October 15, 2003
A Home Run for Winnipeg?
A recent issue of the Economist contained a rarity, some kind words for Canada. It called our country “rather cool,” with a strongly performing economy and a new spirit of risk-taking and experimentation. It qualified that by saying taxes were still too high, and that we needed to shift power and money among levels of government -- particularly to strengthen cities.
Coincidentally, the most coherent push for this sort of sweeping reform has emerged on the national radar screen here in Winnipeg, with the launch of Mayor Glenn Murray’s bold “New Deal for Cities.” The initiative proposes an intelligent redesign of the way we fund municipal services, and reflects an emerging consensus among politicians, bureaucrats and thinkers that cities need to be empowered to cope with the pressures of population growth and an aging infrastructure. Winnipeg, home to two-thirds of Manitobans and the motor of the provincial economy, is naturally ground zero for this debate.
The New Deal proposes to shift the city’s tax levers away from revenue sources that damage the economy. Property taxes, which penalize urban density, would be cut in half, and both the growth-punishing business tax and the amusement tax, an administratively expensive nuisance that produces little revenue, would go. In exchange, the City would substitute several tax levers whose revenue would vary with the level of services citizens consume.
Funding garbage collection through user fees, sensible policy, would encourage households to reduce waste. Gasoline taxes would be earmarked to fund roads and subsidize transit. One point of sales tax would allow the city to share the benefits of economic growth while generating revenue, along with a new hotel tax, from visitors who otherwise pay no taxes towards the city services and infrastructure they use. Taxes on energy, liquor, and 9-11 calls would spur conservation and fund police services. These tax shifts make sense – the more you use, the more you pay.
Change involves trade-offs. Property owners will see values increase sharply , with positive spillover effects in other parts of the economy. It pays to fix up houses if they become more valuable. A bounce in home renovations would boost the construction trades and consumption of household durables.
The New Deal is an evolving work in progress. In a community that tends to resist change, how do we move forward without tripping over minor details? It would help to separate tax shifting, which is good public policy, from the $120 million in increases proposed. More taxes are a difficult sell, even when much of it covers needed investments in the city’s worn-out infrastructure.
As consultations proceed, there will be room to appease the anti-tax crowd. Why not rethink transit before lavishing more subsidies on it? All major European cities now buy the service from competing commercial providers, with operating savings that average 25%. This prospect should not panic the transit union; drivers make more money, but there are fewer managers. Defer and reconsider the transit corridor. Much scope exists to partner private capital into major upgrades of Winnipeg sewer and water infrastructure. We can maintain access to recreation facilities for low-income families in better ways without subsidizing everyone.
The Province of Manitoba has a golden opportunity to lead the national debate with policy reforms that accommodate a neutral tax shift to local government. To keep things simple, that means unconditionally transferring a portion of existing revenues from gas, liquor and sales taxes to all cities, while maintaining the single provincial collection mechanism. To avoid damaging the economy, increased local government spending would be made up by reduced provincial spending, accomplished by shifting functions downwards or otherwise finding efficiencies in the province’s $7 billion plus budget.
Critically important is the principle of revenue neutrality. There is no room to layer on more taxes. According to Stats Can, combined provincial-local government spending absorbs 30.1% of the Manitoba economy, much more than neighbouring Saskatchewan, Ontario or Alberta, at 27.5%, 22.3% and 18.8%. More taxes would also trigger a referendum under the balanced budget legislation which Gary Doer has respected to his immense credit.
A smart way to partially accommodate the shift with extra revenue would see dividends charged on free-riding Crown corporations, as they do in Saskatchewan. These unnecessary subsidies underprice our power and insurance rates, and discourage environmental conservation. A more fundamental reform would harmonize the PST with the GST, with a piece of the combined rate allocated to the cities. It would be good time to seek a one time multi-million dollar “adjustment” payment from an incoming reform friendly Martin Government.
If Gary Doer‘s government co-operates with the New Deal as outlined above, it will emerge as a policy leader on the national stage. The benefits from a more vibrant and faster-growing Winnipeg would likely extend the NDP’s power base into traditionally conservative, middle-class suburbs and score points with the young people who now frequently leave for opportunities elsewhere.
Let’s hope that Gary Doer can convert Glenn Murray’s fast pitch into a home run.
The Frontier Centre for Public Policy
is an independent public policy think tank whose mission is "to broaden the debate on our future through public policy research and education and to explore positive changes within our public institutions that support economic growth and opportunity."