New Tax Sources for Canada’s Largest Cities: What Are the Options?

This paper is part of the IMFG Perspectives Papers series. For a full list of papers, please visit http://bit.ly/2ylAa2D.Canadian cities face many challenges – changing demographics, increased income inequality, increasingly complex expenditure demands, deteriorating infrastructure, and so on. These challenges have increased over the last few decades, yet the revenues available to cities to meet those challenges have remained largely the same – property taxes, user fees, and transfers from federal and provincial governments. For a long time, Canadian cities have been calling for access to more taxes, comparable with what large U.S. and European cities have. This issue of IMFG Perspectives, based upon a full-length report in the IMFG Papers series, argues that additional taxes are entirely appropriate for major cities and estimates the potential revenue that some of these taxes could generate in eight Canadian cities – Vancouver, Calgary, Edmonton, Winnipeg, Toronto, Ottawa, Montréal, and Halifax. First, however, the paper sets out a framework for analysing appropriate tax revenues for large cities and evaluates the advantages and disadvantages of each. The findings from this research are as follows: Decisions on public spending need to be linked with revenue decisions. The property tax is a good tax for local government. User fees bring in necessary revenues and play an important role in altering economic decisions. Cities would benefit from a mix of taxes. Personal income taxes have the potential to generate considerable revenue for large cities. Cities should set their own tax rates.Institute on Municipal Finance and Governanc