Brighter Lights, Bigger Cities

A province would be reluctant to cede this much power to an urban region because, in effect, it would create a province within a province. But a very interesting negotiation has just concluded between Toronto and Ontario over the new City of Toronto Act, which brought into focus the idea that where there wasn’t a clear provincial interest the city should have the power to act. The onus is now on the province to articulate the provincial interest in a persuasive way.

Money is the difficult issue. For control, the power of the purse is vital. To tax is to govern, and Canadian cities have limited access to taxes as revenue sources. There are various kinds of tax, some that grow with the economy, such as income and consumption (sales, liquor, tobacco, gasoline) taxes, and others, such as property tax, that are less growth-responsive. Compared with other jurisdictions, Canadian cities are overreliant on property taxes: such levies make up about 53 percent of their revenues, compared with 23 percent in the US and substantially less in Europe. US and European cities have access to a much broader array of tax instruments, including sales and income taxes. Provincial governments have traditionally not allowed Canadian cities the same tools, but being able to raise revenue gives a government more control over how it is spent.

The problem is that in our current environment, it is popular not to tax, and politicians of all stripes are drawn to popularity like bees to honey. So when premiers and mayors object to the “fiscal gap,” what they really want is simply more money from Ottawa. New Deal advocates, on the other hand, are proposing a redesign of Canada’s fiscal arrangements to better align the obligations of a level of government with its ability to raise the money it requires. In effect, given the current allocation of obligations, the federal government could tax less and the provinces and cities tax more. As the TD Bank put it in its seminal report, “A Choice Between Investing in Canada’s Cities or Disinvesting in Canada’s Future,” the federal government could do “less with less.” And as the federal government lowered its taxes, the provinces and cities would move into the “tax room” that had been created. Taxpayers would pay roughly the same amount, but their tax dollars—under such a form of asymmetrical and reduced federalism—would stay much closer to home.

There is a problem with this scenario—one that Harper had a good hand in creating. Canadian governments have become as tax averse as some Canadians, thanks to the anti-government, anti-tax crusades of Preston Manning’s Reform Party and its successor, the Canadian Alliance, and of their consultancies like the Fraser Institute and the National Citizens Coalition—all of which Harper has been associated with. The result is somewhat paradoxical: while to tax is to govern and both provincial and municipal governments consistently demand more powers and greater control, both also reject occupying the tax room that would be left open by a diminished federal government. Provincial and municipal governments are simply afraid that they’ll be seen as “tax and spenders.” So, when Harper lowers the gst by 1 percent, don’t expect any other government in Canada to say they’ll replace the attendant losses with alternative levies. (Even though the big federal surpluses that prompted Harper’s largesse were created by a chain reaction of downloading initiated by Paul Martin when he was the finance minister a decade ago, and the provinces and ultimately the cities are saddled with more obligations than they once had and that they cannot afford, few are willing to engage the issue.)

Exacerbating this situation is the fact that most Canadian cities are governed by a weak mayor system, where the mayor is just another member of council without significant executive authority. The mayor must cobble together coalitions on each issue, and something requiring a little leadership gusto, such as a tax raise, is that much more difficult to achieve. Toronto, at the urging of the Ontario government, is moving to a stronger mayor system (though not as strong as Chicago, New York, or London, England), so any tax room created by Harper represents an interesting challenge for Toronto’s mayor.

Harper may opt to look the other way, but the big-cities agenda is a sleeping giant, and it is in his interest to find common ground. It is a testing issue—one that will signal whether he wants to be a nation builder or do politics as usual. Canada stands alone among the developed countries in lacking a comprehensive national housing strategy and significant national transit funding. Harper can continue this debilitating neglect or find effective strategies to act.

If Harper were in a position to take a radical approach he would recognize that one of the great problems facing Canada is regional disparity. Large parts of the country simply lack the economies of scale to generate wealth and are depopulating as a result. On the flip side, one of the most noteworthy aspects of life in big urban centres is that size permits diversity and diversity permits a certain protection from economic downturns.

So, if the four Maritime provinces were to unite as one political entity, for instance, the new governance structure would represent approximately 2.3 million people. Similarly, a union between Manitoba and Saskatchewan would produce a political unit representing just over 2.2 million people. A concurrent move would be to extract the three largest metropolitan areas—Toronto, Montreal, and Vancouver—from their provinces, making them separate political units whose economies would sit in the nation’s cockpit. A city-state of Toronto would have approximately 5.3 million people, leaving the rest of Ontario with just over 7.2 million. British Columbia would become a province of two million people, roughly equal to the new enclave of Vancouver. Quebec, without Montreal’s 3.6 million inhabitants, would now be a province of four million.

While ostensibly radical, this redesign of Canada’s map would actually resolve the anachronism that is our political structure and better prepare our economy for the challenges of the twenty-first century. A new Canada, with nine provinces—each with between two and seven million people—adds demographic balance to a new fiscal strength. The big cities, as de facto provinces, would have greater control over their destinies through financial controls and equitable electoral representation. The rural areas would be kept from the penury of isolation by uniting into larger entities, and in doing so they would not be a drain on the dynamic urban markets that now undoubtedly drive our national economy.

This reconstitution of the country is likely politically unpalatable to Harper, but it vividly highlights the difficulties of Canada’s current confederation. At the very least, Harper can go well beyond his predecessor in convening a truly national conversation about the place of cities in Confederation, which would include premiers and the mayors of our largest cities (probably nine or ten). Such a process might help break a logjam on redesigning our fiscal arrangements and take some of the negative politics out of reassigning taxing duties. If the creation and occupying of tax room was seen as a mutual exercise in the service of nation-building—and, in a famously discredited phrase of the Ontario Harris government, “revenue neutral” —it might be carried forward more agreeably.