When Rob Ford revealed that he intends to move a motion to rename the Toronto island ferry docks in honour of Jack Layton, I’m guessing he wasn’t thinking about the links between gas taxes, new subway cars and the former NDP leader.
So let’s triangulate: when Layton threw his support behind Paul Martin’s Liberal minority government in 2004, he used that clout to gain approval for a new federal gas tax, the proceeds of which would go towards important infrastructure investments, such as the TTC’s spiffy new subway cars.
Cause…. effect…? Anyone?
Ever obtuse, Ford segued quickly from the Layton kumbaya moment to an election-ish stump speech Friday hosted by the Toronto Real Estate Board, in which he re-dedicated himself, in true Don Quixote fashion, to the cause of eradicating the “terrible” land transfer tax, which pumps just over $300 million into city coffers (memo to mayor: that’s the tab for one kilometre of subway) without harming a flea.
Notwithstanding the brokers’ tedious whining (and relentless lobbying), there’s not a shred of evidence to indicate that the LTT has done anything to dampen the real estate market, as TREB warned ever so darkly back in 2008 when David Miller foisted this thing on the city. Everything is trending up, including brokers’ commissions, so it’s hard to know what makes the LTT so dreadful.
There isn’t even a stable political constituency in favour of eliminating the tax. Sure, TREB’s push polls show support, in the same way that Canadian polls still reveal a disturbingly large constituency for the death penalty. But that doesn’t make it good policy. Needless to say, TREB didn’t asks respondents to identify the services they’d do without if they were in charge of jettisoning such a huge chunk of change. (As TREB reported, “77 percent of Torontonians who recently purchased a home in Toronto feel that they received little or no added value in City services for the amount of Land Transfer Tax paid to the City…” — the operative word being “feel.”)
In other words, Ford’s promise is the political equivalent of cutting off your nose to spite your face. And if the plot line seems vaguely familiar, we’ve seen this sort of thing before, when Harper government foolishly sliced two percentage points off the GST, in 2006 and 2008 – a move opposed by respectable economists of every flavour. As economists all know, value-added taxes are an entirely defensible way of collecting revenue without killing jobs or denting productivity.
Various estimates have shown that each point of GST nets $4 to $7 billion in taxes annually (just enough, as luck would have it, to build a subway along Sheppard Avenue). If you do the math, uh, conservatively, Harper’s decision translated into at least $35 billion in cumulative foregone tax revenues between 2006 and now.
That’s one hell of a lot of green, isn’t it?
Does everyone remember reading the fine print on the Tories’ packaging?
Didn’t think so.
With the feds desperately slashing everything but the budgets for F-35s and Vic Toews’ Old Testament criminal justice policies, those dollars certainly would have come in useful today, and also in coming years. Given an aging population and all the associated pressures on public coffers due to rising health and pension costs, there’s little doubt that Harper’s move was short-sighted in the extreme.
And did the economy get a bit of a buzz because of the cuts? None that I can see. Even right-of-centre pundits weren’t enthusiastic.
Which brings me back to Ford and the land transfer tax. Let’s say he convinces voters and bullies a new council into axing the LTT in 2015. That’s akin to the city blowing off $1.5 billion by the end of the next term. If the municipality isn’t bankrupt now (see under: “surplus”), it will be by 2018. And for sure the city won’t be able to maintain assets, deliver services and keep the lid on property taxes.
The mayor, as we know, has only one party trick, and that’s convincing voters that they’ll be better off if their municipal government costs less money. I don’t expect him to bother developing some kind of rational plan for eliminating the LTT; he’ll just dish more of the content-free slogans that marked his 2010 campaign.
For Ford’s prospective opponents, therefore, the LTT could become a ballot question, and so the onus will be on them to convincingly articulate the opportunity costs and the financial risks associated with eliminating such a substantial source of future revenue. What’s more, I would also expect the city’s credible business groups (Board of Trade, CivicAction, etc.) to speak honestly about the LTT in particular and the importance of diversifying the city’s revenues in general. Much policy ink has been spilled on this topic, and all those arguments may be put to the test in 2014.
I’d say there’s some cause for optimism, however. The LTT isn’t like the vehicle registration tax, which no one liked and didn’t bring in a huge sum. Ford’s pledge is nothing less than Toronto’s version of the Tories’ GST cut: ill-advised policy in the service of opportunistic politics. And anyone who doubts it should ask why Stephen Harper’s Canada is going to be wallowing in red ink for years to come.
photo by Miles Storey
5 comments
Layton’s gas tax wasn’t a new tax iirc, just a dedication of a portion of revenue from the existing tax into a pool for mass transit and other city priorities.
Another key difference between the LTT and the Vehicle Registration Tax is that the tax incidence of the LTT almost certainly falls on the *seller* of the property, not the buyer. So purchasers are not likely truly paying the tax anyway.
The Land Transfer Tax is paid by the buyer, not the seller. And if the buyer is a first timer as a home owner, no tax. My son bought his first house for himself, and no tax, because he was a first timer.
W.K.
technically you are right, LTT is paid by buyers. But it probably has the effect of pushing the selling price a bit lower than it would have been without LTT. So I’d say it is probably fair to say sellers and buyers share the burden, even though it is impossible to nail down how the cost is split.
If you are willing $500K to spend on a house and the next highest bidder is willing to pay $495K, then the only result of killing the LTT will be that the seller will keep more of this money.
Here’s why: if killing the LTT effectively reduces the home price from $500K to $490K, the next bidder will offer the $495K they are willing to pay, forcing you back up to your maximum price of $500K. The seller keeps an extra $10K, but the buyer is no better off.
Because the LTT is effectively absorbed by the seller, not the buyer who technically pays the tax, scrapping it might encourage more sellers to put more homes on the market, increasing supply and lowering prices. But I suspect most homeowners are motivated by factors other than the current price.
The exception is real estate investors, who flip properties frequently and thus are far more sensitive to the LTT. But frequent house flipping is not healthy for regular home buyers and encourages housing bubbles. In fact, as an effective tax on speculation, it is possible that the LTT has benefits beyond simply raising government revenues.
Of course, the TREB is strongly motivated to encourage property speculation, but no one should be deluded into believing they serve the interests of home buyers.