If Toronto city council approves Mayor Olivia Chow’s new budget, the city will increase property taxes by 6.9%. This increase would come atop substantial increases in the last two years. And if council approves this latest hike, it will have increased property taxes in Toronto by approximately 25% over three years.
That means Torontonians keep less of their money. But more broadly, these property tax hikes make it more difficult for the city to attract high-skilled and mobile workers who help fuel the economy. The numbers show how uncompetitive Ontario’s tax climate is compared to nearby U.S. jurisdictions where we compete for top talent.
Let’s start by looking at tax rates for high earners including doctors, engineers and entrepreneurs who create jobs and opportunities. Thanks to increases to top personal income tax rates at provincial and federal levels, Ontario now has the third-highest combined (federal and provincial) personal income tax rate (53.53%) in Canada and the United States.
Meanwhile, neighbouring Michigan’s top personal income tax rate is 41.25% — more than 12 percentage points lower than in Ontario. Even high-tax New York has a lower top rate (47.90%) than Ontario.
Ontarians also pay 13% in combined (federal and provincial) sales taxes, which is far higher than any of our American competitors.
Given these tax disadvantages, it’s understandable that many Ontario businesses struggle to convince top talent to choose to live and work here. According to a study by the Institute for Competitiveness and Prosperity, many CEOs receive little more than a “courtesy call” when approaching high-earning mobile workers, largely due to Ontario’s high tax rates.
And it’s not just high earners who face high tax rates in the province. If you make $50,000 per year in Ontario, you face a higher income tax rate on the next dollar you earn than workers in any U.S. state and approximately eight percentage points higher than workers in Michigan.
Which brings us back to Toronto’s proposed property tax hike. Residents in the city already face high and uncompetitive personal income taxes and sales tax rates that would be unheard of in nearby U.S. states. These high taxes raise the cost of living for Torontonians at a time when the cost of living and affordability remain major widespread concerns.
In a country like Canada, it’s important to analyze the interaction of policy choices between all three levels of government.
As Toronto city council considers another big hike to property taxes, it should understand that such an increase will make it even harder to attract workers to the largest city in high-tax Ontario and make it harder for people already in the city to make ends meet.