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marcus gee

Mayor Rob Ford often says that the city government should be like a prudent family and make sure not to spend more than it earns. But what family that is trying to work its way out of debt decides to cut its income at the same time? That, in essence, is what Mr. Ford is doing when he proposes phasing out the city's land transfer tax.

City council imposed the LTT in 2008 to give the city a new source of revenue and reduce its reliance on the property tax. Mr. Ford calls it an unfair burden on taxpayers and promised during his campaign for mayor to kill it once elected.

Cooler heads have persuaded him to hold off so far. The city can hardly do away with such a rich revenue source if it hopes to fill a budget hole that the mayor himself initially pegged at $774-million earlier this year. The LTT imposes a tax amounting to $5,725 on the sale of a $500,000 house. It brings in about $300-million a year to help pay for city services from policing to transit to community centres.

Now, though, Mr. Ford says he wants to make at least a start on eliminating the tax. "I can't say we're going to wipe it out this year," he told Stephen LeDrew of CP24 television last week, "but it might be a quarter this year, a half next year, or ... you know, but we're going to do it piece by piece. You're going to see a portion of the land transfer tax – I don't know how much right now – be gone by the end of next year."

Even a phased elimination of the tax would be unwise at this stage in the city's fiscal struggle. As the mayor and his allies constantly argue, the city faces a persistent annual budget shortfall and a rising debt. It has future obligations, such as the purchase of new streetcars, that it does not know how to pay for.

This is the last time it should be cutting its income stream. The city is so hard pressed that it is considering whether to raise many user fees to bring in more revenue. That puts the boots to Mr. Ford's repeated claim that the city has only a spending problem, not a revenue problem.

Mr. Ford's own budget chief, Mike Del Grande, has been warning for months that the city should not rush to kill the tax. "Going forward, $300-million is a lot of money," he told Councillor Josh Matlow on Newstalk 1010 radio this weekend.

Deputy mayor Doug Holyday, a fiscal conservative if there ever was one, is equally cautious. "It's just a huge amount of money that's built into the system and it's hard to yank it all out at once," he says. Although he considers the tax unfair and would love to get rid of it, "We can only make a start on eliminating that source of revenue if we can reduce our expenses first."

That, surely, is the prudent course. Squeeze as much extraneous spending as possible out of the budget. Figure out what the city is going to face in labour costs after its looming confrontation with its unions. Determine what the mayor's plan to build an extended Sheppard subway line is going to cost and whether it will go ahead. Then, and only then, decide whether the city can realistically axe the tax.

The alternative – to cut taxes before knowing if the city can afford it – is a blueprint for trouble. Just look at what happened south of the border when President George W. Bush made sweeping tax cuts at a time of rising costs: a fiscal train wreck that still haunts the U.S. economy.

Mr. Ford says ending the LTT was a campaign promise and he wants to keep it. Fair enough (even if he seems less fastidious about keeping promises to avoid layoffs and service cuts). All that he needs to do is persuade city council that, by some miracle, the city can get by without $300-million a year.