The penny tax monster under your bed

As Don Martin noted, Maxime Bernier’s script last week was focused on the idea that the NDP was proposing a new infrastructure tax.

This seems to have become a thing last week. Sun News learned about it on Tuesday. And the Prime Minister referenced it during a news conference on Friday.

The story originates with a proposal Olivia Chow submitted to the Transport committee on October 28. Ms. Chow proposed that the committee “should explore the topic of infrastructure funding and examine a comprehensive set of policy options. The committee’s recommendations should then inform Infrastructure Canada as the federal government designs a post-2014 long-term infrastructure investment plan.” Ms. Chow listed five “potential policies to examine,” the fourth of which was a “penny tax”—a “one percent municipally-levied value added sales tax.” (I’ve copy and pasted Ms. Chow’s proposal below in its entirety.)

The Conservatives might now wish to suggest that the NDP is proposing such a tax, but, when the committee discussed Ms. Chow’s proposed study on November 1, Conservative MP Ed Holder specifically asked Ms. Chow about the idea and Ms. Chow responded as follows (emphasis mine).

Mr. Chair, a few years ago, the Federation of Canadian Municipalities and the big city mayors came up with the one-cent GST proposal. If you want me to go and find details of how that one-cent GST works, I could do so. This is not a new idea. It is something that has been proposed by the municipalities and the big city mayors. They ran a big campaign on it.

Is that a good idea? I don’t know. I think it’s useful to take a look at what had been proposed in the past and what other countries have done. I’m not saying that any of them make complete sense, but at a bare minimum, we should look at and seriously consider some of the proposals that have come directly from municipalities and big city mayors.

That was a substantive proposal that was given to us, I believe, seven years ago. Is it in this kind of format? Not completely, but I think at a bare minimum we should take a look at it. Does any of this make sense? Is it applicable to Canada? Perhaps yes, perhaps not. That is why at a committee we should look at other examples and decide whether this whole GST question does or doesn’t work for us.

I was trying to answer the question about where that came from.

The Federation of Canadian Municipalities raised the idea in its 2012 report (see page 17) on the state of Canadian cities. An April 2011 discussion paper from the Canada West Foundation made the proposal and Casey Vander Ploeg explains that proposal here.

Below is Ms. Chow’s submission to the Transport committee.

Infrastructure Funding Study Proposal
Draft Version, 2012-10-28

Background
Canada’s urban infrastructure is crumbling and over-burdened municipalities are struggling to fund maintenance and expansions.

Purpose of the Study
The Standing Committee on Transport, Infrastructure and Communities should explore the topic of infrastructure funding and examine a comprehensive set of policy options. The committee’s recommendations should then inform Infrastructure Canada as the federal government designs a post-2014 long-term infrastructure investment plan.
Potential Policy Options to Examine

1. Renewal of Building Canada Plan components with dedicated funding streams (Gas Tax Fund, Building Canada Fund, Sales Tax Fund)
• German case:
➢ German subsidization of local roads and transit through surplus revenues of fuel duty (Act on Federal Government Aid to Improve Transport at the Local Authority Level).
➢ Prerequisites for funding: (1) urgency (2) provided for in transport plan (3) evidence of remaining finance being secured. (Federal Ministry of Transport, Building and Urban Development)
• United States:
➢ Competitive Grants Program: Formula and Discretionary Grants (Federal Transit Administration)

2. National Infrastructure Bank
• Federal government acts as guarantor of debt for municipalities to assist in raising revenues for infrastructure projects (Pagano & Perry 2008, 34).

3. Vertical Integration (Tri-level agreements)
• Infrastructure projects through federal-provincial-municipal agreements.
• Vancouver Agreement (2000) and Urban Aboriginal Strategy (1998) examples of federal-provincial-municipal agreements to fund specific municipal projects (Stoney & Graham 2009, 381).

4. “Penny Tax”
• One percent municipally-levied value added sales tax (Vander Ploeg 2011, i).
• Local sales taxes common in several countries in Europe, Southeast Asia and in the United States (12)
• Presents an alternative to raising property taxes.
• Referenda on these taxes (funds earmarked for local infrastructure) in the United States have largely been successful (16).

5. Reinvest Value Capture Recommendation by Australia Infrastructure Finance Working Group.
• Properties directly benefitting from new/renewed infrastructure contribute to reduce costs (48

Potential Witnesses
• Dr. Christopher Stoney (Carleton University)
• Dr. Michael Pagano (University of Illinois at Chicago)
• Dr. Katherine A. H. Graham (Carleton University)
• Federation of Canadian Municipalities
• Council of European Municipalities and Regions
• Australia Infrastructure Finance Working Group
• Canadian Centre for Policy Alternatives