Time for Ottawa to cede fuel tax powers to cities

Canada's municipalities are critical to the delivery of services to Canadians, so why don't we give them reasonable tax powers?

RED DEER, Alta. June 5, 2016/ Troy Media/ – Canada’s funding formula for municipalities requires a dramatic overhaul.

Prime Minister Justin Trudeau’s recent meetings with Federation of Canadian Municipalities officials no doubt dealt with where the first round of the $120-billion in federal infrastructure grants will be spent over the next decade.

Canada’s municipalities have extensive lists of upgrades for roads and water lines, plus a lot of long-delayed critical new building. All that’s missing is for the provinces or the feds to turn on the funding taps, since municipalities are restricted on how they raise money to support the basic infrastructure and services Canadians rely on.

Which may lead you to wonder, as most Canadian big-city mayors do, why the other two levels of government are so loathe to give up their taxation powers and cede them to the cities – where the people live and where most of their fundamental public services are located.

A pair of federal watchdogs has just raised concerns that municipalities are not keeping up with their reporting duties to Ottawa, telling them where gas-tax refunds are going.

Federal Environment Commission commissioner Julie Gelfland complains that Infrastructure Canada isn’t getting its data on the state of city infrastructure spending in a timely way.

It’s federal money, she says, so the feds need to know how it’s being spent. The bigger question is why it’s federal money in the first place.

The federal government collects 10 cents on every litre of gasoline and four cents on every litre of diesel fuel we buy. Plus GST or HST where applicable.

On the fuel tax alone, the take is about $5 billion a year. Of that, $2 billion goes to Canada’s cities for infrastructure spending. That’s not nearly enough to keep our streets, water and sewer lines in good repair, and public transit running, much less allow for growth.

In its first federal budget, the new Liberal government announced an ambitious spending program for municipalities of more than $120 billion over the next 10 years. But at least one province – Quebec – is complaining that bureaucratic delays mean that none of the money will be put into projects this year.

It’s not just cities not getting their paperwork in order, it’s the federal civil service dragging its heels, sending projects back with a variety of new conditions. At least from Quebec’s perspective.

In fact, the feds should not be in the city-building business.

Getting a program as big as this running in a year is pretty well impossible for a government. Especially for a government also facing deadlines to pass laws on assisted suicide, electoral and Senate reform.

If we’re going to lose a year getting the economic benefits of stimulus spending for much-needed city projects, it would be far better to spend that year negotiating a transfer of taxation powers so that cities can plan their own futures with their own revenues. And do so in a timely fashion, with fewer bureaucratic roadblocks.

If that includes control, at least partially, over fuel taxes, so be it. Anything’s better than taxing the real estate value of our homes to raise revenue. That is among the least fair of all taxation systems.

Right now, only Vancouver, Victoria and Montreal have city taxes on fuel. In Vancouver, it’s a whopping 11 cents a litre. No wonder the buses are so crowded and run at five-minute intervals.

Certainly, allowing cities access to $5 billion more a year in tax revenue could lead to corruption – spending large chunks of public money always carries that potential, at the municipal, provincial and federal levels.

So we’ll need safeguards and full reporting on spending could be part of that. But the federal government is far better placed to be a watchdog than a sugar daddy.

Canada is no longer a country of small towns. We have cities with larger populations than some of our provinces. Mayors receive more votes than premiers in some places.

So mayors – whose jurisdictions manage the delivery of many of our tax-paid services – need the ability to do long-term planning, based on predictable budgets, not the largesse of federal election promises.

That means it’s time for a new funding formula, preferably one in which the feds cede the power to tax fuel to the cities where people pay those taxes.

Greg Neiman is a freelance editor, columnist and blogger living in Red Deer, Alta. Greg is also included in Troy Media’s Unlimited Access subscription plan.

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