McGuinty discusses tax policies in Kingston speech, fails to address “heads and beds” tax reform.
On Thursday, February 3 I had the opportunity to attend the KEDCO- sponsored lunch to hear Premier Dalton McGuinty speak about jobs and growth. His message was that despite very difficult circumstances, his government has made solid progress in building a stronger province that is better able to compete on the world stage, and therefore all Ontarians will be better for it. In presenting his argument, he spoke to several themes, including education, health care, energy, infrastructure and taxes. His discussion of tax reform is of interest here.
The Premier made a strong case for the harmonized sales tax. He noted that the United States is conspicuously the only major nation that does not have a value added tax. Factors in the past that have helped the Ontario economy no longer apply, such as strong economies in the United States and Europe, which provided our most important markets, and a weak dollar which artificially lowered the price of our exports. Tax reform was an essential to providing stability for manufacturing, and in assisting our exports. He went on to demonstrate how some sectors of our economy have had their provincial taxes reduced by more than 50% as a result of his reforms, thus in turn helping their exports and sales. Speaking specifically to the harmonized sales tax, he said that 1% raises about $1 billion. Cutting the HST would have a very real impact on education and health care which, combined receive approximately 65% of the money so raised.
It is in this context that I find his reluctance to address the “heads and beds” payments in lieu of taxes issue to be most disconcerting. The simple fact is that the payment in lieu of taxes for post secondary education institutions and for hospitals has remained unchanged since 1987. I can think of nothing else which has remained fixed for that length of time. Yet the municipal services which are provided to those properties have increased in cost. Further, the Harris government changed the municipal property assessment method to market values to provide a built-in escalator for city revenues.
It has been suggested to me that Mr. McGuinty believes reform of “heads and beds” is not necessary because other provincial revenues to the city have increased significantly. The gasoline tax and uploading of services were specifically identified. That argument must be dismissed. Gasoline tax money is remitted to all municipalities for a specific purpose - to fund transportation improvements; it is not assignable to general revenues. Reversing an inappropriate downloading of services may ease pressure on municipal budgets across the province, but it does not address a basic inequality.
Kingston particularly disadvantaged.
In his luncheon address, Mr. McGuinty was at pains to demonstrate how his government has made the province stronger and better able to compete on world markets. Yet the Ontario municipalities that receive the “heads and beds” payments are not on an equal footing with respect to the other Ontario communities. We believe that Kingston is particularly disadvantaged because of the importance of Queen’s, St Lawrence College and the hospitals in our community. We also estimate that if the payments were made on a property market assessment, we would receive an additional $6 million annually. Certainly some people believe that the rate of Kingston’s property taxes, compared, for example with Toronto, makes Kingston an unattractive place. Yet surely with Queen’s and St. Lawrence it ought to be a very creative community and a major contributor to growing the Ontario economy.
After council adopted my motion of December 21, 2010 it was sent to approximately 150 Ontario cities inviting them to support it. If they each had a shortfall similar to ours, the provincial treasury would need to fund an additional $450 - $900 million to those cities. Remember that 1% on the HST produces $1 billion. The per capita adjustment for inflation ($450 million) at the provincial level is a comparatively small amount. If “heads and beds” payments were made in accordance with property assessment (perhaps $900 million) it is certainly larger. However, the comparison with the HST demonstrates what a significant burden this can be to the communities hosting post secondary education institutions and hospitals. Residents of municipalities having to make up the shortfall must pay considerably more than a 1% sales tax.
As the premier believes that getting both education and health care “right” is essential to making Ontario more competitive in the global economy, surely it is also important that the communities hosting those facilities are not themselves left behind on an uneven playing field of municipal tax rates. Who is better placed to support the expense: taxpayers in an individual community or the province as a whole? Again this year during the budget process, council was told that 1% on our tax bill raises $1.5 million. A property-based assessment for “heads and beds” means that we have an annual shortfall of $6 million - or 4% on your tax bill. As Premier McGuinty pointed out, on a province- wide scale, a much smaller percentage raises significantly more money.
To date, eight communities have adopted resolutions in support of council’s resolution, that I introduced on December 21, 2010. They are: Clarington, Goderich, Hamilton, Huron East, Kapuskasing, Madawaska Valley, Niagara-on-the-Lake, and Thessalon. Others have acknowledged receipt without reporting their action. I will be following up with the communities to discuss how we might best raise the priority of “heads and beds” on the Premier's agenda. If you share my view that this is important, you may wish to contact John Gerretsen, our MPP.
I would welcome any comments and ideas you have about this issue. Please email me directly.
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