Urban Salvation through Sensible Taxation
(Municipal World, February 2002)

The recently released Sgro Report is the latest in a series of wakeup calls telling us our cities are in trouble and need help from senior levels of government to become environmentally and economically sustainable.

The report and others that have come before it recommend that federal and provincial governments spend more money on urban priorities such as public transit and water and sewer infrastructure. These spending programs certainly would help, but only if strict sustainability criteria applies to the funding. We can’t afford to build tomorrow’s problems. That said, I believe the most basic and necessary reform our cities need is a smarter tax system that stimulates development of sustainable cities dampens unsustainable practices.

Financial Incentives

To this end, the National Round Table on the Environment and the Economy (NRTEE) is currently evaluating a number of potential changes to our tax system and is consulting with interested parties. In particular, NRTEE is analyzing the financial implications of certain measures. For example, tax incentives could encourage more energy efficient new homes meeting the R2000 standard. R2000 homes currently account for only about 3% of new houses, even though they typically reduce energy use by 30% over conventional houses. These houses could be made more financially attractive by offering homebuyers increased GST rebates.

We could also encourage more efficient use of existing housing stock and urban infrastructure by providing GST rebates for certain kinds of renovations. Costs of eligible energy efficiency upgrades and creation of new in-house apartments, for example, could qualify for the same 36% GST rebate new housing gets.

Cities could also be encouraged to make green infrastructure choices by offering them a full GST rebate for purchases such as public transit vehicles and sewage treatment plants. A full GST rebate on green equipment would encourage municipalities to take environmental payback into account when planning purchases. If such an incentive were in place today, for example, the City of Toronto might not have a tender out now to buy 160 new gasoline-powered vans and pickups – when most of the vehicles are also available in lower-polluting alternative fuel models at slightly higher prices. In addition, an accelerated capital cost allowance could attract private capital to invest in community energy systems. These systems have proven to be energy-efficient providers of heating, cooling and sometimes electricity to hospitals, office buildings and residences in denser areas. By attracting private money, scarce municipal dollars are conserved for other uses.These are the types of ideas that need to be thoroughly analyzed by experts and vetted by stakeholders to determine which are wise changes that will accomplish their goals without causing undesirable outcomes.

Adjusting Tax Signals

Many of these measures speak, directly or indirectly, to reducing the combustion gases that are emitted when we drive and drive between home and work and play and school, or when we heat our homes. The energy efficiency gains quickened by these tax changes are how we can squeeze the easiest greenhouse gas reductions out of our infrastructure, requiring less fuel to do the same work, doing our bit to help mitigate climate change.

Governments have always used the tax code to encourage the types of economic development that they deem desirable. Look at the write-offs, allowances and tax breaks and holidays enjoyed over the decades by resource extraction industries. However, grants and tax policies can also have unintended consequences. For example, taxpayer-funded road and highway networks contribute to an under-pricing of suburban development, which in turn encourages demand for more low density, greenfields development that would otherwise be the case. Our tax policy and spending systems need to be rationalized to remove market distortions that result in unsustainable, expensive infrastructure and urban development patterns.

Quite understandably, there is lag time between changing circumstances and adjustment of tax incentives. Circumstances have changed dramatically. Economic sustainability and maintaining global climate pattern stability are new born giants in the family of ideas.

It’s time to adjust our tax signals to encourage Canadians to adapt their actions to account for these new realities. If our cities are to survive and prosper, our tax code must evolve.

David J. McGuinty is President and CEO of the National Round Table on the Environment and the Economy.

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