City dwellers pay more in taxes than they get back

Big-city dwellers are paying far more in taxes than they receive back in government services, but the skew exists mainly because people in urban areas make more money, concludes a new study of Canada's nine largest cities.

The study by University of Calgary economics professor Ronald Kneebone shows that every provincial government takes more from big-city residents than it gives back. The federal government took more in taxes than it delivered in services in six of the nine cities; Winnipeg, Montreal and Quebec City residents were net gainers.

Taxpayers in Calgary and Toronto fared the worst, according to the paper. Based on averages between 1986 and 2002, Torontonians each paid $1,717 more in taxes every year than they received back in provincial and federal programs and services. For Calgarians, the deficit was $2,253 per capita on average every year. At the other end of the spectrum, Winnipeggers had a per capita surplus of $2,014.

The calculations don't take into account targeted, city-specific programs, nor do they incorporate the federal gas-tax transfer.

"These imbalances reflect the influence of a progressive tax system and the design of government programs that transfer income to the aged and the disadvantaged," Prof. Kneebone writes in a paper published yesterday by the C.D. Howe Institute.

Generally, big-city dwellers get far less return on their tax dollar than rural Canadians or small-towners because cities are populated by people who have less need for government services, Prof. Kneebone said. Between 1996 and 2002, the nine biggest cities contained 51 per cent of the population, but created 65 per cent of new jobs.

He said he realizes that his findings will be used as fodder by the sizable big-city lobby, which has argued for more municipal funding from federal and provincial governments.

Mayors from Canada's biggest cities, as well as the Federation of Canadian Municipalities, say they face growing demands for services and infrastructure, but are constrained by lack of revenue sources.

Calgary Mayor Dave Bronconnier said in an interview that the paper "demonstrates the importance of keeping major cities roaring along."

Toronto Mayor David Miller said the report "confirms what we have been saying, that it is Canada's largest cities, particularly Toronto and Calgary, that support the rest of Canada."

He added that report strengthens the city's position in bargaining with Ottawa. "The only conclusion you can draw from the report is that there should be a national transit strategy with significant funding attached, and that cities should share one cent of the GST because it is the sales and incomes taxes that provide all the revenue to Ottawa."

Cities get most of their funding from property taxes, which don't grow with the economy, and from user fees. They have repeatedly asked government for more direct transfers, taxation room and targeted urban programs. They argue that cities are the engine of economic growth in Canada, and that insufficient funding is stifling their competitiveness and ability to prosper.

"They need to remind themselves [of]the reason this is happening," Prof. Kneebone said. "It's precisely because relative to rural areas, they have high income, they're relatively young, and they're relatively healthy. ... If you want to rail against this, say 'this stinks and I hate it,' then you also must stand up and say 'I hate a progressive tax system. I don't think higher income people should pay higher taxes.' "

Toronto businessman Steve Stroll, who owns a sales agency that sells building maintenance products, said the study shows that Toronto "absolutely" ought to get more from Ottawa.

"Toronto is the cog that runs the whole engine of Canada. The financial district is here and literally, the city is crumbling, and we're watching is happen around us. The basic fundamentals of the city, roads and services, are just going down farther and farther, we're paying more and more for less and less. I imagine that [federal outflow]is part of the reason why."

WINNERS AND LOSERS

Cities whose residents gain or lose, per capita, paying taxes and receiving federal and provincial transfers, 1986-2002.

SOURCE: CALCULATED FROM 1986-2002. FIGURES IN FOLLOWING THE MONEY, RONALD KNEEBONE