‘The message to Toronto is, ‘Don’t spend it all,’ economist says
Toronto’s red-hot real estate market has sent municipal land transfer tax revenues soaring. But the city’s spending all that money, not saving it. (Sean Kilpatrick/Canadian Press)
In times of plenty, it can be easy to forget there may be leaner years ahead.
But Toronto city council and its city managers need only look westward for a cautionary tale about relying on a volatile source of revenue; here, it’s the municipal land transfer tax — but in Alberta it was oil.
Plunging oil prices have taken their toll on provincial revenues — down to $1.4 billion this year, from a high of more than $10 billion. That’s a glimpse of what could happen in Toronto when the housing bubble eventually bursts, real estate economist Frank Clayton says.
Unless, however, we choose to follow Norway’s example.
City Manager Peter Wallace says that the municipal land transfer tax is a volatile source of revenue – and the city shouldn’t count on it indefinitely. (CBC)
The Norwegian path
The oil-rich Scandinavian country has invested its energy revenues in a sovereign wealth fund since 1996, which now tops more than $1.158 trillion. Typically, the government can draw up to four per cent from that fund each year, slightly more than its annual 3.7 per cent rate of return, according to Norges Bank Investment Management.
And when the economy dipped last year, the country weathered it easily, taking its first-ever capital transfer from what Clayton dubbed its “rainy day fund”.
“So now that oil prices have gone down, Norway’s got assets and it’s producing income,” the Ryerson University professor said. “So the message to Toronto is, ‘Don’t spend it all.'”
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