Fiscal reform is needed for municipalities to help spur Canada’s economic growth: Raitt

Canada must reform the fiscal framework for municipalities in order to unlock their full potential to become economic drivers for the country, says Coalition for a Better Future co-chair Lisa Raitt.

Speaking on an expert panel at the Canadian Federation of Municipalities (FCM) 2023 annual conference held recently in Toronto, Raitt said it’s time to rethink the traditional fiscal structure – and give municipalities more power over how they collect revenue.

“Municipalities have the ability to be the agents of growth and economic prosperity, but to do that they’ve got to be more than just creatures of the province,” she said.

The panel discussion, called A New Fiscal Framework for Municipalities, was moderated by FCM CEO Carole Saab. Other panellists were Enid Slack, director of the Institute on Municipal Finance and Governance, School of Cities at the University of Toronto; Dr. Andrew Boozary, a physician and founding executive director of the Gattuso Centre for Social Medicine at the University Health Network and Maxime Pedneaud-Jobin, chair of the City of Montréal’s External Advisory Committee on Fiscal Policy and the former mayor of the City of Gatineau. 

Asked by Saab what she sees as the most compelling case for pressing for structural reforms, Raitt said it’s pushing back against the notion that municipalities are somehow considered a “lesser partner” in the elected sphere.

It doesn’t make sense that municipalities are trusted to provide fire and police services and potable water, but not to determine their own sources of income, she said.

“So the life and death stuff? Sure municipalities, you got it, go with it. But money? Oh my gosh, no we can't trust municipalities… what would they do?” Raitt said. “I think you have to define the problem and make sure that you punch back twice as hard.”

Spurring Canada’s long-term growth is a “heavy lift,” especially at a time when we are “hurtling to net zero,” she said. Without implementing the right solutions, the challenges facing municipalities will have a negative impact on the country’s larger economic growth.

Raitt said it’s imperative that Canada continues to attract talent and skills from around the world, and that means thinking hard about making sure newcomers can find a home near work, as well as access to health care and broadband internet.

Offering an overview of how municipalities are financed, Enid Slack said there are very limited sources of revenue for municipalities. While most “look” financially healthy because they have balanced budgets, low rates of tax arrears and tax increases are kept at or below the rate of inflation, she said that often hides the true cost of deteriorating services and crumbling infrastructure.

The pandemic added to those pressures.

Slack said the short-term challenges of rising interest rates and high inflation will eventually subside, but the transition to clean energy and green economies will add to the municipal financial burden. The fiscal system was set up in the mid-1800s and hasn’t evolved, and she said the model of relying on property taxes is not sustainable for the future.

“People are working from home; the commercial tax base is shrinking and that's a serious problem. It's also not the tax to pay for social services. The property tax was designed to pay for things related to property, but when it comes to social services we need to look elsewhere.”

Dr. Andrew Boozary called on elected officials to adopt workable solutions that aren’t just “politically expedient.”

“There are massive moral implications…in a city like Toronto, we spend millions of dollars to clear people from parks when we know the solution is supportive housing. We know that there are very real ramifications in saying we need a police-first response, not a housing-first or a mental health response to addressing issues on public transportation.” 

Pedneaud-Jobin has been an advocate for transitioning from the property tax-based system, and plans to make recommendations to the City of Montreal this fall.

Raitt outlined the objectives of the Coalition for a Better Future's scorecard, which tracks Canada's progress on 21 key economic, social and environmental indicators. 

"I would say key performance indicators are absolutely dependent upon the fiscal health of municipalities," she said, emphasizing the need to understand and address the differences between urban and rural communities and to support both for the country’s long-term prosperity.