Skip to main content

The three main federal parties are all pledging billions of dollars for transit and other big-city infrastructure projects in this election campaign.

Few Canadians would question the need. Cities such as Toronto, Vancouver and Montreal have badly outgrown their transit, sewage and road networks.

But taxpayers living in Prince Rupert, B.C., Thunder Bay and many other places might reasonably ask why they should subsidize expensive projects they will rarely get to use, such as urban subways and light rail. Why should the national tax base subsidize purely locally needs?

It's a fair point.

Cities have become increasingly hooked on handouts from the federal government and the provinces to pay for major infrastructure improvements.

An obvious solution is for cities to raise more of the money from their own taxpayers – via property taxes, sales taxes or other means.

But higher taxes are a hard sell at the best of times. Cities risk a backlash from homeowners and businesses whenever they try to generate more revenue.

Metro Vancouver soundly rejected a half-percentage-point sales-tax hike to pay for a $7.5-billion transit plan in a July plebiscite. Vancouver-area mayors are now researching "mobility pricing," including tolls on roads and bridges or per-kilometre charges on vehicles.

Canadian cities might also look to Britain for inspiration as they struggle to pay for their neglected urban transit and other infrastructure – by getting the rich to pay a much greater share of the burden.

Britain has always had a fairly progressive property-tax regime, similar to Canada's income-tax system. Tax rates are typically applied on a sliding scale so that people living in pricier homes pay higher property-tax rates.

And the system has just become much more progressive. Britain's Conservative government raised the "stamp" duty – a levy on property purchases – on all houses worth more than £1.13-million ($2.25-million). Anything above £1.5-million ($3-million) is taxed at a rate of 12 per cent. The stamp tax on lesser-value homes was cut.

The change has shifted the tax burden more heavily onto the rich.

Another benefit of this approach is that it may cool down some of the pockets of overheating in the housing market. Britain's stamp-duty hike is credited with helping to dampen demand in London's pricey housing market.

In Canada, most cities charge a flat property-tax rate that applies to all property owners. Homeowners generally pay more if their house is worth more, but the rate stays the same.

There is a modest amount of progressiveness in the land-transfer tax (similar to Britain's stamp duty), applied by many cities and provinces. In Toronto, for example, the top rate of 2 per cent kicks in for all homes purchased for least $400,000.

But cities could look at ratcheting up property taxes for the wealthiest of homeowners and buyers.

Canada already collects a relatively high share of total tax revenue from property taxes, compared with most other wealthy countries. Commercial and residential property taxes made up 10.6 per cent of government revenues in 2012. Only two countries generated a greater share from property taxes – Britain at 11.9 per cent and the United States at 11.8 per cent, according to figures from the Organization for Economic Co-operation and Development.

But that doesn't mean that cities can't tap more revenue – particularly if the federal government or the provinces were to simultaneously lower other taxes.

That could leave most taxpayers unaffected, while making those in urban areas, where the infrastructure needs are the greatest, shoulder more of the load.

Another challenge is that property taxes are relatively low in cities with the hottest housing markets and most significant infrastructure deficits, including Toronto and Vancouver. In Toronto, homeowners pay $7.23 per $1,000 of assessed property value; in Vancouver, it's $3.68 per $1,000, according to a 2014 report by the Real Property Association of Canada. In most other major Canadian cities, the bill is at least $10 per $1,000 .

This suggests that these cities have room to charge some homeowners more.

A move to a more progressive property-tax regime would give these cities more control over their own destinies, and make them less dependent on election goodies.