Tuesday, 22 January 2008

Toronto a City State?

Raphael asks of me here, Do you have an objection to the concepts of city states?

As in the completely separate political entities of ancient Greece? Yes, yes I do object.

But I suspect there's more to that question.

His full question includes the following justification, Toronto might be a prime example of such a necessity in order to benefit from it's own regional earning power and afford the expenditures of it's own taxation powers.

I suspect Raphael more meant the question as, "do I object to Toronto becoming its own province?"

No, not completely, but I have deep reservations.

(Full disclosure of bias. I believe Canadian Federalism is dysfunctional as currently setup. I earnestly believe that provincial governments have too much power, and hinder the progress of Canadian society through infighting, turf wars, and all-out bickering. So I have an admitted bias against provincial governments. I will try to set that aside.)

If Toronto became its own province, it would definitely enjoy the advantages of full control over its own tax policy. While federal income taxes and the GST would still be collected from the citizenry, all other taxes would stay within Toronto's jurisdiction. On the surface, it looks like a big windfall for Toronto.

What would happen to the rest of Ontario? It would lose a large portion of its tax revenue. Not only are income taxes lost, but also all revenues collected through PST, gas taxes and other taxes. Toronto accounts for almost 50% of Ontario's population. That is a significant loss of income. So would that push Ontario into have-not status? I quite strongly suspect it would.

Now would Toronto be considered a Have province? Probably. Given the concentration of wealth in a large urban area, in balance with the rest of the country, any funding formula would find Toronto a Have province. So Toronto, through federal income taxes, would still be subsidizing Ontario.

Now that it is a separate provincial jurisdiction, Toronto has to setup its own provincial infrastructure. It now has to fund a series of programs like health insurance (THIP?), education, infrastructure, arts and literacy, etc. etc. Government bureaucracies must be created for a legal system, transportation, education, health, and so on. These institutions will eat into a large chuck of the income tax revenue collected.

Also, how are the municipal concerns now addressed by city council, managed when the city is both a province and a city? Does it have to maintain municipal as well as provincial government structures?

Given the duplication in effort between the Province of Ontario and a Province of Toronto, and that the actual tax base stays the same, the additional bureaucracies will suck more money away and leave less for discretionary project spending. I theorize that on balance, if Toronto became its own province, both Toronto and Ontario will become poorer overall. I haven't crunched the numbers; I don't have the skill or the desire. So if anyone has data that conclusively refutes my argument above, so be it.

So where does this leave Toronto? Well it now has new taxing powers beyond property tax. That addresses the main benefit of becoming a province, without the overhead re-creating existing institutions. And according to a recent study Toronto doesn't have the highest property taxes, suggesting room to move there. (Though that calculation is disputed.)

I conclude that a drastic measure such as separating Toronto from Ontario is not actually necessary. We're better off tinkering with the current system rather than radically overhauling it.

4 comments:

Ken Breadner said...

In "King John of Canada", the mayor of Toronto (who bears a striking resemblance to a young Hazel McCallion) goes one further and tries to separate from Canada--the rationale being that Trawna's sick and tired of watching its tax dollars being siphoned off into "have not" parts of the country. Given the economic resurgence of provinces west and east, that section felt quite dated.
Besides, Toronto botched amalgamation so badly I wouldn't trust them to set up their own city-state.

Catelli said...

Toronto was blind-sided by the combined effects of amalgamation and downloading from the province in quick succession. From the news bites I'm getting, Hamilton is going through many of the same pains.

Cambridge and Mississauga had 30 years to get used to their amalgamations, so the downloading, while stressful, was only one source of anxiety.


Off the top of my head, I think Toronto would benefit greatly if all of Ontario separated. Toronto needs an awful lot of natural resources (food anyone?) so taking Ontario along would be mutually beneficial.

Raphael Alexander said...

Catelli, an interesting response.

I agree that the provinces have too much power as well, which often leads to the bickering and infighting we see so often in politics. As well as the continued lamenting from provincial premiers about how each of them is so hard done by. Dalton McGuinty, for instance, used his pedestal in Ontario from which to launch a complaint that the bloated House of Commons was only going to get six new seats from Ontario.

As for the portion of your argument, I can see your main thrust. Toronto would benefit from strong tax revenues, but lose in the bloated bureaucratic infrastructure required. Myself, I would prefer to see a solution to the Toronto fiscal imbalance, however, as it is silly Toronto earns so much, and yet needs Mastercard to bail out their hockey finances.

Ken Breadner said...

Toronto's almost as overgoverned as we are here in Waterloo Region. They've got an NDP City Hall, which counts for (by my admittedly unscientific caluculations) 3.8 governments. Whereas we have four in this city: the Cambridge government, the Kitchener government, the Waterloo government, and a regional government to govern anything the other three governments forgot to govern.