Sunday afternoon, on 10 minutes’ notice, I had the chance to take on Toronto Sun columnist Sue-Ann Levy at a Toronto Party-hosted panel discussion. The topic was the state of Toronto City Hall. Levy arrived brandishing her column published that morning, which outlined $440.9 million in cuts and revenue to get Toronto part way out of its $575 million budget hole.
With only the aforementioned 10 minutes’ notice, I had to keep my comments at a higher level than Sue-Ann so, line by line, here is my response to Swinging Her Axe:
THE BIG-TICKET CATEGORY
1. Reduce city’s average fair wage rate of $42.50/hr. on $1 billion of contracted-out services by $5 to bring it more in line with province and other GTA cities.
SAVINGS: $123 million
Proposing a 12% reduction in the fair wage rate is a very ideological decision. Such a cut is part of the “race to the bottom†mentality and it isn’t one I’m interested in. I would rather pay a decent wage to workers, allowing them to take care of themselves and their families (if they have one) so that they aren’t dependant on more costly social services. That being said, there isn’t anything economically incorrect about this decision, it just isn’t one that I think is in line with the values of the city (once you get past the knee-jerk reaction of “everyone should be paid less but me.â€)
Added October 19, 1PM: I have been informed by two well-placed people that Levy’s calculation is entirely distorted. The $1 billion figure is inclusive of materials and other expenses. Materials alone are 2/3 of the cost for a typical project. Apparently City staff have estimated the real savings of a $5/hour cut to the fair wage rate is in the range of $5-10 million.
2. Use $90 million of $245-million Toronto Hydro note, which comes due Dec. 31 and will be allocated to mayor’s Climate Change Initiatives.
REVENUE FIX: $90 million
Using one-time funding from reserves to balance the operating budget is a practice Levy has assailed the Miller Administration for in the past. Now she’s proposing it herself. Even more concerning is that within less than three years, that pot of money will be entirely spent and Levy has no long-term plan to replace it.
On top of that, investing in retrofitting (which is what much of the climate change capital plan involves), by the City’s estimation, will have paid for itself in seven years. After that, the City will be realizing savings that can help bolster its operating budget.
Oh, and outside the City Hall bubble, there’s that little climate crisis thing going on (inside the bubble there’s so much hot air, no one notices climate change.)
3. Eliminate 2% wage hikes for merit and OT over and above the 3.25% negotiated (2006) increase contained in the $3.8-billion wage budget for last year.
SAVINGS: $86 million
Overtime is an interesting issue given Levy’s past insistence on hiring freezes. When the City freezes hiring or uses gapping (delaying hiring), the work must still be done. Although hiring freezes and gapping on a smaller scale can save money, you can be confident that at least some overtime will have to be worked to make up for fewer bodies. If you eliminate overtime there’s no telling how much more will fall through the bureaucratic cracks. This doesn’t appear to have been considered by Levy.
I’ll take the elimination of merit pay, wage freeze and benefits cut as one in number five.
4. Implement a wage freeze for city’s non-unionized staff (about 20% of the total head count).
SAVINGS: $18.9 million
5. Cut non-unionized benefits by 4% (from 25%).
SAVINGS: $7.8 million
Merit pay, wage increases at the rate of inflation and benefits are all part of what keep good City employees working for us. Merit pay and wage increases are standard for non-unionized workers regardless of which sector they work in, while the level of benefits received by non-union workers at the City is common in the public sector. The consequence of instituting such measures could well be that the City’s best employees leave for provincial, federal or private sector jobs. If the best leave then the level of effectiveness and efficiency will surely plummet and we could be in a worse position than we are now. It takes a great deal of talent to run a $7.8 billion operation. This, too, doesn’t appear to have been taken into consideration by Levy.
6. Provincial upload committed by Premier in election.
REVENUE FIX: $38 million
Technically, before the writ was dropped, the McGuinty government made this official policy so it’s not just a commitment, it’s happening. And, although I’m not especially optimistic, there’s a chance we may get more money from Queen’s Park once the Provincial-Municipal Review reports out in the later part of Q1 2008.
7. Raise property taxes 6% to spread the pain (3% more than expected).
REVENUE FIX: $33 million
This is a shocking, though welcome, admission by Levy. For the longest time she has droned on and on about how awful it is for the City to build in property tax increases that are above the CPI rate of inflation to the budget. Well, folks, even with some dim suggestions for savings, Levy hasn’t just built in a tax increase to her budget, she’s built in the largest tax increase in the history of post-amalgamation Toronto.
8. New assessment on 10,000 condo units coming on stream in 2008.
REVENUE FIX: $20 million
Levy should know that the revenue from new condo units in 2008 is already figured into the projected budget gap so scratch this off her list of savings.
9. Cancel $54-million capital purchase of garbage carts and bins and use bag tags (at 15 cents each) instead. Savings would be on debt financed at 5%.
SAVINGS: $2.7 million
I’m not sure how $2.7 million in a $7.8 billion budget constitutes a “big-ticket item†but I’ll bite. When the cart program was proposed to Council it was done so after a great deal of research into how other cities have implemented user-pay garbage systems. Simply put: for a city the size of Toronto, bag tags would result in a great deal of illegal dumping (costly to prevent and enforce related laws) and would not have the same level of impact on reducing the amount of garbage entering the waste stream (reduction saves money). Further, with the user-pay system, the program will be paid for within itself so I’m not even convinced that the $2.7 million number is even a pressure on the 2008 budget.
TOTAL BIG-TICKET ITEMS: $419.4 million
If I total up all the items put forward by Sue-Ann Levy that are, in my estimation, reasonable cuts, I come to a grand total of $0. Levy’s proposed revenues come to $71 million.
THE CHICKEN FEED CATEGORY
1. Reduce councillor office budgets by $23,100 to $30,000.
SAVINGS: $1 million
This suggestion is off the wall. Each councillor has approximately 55,0000 constituents. At $53,100, their office budget is less than $1 per person they serve. This money enables them to respond to constituent requests for service, receive legislative support, communicate with constituents and support the activities of an executive officer for a $7.8 billion organization. Sure some councillors don’t spend their money in a manner that respects taxpayers and/or don’t provide the level of service to their constituents and/or the city that should be expected of a councillor but if you look at the ones who are widely recognized as hardworking councillors that contribute a great deal to their community and City Hall, they’re the ones who spend the most.
2. Roll back wage hikes given to councillors and the mayor in 2007 (over standard 1.9% COLA increase). SAVINGS: $284,740
The people of Toronto had their say on this issue after a very transparent process (notwithstanding Moscoe’s first attempt.) They decided that members of Toronto City Council should be paid at the 75th percentile of the municipal politician pay scale.
3. Cut council’s free food and coffee.
SAVINGS: $80,000
If councillors were constantly running down to the cafeteria or the second floor to get a coffee it wouldn’t be particularly helpful or efficient. Meals are only ordered when Council is working through a meal time and that’s a reasonable expense. If you cancel it, councillors will still claim the expense but it will probably be for more than what it costs now and the Clerk’s Office will have to add capacity to administer the additional expense claims.
4. Cut council conference and travel budget.
SAVINGS: $50,000
Conferences and travel are essential. If our elected officials are confined to a bubble, new ideas will be a thing of the past. I’d also venture a guess that the ideas picked up at conferences produce more efficiency than $50,000 per year (it’s such a small number, even a slight change to accounting practices could achieve that.)
5. Cut council grants budget by 10%.
SAVINGS: $4.1 million
If people were outraged over losing community centres, they’ll be even more outraged when the organizations that provide the programming to their children or elderly parents stop receiving the funding they need. Further, the City estimates that for every dollar it provides in grants, organizations are able to get another three dollars from other levels of government and/or the private/not-for-profit sector.
6. Cut Tenant Defence fund grants by 10%.
SAVINGS: $6,700
This is just mean. Tenants are generally the poorest of the poor in Toronto, many are one pay cheque away from losing the roof over their head. To remove the subsidy that allows them to fight negligent landlords is cruel. But it could also have a big impact on communities that have higher rates of tenants. If tenants can’t take on slumlords then the problems with a building won’t surface until public health shuts it down.
7. Cut culture and special events budgets by 10%.
SAVINGS: $2.1 million
Most people understand the value of culture for the sake of culture. However, for those less enlightened, I’ll put it in economic terms. With the amount of money that events like Nuit Blanche, Pride and Caribana bring into Toronto’s economy, we can’t afford to not fund culture.
8. Cut plant watering service in city buildings.
SAVINGS: $77,000
This is part of running a large operation. Everything has a cost. Deal with it.
9. Eliminate Toronto Water radio ad campaign Re: Summer lawn watering.
SAVINGS: $210,000
I’ve never heard the ads and don’t know if there is research to demonstrate that they have an effect that justifies $210,000. For a change, I’ll give Levy the benefit of the doubt on this one.
10. Eliminate door-to-door waste and water newsletters.
SAVINGS: $665,000
It probably is time to put these things online and ditch door-to-door so, sure, let’s cut it. But even moving it online will take a staff to produce the content so you couldn’t count on saving the full $665,000.
11. Cancel lobbyist registry.
SAVINGS: $400,000
This suggestion is offensive. If anything, the lobbyist registry needs to be brought up to the $1 million budget originally requested by the Lobbyist Registrar so she can bring some much needed transparency to lobbying at City Hall. If Levy wanted to suggest something intelligent here, she might have considered combining the Integrity Commissioner and the Lobbyist Registrar and realize some savings there. In fact, I wouldn’t even oppose axing the Integrity Commissioner entirely because, so far, all he’s done is provide weak rulings (as a result of weak rules) on important topics like sandbox etiquette.
The lobbyist registry will also go a long way toward protecting taxpayers from another MFP scandal. Even if that level of impropriety were to only happen once every 60 years, a $1 million annual budget would be entirely justified.
12. Cut Clean and Beautiful City program (including secretariat).
SAVINGS: $1.6 million
I’m not quite sure what Levy is including in here but Clean & Beautiful is essentially all of the services (street cleaning, litter picking, flower planting, etc.) that work toward a clean and beautiful city coming together to realize efficiencies with a little more money added for beautification. The secretariat ensures that the work is being done in a coordinated manner so there isn’t unnecessary overlap. But, that said, I wouldn’t shed a tear if the flowers in the median on University Avenue were cut.
13. Recoup half the cost ($54.50) of the 18,860 free monthly Metropasses given to TTC employees, retirees, councillors and assorted others.
REVENUE FIX: $11 million
I’m not sure how this provision is positioned in the TTC collective agreement so that will probably tell us whether or not this can even be considered. That said, the $11 million figure can’t be accurate. The assumption that all employees, retirees and councillors would continue to hold a Metropass isn’t a reasonable one. As well, generally speaking, I’m not opposed to giving members of council access to City services that the public pays user fees for because I think it’s part of a decision-maker’s job to ensure those services are working properly and to observe a normal experience.
TOTAL CHICKEN FEED: $21.5 million
From my perspective, only $950,000 in the chickenfeed section is reasonable (includes cutting the radio ad, door-to-door newsletters and flower planting on boulevards.)
GRAND TOTAL: $440.9 million
Even if the $440.9 million could be saved, Levy doesn’t offer up any solution to get us the last $135 million. But that’s irrelevant because my grand total works out to $71.95 million.
Yawn.
34 comments
Reduce city’s average fair wage rate of $42.50/hr. on $1 billion of contracted-out services by $5 to bring it more in line with province and other GTA cities.
Gee, why doesn’t Toronto pay the provincial average? Maybe because Toronto is a damn expensive city? Think about it: if someone can make the provincial average they would prefer to do so outside Toronto, where their money will go farther. You can’t just cut the wage offered without also losing a large labour pool.
This may be a far too naive way of thinking about our complex budget problem, but I’ll take a shot at it anyway. Why are we citizens spending so much time beating ourselves up over this budget shortfall. By that I mean:
1) We weren’t the primary cause of this problem so councillors and the citizenry should stop using it as an opportunity to beat up on the Mayor and each other.
2) Everyone should instead focus on solutions that don’t involve gutting the city to make up the shortfall. If the Mayor’s done a better job selling his taxes this time round we might get a solution without drastic cutting.
You could argue that this kind of negative crap (the original column) is the kind of low-rent nonsense that sells newspapers, but we know that The Sun’s having a real hard time selling anything so one can’t help but wonder what they’re trying to achieve.
I don’t think it’s too naive to ask a question of Ms. Levy like: “Do you want a livable city or an on budget city.” With her proposals she certainly couldn’t have both.
I rather distrust her column since she didn’t prepare those numbers singlehandedly. She must have had them supplied from some source. She doesn’t name it, so her column and its content are suspect.
The people at the meeting are heavily on the right side and the presence of Global TV makes it even more suspect. Global likes to play the role of angry taxpayer and that attitude tempers their reportage and choices for news line-up.
The 10-minute advance notice was meant to destabilize and displays the lack of courtesy to those of the opposite leaning.
I dont follow the logic on garbage bag tags. There already is a problem with dumping before there has been a change to the system. I dont see how tags make people more likely to dump stuff than using bins does.
I am intrigued by that “average” fair wage value of over $40/hour. How much of that is the overhead collected by the contracting companies to manage these services? What would they cost if the work were done in house?
David, although the Toronto Party represents a very marginal view of local government, to be fair, the reason I had 10 minutes to prepare is that I was filling in for a last minute cancellation.
Notwithstanding their political bent, the Toronto Party put on a solid event and Mark McCallister from Global did a commendable job moderating throughout the afternoon.
I don’t think it’s too naive to ask a question of Ms. Levy like: “Do you want a livable city or a budget city.â€Â
Amen.
Although, I would guess that most of the right-wing gas-bags who are on talk radio and elsewhere, telling Torontonians how to run their city “better” and cheaper and who rail against taxes, don’t actually live in Toronto proper, but in the GTA. They are concern trolls. They profess to want to help Toronto, but they actually hate Toronto.
The ones who really drive me insane are the idiots like Denzil Minnan-Wong (who drives me into a daily fury) who constantly criticize everything about Toronto. He obviously hates Toronto (and everything it represents), and he lives here (I think).
I am intrigued by that “average†fair wage value of over $40/hour. How much of that is the overhead collected by the contracting companies to manage these services? What would they cost if the work were done in house?
I think the point of a “fair wage” is that the contractor is required to pay at or above that wage. So if the fair wage is $42.50 it all goes to the employee. However, that isn’t to say that the city might not save money by doing the work in-house, since on top of the fair wage, the contractor builds in a profit to whatever work is tendered.
They’re mostly useless ideas, but I think the fair wage policy deserves a closer look. In general, really — I’ve never seen a detailed backgrounder on it, anywhere. I don’t think it’s fair to dismiss a proposal to change it as “very ideological” without looking into the original policy too.
From what I can figure out from the Fair Wage Office web site, it’s like a minimum wage for people working on city contracts. I.e. the provincial minimum wage is $8, but if you’re helping install subway tiles, the fair wage policy makes it $26.99. The company you work for can pay you more, but they can’t pay you less.
They also have to add 10% vacation pay (equivalent to five weeks a year, fairly generous for junior workers), and if they’re not providing fringe benefits like dental and extended medical insurance, they have to top up the salary by 15% – 30%.
The $42.58 she quotes must include those two extras, because most of the hourly wages are in the $30 range. I’d love to know what workers on non-city contracts (e.g. building condos) make for similar work.
The fair wage levels vary greatly by job type — I’d say that casts doubt on the claim it’s all about keeping workers out of poverty and independent of social services. In fact, the Fair Wage Office says the goal of the policy is to pay union rates to outsourced workers. That’s a generous definition of “fair” with an interesting side-effect: it’s hard for outsourcing to save money when its main costs are fixed at the same levels as the city. I’m no fan of outsourcing, but it seems a bit like the deck has been stacked against it — perhaps there’s a dose of ideology in the original policy too.
That said, her $123 million in savings requires a few assumptions. One, that the $1 billion is outsourced payroll only, and doesn’t include any fixed costs like materials (!) or overhead. Two, that these companies will pass all the savings along to the city. And three, that these companies can suddenly reduce pay by $5/hour without losing workers or facing unionization, strikes, etc. With construction workers in high demand, maybe the whole thing’s a red herring because you can’t actually fill the jobs more cheaply.
Hi Adam:
On behalf of The Toronto Party, I want to once again thank you for filling in for David Nickle (Toronto Community News, who came down with an illness late on the evening prior to the event, and which got worse on the day of our symposium.
You filled in admirably despite the short notice.
The attendees were very pleased with the symposium and appreciated hearing the different perspectives that the panelist had to offer.
I think that everybody wants a great city. It is just a matter of how do we get there.
I would have just said, ‘sure I’ll debate against someone who didn’t just get the job because she’s somebody’s neice’ and left at that.
Calling Levy an imbecile is an insult to imbeciles everywhere.
She did not seriously present an individual line item worth all of $6,700 [sic] as a component of solving the budget crisis??
There is more error than that in rounding of any single one of the big-ticket items (let aside the matter of whether they are worthwhile/valid and whether they are costed appropriately).
Are you sure that property tax increase wouldn’t bring in $33,000,002.47, Sue-Ann?
I understand that the Mayor has to find solution to the city’s revenue shortfall, but I am not convinced that the implementation of house buying tax is the ideal way to do it.
Now, I suppose, many potential residents of the city begin to hurry fearing that in a couple of weeks’ time they will have to pay big $s for a condo or family house because of the house buying tax. As a Toronto realtor I can only add four simple words (and an exclamation mark): No house buying tax!
Preface: I understand that the real estate market and industry are very important to Toronto’s economy, and their health is crucial to it.
Reaction to above comment: If realtors are concerned that the LTT is going to make home-buying un-affordable, let’s talk about what’s really driving prices up: spec purchases and flipping by realtors, among others. Those are making owning a home in Toronto much more expensive for your average joe than a 0.5%-2% tax possibly could.
As a Toronto home buyer I can only add five simple words (and a question mark): greatly increase property taxes, then?
The ad campaign against the land transfer tax is not quite the most dishonest anti-tax campaign I’ve ever seen, but that’s only because I once made the mistake of reading a CTF press release. It’s fearmongering, and either it’s dishonest or we are totally screwed. Because if there really are thousands of potential home buyers out there who are going to have to live in rented cardboard boxes forevermore because their costs will be hiked from $300,000 to $304,200!!!!OMG!!WTF!!, then maybe the Toronto economy has deeper structural issues than realtors who have an insufficient number of platinum-plated egg timers.
(Seriously. That’s their complaint. That the average home costs $300,000, and the new land transfer tax on it would be an extra $4,200, and they just don’t bother to worry your pretty little head with fourth-grade arithmetic.)
Adam writes:
“I would rather pay a decent wage to workers, allowing them to take care of themselves and their families (if they have one) so that they aren’t dependant on more costly social services. That being said, there isn’t anything economically incorrect about this decision, it just isn’t one that I think is in line with the values of the city (once you get past the knee-jerk reaction of “everyone should be paid less but me.â€Â)”
And there is the crux of it. It is not a question of increasing taxes or service cuts – it is a choice between continuing to pay above-market rates for labor and and increasing taxes on citizens in an already-expensive city.
Note that Levy’s suggestions don’t even include outsourcing the operations of the TTC or garbage pickup!
STFU, Elli Davis.
Now, I suppose, many potential residents of the city begin to hurry fearing that in a couple of weeks’ time they will have to pay big $s for a condo or family house because of the house buying tax.
You are a moron if this is the advice you are giving to your clients. And, of course, this is one of the great myths propagated by the anti-tax forces.
The land transfer tax is not going to cost a home buyer more money, but the home seller.
Think about it: someone looking to buy a new home works out their finances and realizes that with their saved downpayment and the mortgage they can carry they can pay $500K for a house. Adding 1% to the land transfer tax means nothing to them: they can still pay only $500K for a house – it doesn’t *add* 1% to what they can afford.
This means one of two things:
1) Look for 1% less house (ie. $500K – 1%).
2) The seller is going to have to eat the 1% additional tax to make the sale.
The reality is, of course, that the additional land transfer tax is going to come out of the capital gain on the house. It won’t make buying a house more expensive, it will make selling a house *slightly* less profitable. In an age where we need the money, isn’t this the fairest outcome?
You should take on the full-time position of calling out Levy on all her articles. You’d be a hero to many.
Good job!
Note the update to my response to Levy’s fair wage rate cut.
Adam,
one of the failing points of your argument is the lack of consideration to the source of income. You said………
Proposing a 12% reduction in the fair wage rate is a very ideological decision. Such a cut is part of the “race to the bottom†mentality and it isn’t one I’m interested in. I would rather pay a decent wage to workers, allowing them to take care of themselves and their families (if they have one) so that they aren’t dependant on more costly social services.
If it was so simple we might as well just make everyone a civil servant and pay high wages. By ignoring that the wages are paid by taxpayers and that taxes have a negative affect on those paying them is naive.
NB. That I am removing this from the the issue of comparing methods of taxation too taxation itself.
The irony is that you criticize the Sun for being inflexibly and reliably right wing, and pandering to the worst instincts of its ideological base, when it essentially the mirror image of this site. Taxpayers/voters are equally disservice by a view that no cost cutting is possible (or the peanuts you sanctioned here from a long list) as from one that no tax increases are acceptable. Which leaves you as predictable and irrelevant to neutral voter opinion as your ideological opposite. And I suspect, aside from the dogmatic commentators here, that even the converted are tired of being preached at.
As an example:
“Proposing a 12% reduction in the fair wage rate is a very ideological decision.” As is deciding to fund higher than market wages for a smaller number of city employees from the market wages of a larger number of taxpayers. It is a direct redistribution of income from non-city workers to city-workers. It may be, as the essence of your comments indicate, defensible as “social justice”, but given the redistribution involved, it may very well not be.
Also, McKing, before you get back to your moron calling habit, get thee to economics 101 (as a substitute, read this wiki http://en.wikipedia.org/wiki/Tax_incidence )
Governments are run differently than businesses, thus the reason why we have fair wage policies. If the private sector paid the lower end of the job pool closer to living wages there wouldn’t be as much of a need for fair wage policies. But when you see Etobicoke’s private garbage collection pays these people $12 an hour while the city pays them $25 an hour, you realize that thse kind of policies are for the best. You get people without a lot of skills a reasonable income and they begin to spend it within the system. You pay them low, they don’t spend money.
The notion that if you pay people fair wages somehow hurst the city is ridiculous. That money gets spent on our economy instead of having those folks (maybe) depend on some of the social services.
So it is ideological, but I chose theone that does the least damage to the social fabric. if you want more poor people and the bottom of the chain, than try to fuck workers out of a good wage. But you won’t be able to do that because union contracts are tight as a North Korean border.
X, I’m not saying there aren’t places to save moderately significant amounts of money — every year the City finds $70-80 million in savings — but what Levy and every right-wing critic has provided as an alternative doesn’t even pass the smell test.
If I were to start looking for savings, I’d begin with the 20% of the audit recommendations that are still outstanding, especially those that address issues like the systemic mismanagement of external contracts.
Per Today’s National Post, the federal governement’s plan to harmonize sales taxes (as was done a few years back in the Atlantic) will mean house sales in Ontario become subject to the 8% PST.
“But when you see Etobicoke’s private garbage collection pays these people $12 an hour while the city pays them $25 an hour, you realize that thse kind of policies are for the best.”
Having some trouble here. The Etobicoke collectors are unionized. City collectors, also unionized, make 2x as much (as do the summer students). You are proposing that the tax payers should pay 2x market for services. WOW. How can that possibly make any sense. It is exactly the same as the fair wage issue. We are being asked to pay over market. Our residential taxes are below market and our outlays are above market. And people say nothing can be done to improve the system except to tax new home buyers.
McKing, before you get back to your moron calling habit, get thee to economics 101 (as a substitute, read this wiki
That’s a neat trick: imply that I don’t know what I’m talking about (or, that you do), without actually saying it…and hope nobody actually takes you up on your suggestion.
Because if *you* had read the wiki reference, you’d see that it supports my point:
“Because the consumer is elastic and the producer is inelastic, the price doesn’t change much. The producer is unable to pass the tax onto the consumer and the tax incidence falls on the producer. In this example, the tax is collected from the producer and the producer bears the tax burden.” You might also want to check out the wiki entry on Flypaper Theory.
The anti-tax forces have portrayed the increase in the land transfer tax as one that will be borne by home buyers. The simple fact is (ie. Economics 101) this is a tax that will be borne by the home seller. A home that sells for $500K (inclusive of all taxes) today will continue to sell for $500K (inclusive of all taxes) after the tax increase, meaning a smaller profit for the seller.
This, in turn, explains why the real estate agents are against it: smaller capital gains = smaller commissions.
McKing nails it on the head! That’s the lies that TREB have been spreading.
LTT is not the best solution, but there are much worse ones inc. an 18% tax hike across the board.
You’ve excerpted a paragraph you don’t understand, and one that does not at all resemble the market for real estate at all. Nice work. Sort of diminishes your point though.
Seller has to remit the tax so they include it in the purchase price – that is, pass the burden of the tax on to the purchaser. They can do this in a competitive market where there are a large number of buyers. In other words, the purchase price of the house reflects the LTT. The burden of a tax, as opposed to its incidence, reflects the relative bargaining power of buyer and seller. This is a sellers’ market.
” A home that sells for $500K (inclusive of all taxes) today will continue to sell for $500K (inclusive of all taxes) after the tax increase, meaning a smaller profit for the seller.” is laughably inept analysis. There is scarcely a market around (in any good or service) where this is true.
McKingford,
Tax incidence is not black and white with an ‘either or’ outcome. Your theory only works based on the assumption that there is no elasticity among the buyers, which implies either very strict budgeting or buyers always maximizing their purchases. For commercial properties, which derive their value from a less emotional investment return perspective, I predict that they will be fully capitalized in the selling price. IOW, the seller will pay. For residential, the very fact that this might force purchasers to investigate the entire tax burden (both LTT and property), might make them aware that Toronto’s property taxes are already very low compared to the surrounding regions. Most purchasers are unaware of this. Upon realising that they would pay at least $600 more per year to live in Vaughan, they would certainly be willing to digest a portion of the tax.
I apologise for misleading people this morning when I implied that the real estate lobby was crying because the cost of a home would go from $300,000 to $304,200, a 1.4% increase, which will dooooom us aaaaaalllll.
In fact, the ads they are running say that the cost of a home will go from $380,000 to $384,200, a 1.1% increase. See above re: doooooom.
My editor (who is me) regrets the error.
It’s interesting reading this thread; I had heard about the fair wage policy but had no idea that the rate was set at an absurd level of $42.50 an hour. I know this is meant to include benefits, or payments in lieu but still at a 37.5 hour work week, this is equal to almost $85K a year, which would put these workers into nearly the top 5% of salary earners in the country (starting at $89K). One assumes overtime is possible, and paid at time and a half, so it is likely that this threshold could be easily breached. The comment about social services is equally absurd – earning less than $85K a year makes you dependent on food banks? If so this city has bigger problems than its budget… These wages are also drastically out of line with wages in the provincial or federal governments (who do not by the way pay more based on where you live) – that should be the benchmark (if ones buys the argument that the overall labour market should not). I think everyone should earn a fair wage, based on their skills and seniority but even in government this has to bear some resemblance to reality. No matter what some say, any government decreeing wage rates at two or three (or four?)times market rates is giving a raw deal to its taxpayers. There is no rational policy justification for this beyond “because we can” (as arbitors of a rigid labour monopoly – and an obviously lopsided power balance of unions). From experience I can say that it is the optics of these types of policies that precludes senior governments from increasing transfers to Toronto (in other words Torontonians are subsidizing city workers in many more ways than one). Finally, the notion, stated above, that mandating high wages obviates the need for social services is empirically not true because it simply prices many workers out of the economy altogether. Look at France and Germany, where high unemployment exists amid relative prosperity, creating a permanent underclass of the unemployable who are totally dependent on state handouts.
Toronto employs too many people, at wages that are too high; that is a fact. However, these vested interests so so heavily entrenched that it would take a decade of acrimony before any savings were seen so I guess we’ll just have to live ever more taxes.
Inanities like the “fair wage policy” – and the “Fair Wage Office” that inevitably goes with it – are what make tax hikes such a tough sell. With good reason.
The fair wage policy applies to contracted-out work, not in-house employees. This leads to two conclusions that got lost so far:
1. $42.50 an hour is in fact sort of low, because nobody’s gonna get a year’s worth of 40-hour work weeks every year. (And if they are, it probably makes sense for the city to bring that work in-house.) The hourly rate for consultants and contractors is high specifically because they’re hired and fired at will, and they’re not there for a full year, but they’re still going to need to eat even on the days they’re not on the clock. If you look at pretty much any professional field, if you make x dollars an hour as a salaried employee, you’ll make around 2x or more as a contractor billing by the hour.
2. Yes, this is higher than the average in Oshawa, and the average in the rest of the province. That’s because the city’s more expensive to live in. If I were to go to, say, Elli Davis, with a briefcase containing $300,000 and demand to purchase a brand-new three-bedroom, three-bath detached house with it just because that’s what $300,000 buys in Oshawa[*], I’d be laughed out of the room. But when it comes to wage negotiations, suddenly I’m supposed to sit down, shut up, and smile at getting the same offer in reverse? If Sue-Ann Levy wants to pay Oshawa wages, she can live there instead. All of us would be much happier.
[*] Again, I find I am fibbing. $300,000 in fact is more than an Oshawa 3br/3ba’s price, which right now seems to float in the $180k-$250k range. I regret the error.