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Several years ago, the City of Toronto implemented a municipal land transfer tax. This tax mimicked the provincial land transfer tax which has been payable on all real estate purchases in Ontario for many decades. The municipal tax was designed to remedy a chronic shortfall in the municipality’s revenue.
There arose an immediate argument that the municipal tax, only payable of real estate transactions in Toronto would stifle the real estate market in the city. Those who so argued are clearly mistaken because the Toronto market is doing very well; sales of homes are very good and prices are still rising. If anything is to dampen the real estate market, it will not be this tax but other factors such a rise in the interest rate or a general economic malaise.
Some may argue that the tax is unfair because it imposes a heavy burden on a particular segment of the population (the real estate purchaser) when the burden should be shared among the general population as a whole. The tax should be replaced by a general increase in property taxes which directly impacts all property owners and indirectly impacts all renters through a rent increase. Thus, the burden of raising the extra revenue generated by the municipal land transfer tax would be spread around amongst a great many more taxpayers.
The chances of the municipal land transfer tax being converted to a general increase in the property tax are anywhere from nil to very slim. No one in public office is talking of such a move. The present tax only impacts a minority segment of the population; the real estate purchaser. An increase in the property tax sufficient to replace the 330 million dollars raise by the Municipal Land Transfer Tax will impact a far greater number of people. Such a move does not make political sense.
I would suggest that such a change in the tax system make will not be good social policy. Presently, the municipal land transfer tax affects those in the more prosperous part of society; those who can afford to own property. There are large numbers of people in Toronto who either rent from choice or who rent because they cannot afford to buy. A rise in the property tax will indirectly and adversely affect all of those people. As a matter of equitable social policy, it may be best to spare these people the effects of a significant increase in property taxes.
Finally, the tax can be eliminated by significantly reducing the operations of the city. Invariably, those who will suffer most will be the poor. They are always the ones who suffer when governments downsize. There will also be a negative impact on infrastructure and municipal services. As the recent review of city finances demonstrated, there is not a significant amount to cut without affecting core city programs. Even the city’s budget chief cannot see more than small reductions of the municipal land transfer tax over time.
From all of the above, I conclude that nothing much will change.