the concentration of rental apartments, which make up a larger share of housing in Toronto than elsewhere, and are also taxed more heavily than other homes. This is dubious economics and dubious social policy: tenants are more likely to have lower incomes, but they are also less likely to vote in municipal elections, which can entice politicians to shift tax burdens to groups that are less likely to punish them come election day.

Another is that even before the advent of the land transfer tax, the city had options others didn’t. Toronto’s office cluster has, since the 1970s, tempted successive councils looking to generate revenue without leaning on residential voters. That’s how the city ended up, by the time of amalgamation, taxing commercial office space at a rate four times higher than residential properties. (Provincial and city policies have since nudged that down to “only” three times higher.)

But political expedience doesn't always make for good economic planning. “I’ve looked at property taxes in 25 different countries and everyone does it,” says Enid Slack, director of the Institute on Municipal Finance and Government at the University of Toronto. “There isn’t an economic justification for it. Commercial properties use fewer services than residents, and businesses are more mobile than residents. If you were looking at it from economics, you’d tax commercial properties less.”

Nevertheless, cities around the world, including Toronto, have been unable to resist the urge to use their commercial cores as a way of keeping residential property taxes low. Part of the reason Toronto politicians have been so reluctant to raise property taxes, in other words, is because they have been able to get away with it for a while, given these other revenue streams. If Brampton or Mississauga or Markham had the kind of concentrated taxable property wealth (and policy favour from Queen’s Park) that Toronto has, maybe their councils would stay closer to the rate of inflation too.

But it’s only part of the reason. The rest has to do with different perceptions of municipal politics within the region: Toronto is also distinct in that its residents seem to have a grimmer view of the services the city provides than people elsewhere in the GTA.

Rob Ford came to power on a tide of anti-government sentiment, fueled in part by Toronto-only events, like the lengthy city workers strike in 2009. John Matheson, who worked in municipal affairs under the Harris Tories and now does municipal policy consulting for StrategyCorp, says one thing amplifying Toronto’s natural tight-fistedness in recent years has been Ford's legacy as both a campaigner and mayor. (Matheson, for the record, worked for one of Ford’s competitors in 2010.) “What [Ford] did was sell more doubt than he did hope … You have more people than ever believing that the city government was broken, but don’t believe anything can be done to fix it,” says Matheson. “It makes it hard to motivate people around this grand cause to build the stuff we need.”

Matheson and Slack both note that while suburban councils find the way to raise taxes, they also frequently get high marks from their voters on service quality. This is a pattern that predates Ford, and even the amalgamated Toronto: when Mel Lastman ran for mayor of Toronto it was on the basis of his experience as mayor of North York, and his reputation rested in part on the generally high level of city services there — most visibly, twice-weekly garbage collection.

And all this Toronto exceptionalism still leaves the city trying to avoid the political pain of raising property taxes. The things the city needs are increasingly urgent. Between the TTC and Toronto Community Housing alone the city has more than $6 billion in unfunded planned construction — and that’s just part of the overall backlog, which also includes major projects like remediating the city’s derelict Port Lands to ready it for development.

In the absence of property tax increases that dare to go higher than the rate of inflation (and following Kathleen Wynne nixing his road tolls proposal), Tory needs to find other sources of revenue, and quickly. City staff ruled out some of those options — like a tax on commercial parking spaces — when tolls were on the table, but may need to revisit them now.

Either that, or he can put his head in the lion’s mouth and propose the one thing Toronto’s been unwilling to countenance since amalgamation: sustained, substantial increases to the property tax.

Photo courtesy of Juan and licensed for commercial use under a Creative Commons licence. (See the uncropped version)

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