top of page

Toronto to explore municipal sales tax as part of plan to tackle 'unprecedented financial crisis'

Toronto, Canada's largest city, is considering implementing a municipal sales tax as a critical component of its strategy to address what officials are calling an "unprecedented financial crisis." The city is grappling with a substantial budget pressure of $46.5 billion over the next decade, primarily exacerbated by the ongoing effects of the COVID-19 pandemic.

A recent staff report highlights the situation's urgency, underlining the need for alternative revenue sources to maintain essential services and prevent drastic service reductions or project cancellations. The proposed municipal sales tax, if implemented, is anticipated to generate between $800 million to $1 billion annually. This tax forms a crucial part of a multifaceted approach to tackling the financial crisis.

The city's leaders are seeking permission from the provincial government to enact the municipal sales tax, as it would require legislative changes. The city is also exploring other revenue-generating measures, including higher land-transfer tax rates for high-value properties, an elevated vacant homes tax, the introduction of a commercial parking levy, and the sale of surplus real estate.

Former mayor John Tory initially initiated efforts to identify new revenue sources due to projected budget shortfalls of $1.5 billion attributed to the pandemic's economic impact. Current Mayor Olivia Chow has expedited the review of the staff report following her victory in a recent by-election, with the executive committee set to assess the recommendations on August 24th.

The financial challenges facing Toronto are not unique. Canadian cities as a whole have been struggling with reduced revenue due to the economic ramifications of the pandemic. Property tax deferrals, reduced transit ridership, and decreased parking ticket issuances have contributed to declining revenue. This has occurred at a time when demands for services such as long-term care have increased, placing a strain on municipal budgets.

The Federation of Canadian Municipalities' president, Bill Karsten, has referred to the pandemic's financial impact on municipalities as "unprecedented." While some major cities like Toronto possess substantial reserves, others are facing the risk of rapidly depleting available funds. Toronto, for instance, estimated a weekly financial pressure of C$65 million, equivalent to around 25% of its usual income.

In light of these challenges, Toronto's exploration of a municipal sales tax represents a pivotal step toward ensuring the city's financial sustainability. The recommendations put forth in the staff report are a call to action for provincial and federal governments to cooperate in addressing the financial strains faced by municipalities. The effectiveness of these measures and the willingness of higher levels of government to support local jurisdictions will play a crucial role in determining the future stability of Toronto and other Canadian cities.