With hot condo markets and zany-low interest rates, a lot of Canadians, for better or for worse, have tied their financial futures to the real estate market.
Like, for instance, Toronto’s municipal government.
Last week, the city released its operating budget variance report for the first six months of 2015. Like past years, it’s projecting a surplus for the year — of about $65 million.
But also like past years, the surplus is driven almost entirely by Toronto’s municipal land transfer tax.
Or, in other words, real estate.
A bit of background: Toronto is the only municipality in Ontario to levy a land transfer tax. If you buy a house or condo in this city, you pay the tax. On a $500,000 property, the cost works out to $5,725, according to the Toronto Real Estate Board’s calculator.
In 2009 — the year after the tax was introduced — total land transfer revenues were projected at $160 million. Since then, the yearly haul has tripled. The new variance report suggests the city will take in $487 million this year.
In next year’s budget, it’s a safe assumption the land transfer tax will account for half a billion dollars — about five per cent of all city revenue.
If I sound negative, it’s not because I don’t support the existence of Toronto’s land transfer tax. I do. I’ve defended it often. But the city’s increasing reliance on the tax is making me nervous.
When the tax was introduced alongside the vehicle registration tax, the city had a strategy to diversify its revenue streams. Instead of paying for most programs with property taxes, the idea was to add new sources of revenue. There was even talk of adding a city sales tax.
But it wasn’t long before both the vehicle tax and the diversification strategy were tossed aside. What remained was an ad-hoc strategy in which Toronto’s very low property taxes are subsidized by ever-increasing land transfer tax revenues.
This is especially concerning because the land transfer tax is a tax on transactions. It doesn’t just require that home prices stay high, it also requires that homes are being bought and sold at rapid rates.
It seems reasonable to wonder what will happen if and when things slow down.
And though no one wants to talk about it, it’s even worth considering the Voldemort scenario — the one no one wants to name.
What if things crash? What happens if Toronto’s $500 million budget windfall suddenly becomes a $500 million budget hole? What happens if, suddenly, Toronto’s transit, libraries and social services can’t be funded by real estate cash?
Right now, Toronto’s government, like most who have invested big in real estate, is betting a crash or slowdown won’t happen.
But that’s a gamble that won’t pay off forever.
Matt Elliott lives and writes in Toronto. Follow him on Twitter @GraphicMatt
This post was originally published at http://www.metronews.ca/views/toronto/urban-compass-matt-elliott/2015/08/30/toronto-gambling-its-budgets-on-land-transfer-tax.html on 2015-08-31T00:00:00.000Z