Minister of Finance Rod Phillips announced earlier this week that the province’s next budget will be presented to MPPs in the legislature on Wednesday, March 25. The document has almost certainly been finalized and sent to the printers, and worker bees in the ministry of finance will now be getting ready for the big day when Phillips will explain to the public how the government will spend next year’s $165 billion or so.
But if it’s not too late to suggest one addition, here’s an idea: Ontario needs new taxes on homes.
If that sounds crazy, you may work for the current government. It has, after all, spent the last 18 months yelling about how taxes hurt working families that are just trying to get by. That yelling has included millions of dollars spent on legal challenges to the federal carbon tax. So expecting the Tories to embrace a new tax on housing in Ontario, or even just in the GTA, would be asking a lot.
The Tories have focused their efforts on getting more housing supply built — easing regulations and speeding up approvals for new homes. But recent events show how difficult and slow-going that work is. The government’s plan to replace Section 37 of the Planning Act with something more streamlined has been retooled, and it now won’t have a new system in place until sometime after the original January 2021 deadline.
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In the meantime, there ought to be a big flashing red light on the government’s dashboard: according to the latest numbers from the Toronto Real Estate Board, the average sale price of homes in the GTA is now up to $910,000. That’s a 16 per cent increase in a year and just a hair below the $920,000 level from March 2017. It was the eye-watering price jumps in early 2017 that prompted the Liberals to introduce their Fair Housing Plan, which included Ontario’s version of a foreign-buyers’ tax. TREB says that costs have started going up again because the effects of the Fair Housing Plan, as well as of new mortgage rules from Ottawa, have largely worn off.
That should be a big warning sign for the government. And there’s a very real prospect that things will get worse thanks to the Bank of Canada’s decision this week to lower interest rates by half a per cent. It’s a big move, intended to stave off a possible coronavirus-induced recession, and it’s justifiable on its own terms. But, in the GTA’s housing market, introducing lower interest rates is going to have roughly the same effect as throwing gasoline on an open fire.
The Tories didn’t create these problems, but it’s their job to fix them — at least, that’s what they’ve been saying themselves for the last year and a half. Policies to get more homes built faster are good, and necessary, but the government also needs to look at some ways to put up speed bumps for home prices before they accelerate out of control (if they haven’t started doing that already).
The obvious solution is some form of new taxation to dissuade speculators. The government’s efforts to dismantle regulation have been laborious: the good thing about tax measures is that they can be imposed reasonably quickly, especially in the case of adjusting existing taxes. They’re also incremental: they give the government a dial that can be turned up or down depending on economic conditions. Is 20 per cent to high? Great, try 15. Too low? How’s 17.5?
The government could increase the foreign-buyers’ tax, currently at 15 per cent, to 20, as British Columbia has. But, despite the mental space those buyers occupy for many critics and advocates in the housing-policy debate, they are not primary reason homes keep getting more and more expensive. The fault lies not in our guests, but in ourselves.
That’s why the government should look at more general anti-speculation taxes. B.C., again, has a model that seems to have been both effective and broadly popular with voters. But there are other measures that the government could look at, such as a conditional increase in the provincial land-transfer tax.
(It would be hilarious if Queen’s Park offered to work with Ottawa to tax the capital gains of real-estate windfalls, given that the federal Conservatives railed against that — largely imaginary — proposal last year, but that’s probably pushing the hypothetical a little too far.)
Raising any kind of taxes, ever, is undoubtedly a hard sell in the PC caucus. But the Tories might consider that any taxes they increase now, they’ll have two years to lower later if the speculative fever breaks or if their pro-supply policies start to pay real dividends in the market. The risk of doing nothing or of doing something too late is that voters in 2022 will see a government that promised to get the cost of living under control and failed — and then vote accordingly.