Toronto’s proposed sales tax is a cautionary tale for all Canadians

As the financial challenges mount for the City of Toronto, a new city staff report has proposed a municipal sales tax, tacked on to the existing harmonized sales tax (HST) system, to help address budget shortfalls ranging between $1.5 billion and $1.7 billion over the next two years.

According to the report, the new sales tax would generate between $800 million and $1 billion.

Clearly, the search for new forms of revenue in Toronto has commenced. But the city is conveniently ignoring the other side of the ledger. There’s been little or no discussion about how to restrain or even reduce spending to help reduce the budget shortfalls, which is key given that the City of Toronto has the highest level of per-person spending in the GTHA region. Simply put, responsible spending has fallen out of fashion.

Instead, many governments across Canada, including city hall in Toronto, all propose the same solution to every problem: spend more. When the increased spending still hasn’t addressed the underlying problem years later, governments come up with a new solution: spend more than they did last time.

We’ve seen this happen time and time again in Canada. Perhaps the best example of this is in health care. In response to long wait times, provinces increase spending and hope for the best. Doubling down on failed policies is much easier than admitting mistakes and changing course.

Back in Toronto, one of the contributing factors to the looming budget shortfall is the city’s plan to increase spending on affordable housing. But head-scratching zoning restrictions and long permit wait times have contributed greatly to the housing shortage. Increasing government spending will not reduce the cost of houses and rent. And raising taxes on Torontonians won’t help either.

But again, budget shortfalls are not unique to Toronto. Several Canadian governments face budget shortfalls of their own making. A surge in revenue from inflation and a stronger-than-anticipated economic rebound was not enough to stop seven provinces and the federal government from projecting deficits this year.

The federal government has added new programs including national dental care and $10-a-day-daycare, financed entirely through borrowing. According to the last pre-COVID budget, the deficit was supposed to dip below $10 billion in 2023/24. Instead, the federal government’s increased spending has produced a projected deficit more than four times as big.

And irresponsible spending and borrowing, like what we’ve seen in Toronto, leads to tax increases either today or in the future. Instead of receiving much-needed tax relief, Canadian families now face the prospect of tax increases. The needle appears to be moving in the wrong direction.

Nearly three-quarters (74 per cent) of Canadians believe the average family currently pays too much tax. Unfortunately, they’re more likely to see tax increases than reductions in the near future.

Toronto’s proposed municipal sales tax is a cautionary tale for Canadians. When governments spend beyond their means, taxpayers are always left footing the bill.