Government intervention can backfire! Who knew?

Could the city of Toronto really have overestimated its revenue from its land transfer tax by almost $100 million?

It has been a common government refrain for years now — and from all levels of government, mind you — that something must be done to cool the city’s housing market. The Ontario government has been trying to cool the market by implementing a foreign speculation tax for the Greater Golden Horseshoe region. The Bank of Canada has been trying to cool the market by raising interest rates. The country’s federal financial regulator has been trying to cool the market by tightening up mortgage rules.

Revenues from the land transfer tax are projected to come in $99.2 million short, due primarily to what a city council finance update describes as “lower residential market activity.”

In other words, the market cooled, and Toronto politicians were caught off-guard. Astonished. Startled. Who could have predicted? No one saw that coming. Except maybe everyone who is not a member of Toronto’s City Council.

To be fair, Toronto councillors may have thought they were just being realistic. Governments everywhere have a poor track record of achieving their desired results by intervening in the market. Maybe Toronto thought, “Well it’s true that the feds and the folks at Queen’s Park and all their friends are trying to cool the market. But there’s no real reason to believe they’ll succeed. I mean, it’s government. You know.”
Or maybe Toronto’s city council was just too clueless and greedy to notice all the signs that its cash cow would soon be producing significantly less milk. And to plan accordingly.

Now the city must figure out how to make up the money.

Fortunately, the city came in underbudget in other areas, so there will be no budget deficit this year. Going forward, however, is a different story. To get by, Toronto will have to cut services or institute a significant increase in property taxes.

As we are seeing firsthand in Toronto, that further interference — in particular, interference designed to cool markets — can lead to funding gaps when municipal revenues fall, due to factors such as the land transfer tax, or simply lower property values which decrease property tax revenues.

taken from & read more: https://nationalpost.com/opinion/marni-soupcoff-wow-looks-like-government-intervention-can-backfire-who-knew

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