Canada - Ottawa's GST cut full of potholes

The economic benefit of a 2 percentage point GST cut was summed up by Don Drummond, chief economist of the TD Financial Group: "It doesn't do anything to improve the performance of the economy."

His views reflected a broad consensus among economists. Contrast this to the loss of economic growth and development that is occurring as a result of the poor condition of our infrastructure and the backward state of our local and national transportation systems. The failure to invest a good tax in essential public infrastructure is a disastrous national policy.

Our infrastructure deficit is a national disgrace: raw sewage flowing into our oceans, lakes and rivers; traffic congestion costing the economy billions in lost productivity; millions of potholes; endless waits for city buses and highways that now operate like parking lots, are familiar features of the Canadian urban landscape. These problems are being solved in the United States and Europe by giving cities a share of sales taxes and other growth revenues.

Winnipeg is one of a few cities that actually measured its infrastructure deficit in detail. It discovered the city was spending exactly $188 million less per year than necessary on road, water, parks and sewer repair. That amount would only keep the streets and sewer systems from falling into greater disrepair and would not be enough to improve the overall condition of the city's infrastructure. Additional funds would also be required to repair arenas, schools, police stations, fire halls, libraries, community facilities and population growth. The actual shortfall, with these needs included, is more likely around $250 million.

Raising property taxes to fix this is not a realistic option. In Winnipeg, where property taxes are the only independent source of taxation, $188 million in new spending would have meant a 50 per cent increase in property taxes. At the time, Winnipeg's taxes were among the highest in Canada. When Mississauga Mayor Hazel McCallion pointed out that her relatively new city faces a $75 million infrastructure budget shortfall, you get an idea of how quickly these problems grow. She had no choice but to add a 5 per cent tax.

The infrastructure deficit is far more difficult to solve than slaying the federal debt was in the 1990s because it grows much faster. Allowing a few years for a street repair to become a street replacement can result in a 10-fold increase in cost.

Ottawa has seen its revenues increase in just two years by more than the total annual budgets of Canada's 10 largest cities. If municipalities got the equivalent of the two points cut from the GST, it would amount to less than one year's growth in federal government revenues. However, that amount would be enough to eliminate our national infrastructure deficit and avoid the now inevitable increases in property taxes.

The federal government, unlike the provinces, actually has tax room to give to municipalities, which would avoid any overall increase in the tax burden of Canadians. Sales taxes like the GST, unlike property taxes, are also paid by people who don't own property, so the burden of paying for municipal services is shared with folks who use a community's streets and services but don't live there. It is a better tax choice.

Mayors David Miller and McCallion are dead right: neglect of the basic federal responsibility for our nation's infrastructure has made a solvable problem a national disgrace. Cities have no choice. Raise property taxes a lot or watch our streets, transit and sewage systems slowly decline to Third World standards.