Enhancing GTA standard of living requires concerted effort: TD Economics

    TORONTO, July 17 /CNW/ - A report published today by TD Economics states
the relative decline of the Greater Toronto Area's standard of living against
competing jurisdictions during the past five years poses a serious threat to
the region's future prosperity (www.td.com/economics). Cohesive and
coordinated action is required by all regional players, but future policies
must be underpinned by efficiency and innovation rather than public money.
    Among the GTA's challenges, co-authors Don Drummond and Derek Burleton

    -   The region's eroding competitive position due to economic forces such
        as the rising dollar;
    -   The limited flexibility of the City of Toronto due to its structural
        deficit; and
    -   The rising number of low-income families among newcomers and the
        self-perpetuating cycles of poverty.

    Since 2002, the GTA economy has been resilient against adverse events
such as SARS. The cyclical housing boom spread benefits throughout the
economy, and was responsible for a sizeable share of the 65,000 jobs created
in the financial services, retail and wholesale trade and professional
services sectors.
    The GTA also received help from all levels of government including the
moves by the federal and provincial governments to eliminate capital taxes,
strengthen border infrastructure and support the growing cluster of
research-intensive industries. The City of Toronto also contributed, as it
began to gradually reduce property tax on commercial and industrial
properties, supplementing recent action at the provincial level.

    Dollar doldrums

    However economic headwinds slowed growth. International competition and
rising commodities prices were two contributing factors. But the primary
culprit was the Canadian dollar, which appreciated by 50 percent against the
U.S. dollar within five years. This upward trend virtually evaporated the
GTA's cost advantage. The local manufacturing sector bore the brunt, losing
100,000 jobs during this period. (Moreover, companies did not capitalize on
the stronger dollar - and in turn enhance productivity - through the purchase
of machinery and equipment imports.)
    Over the past few years, economic indicators further attest GTA's
declining stature as an economic powerhouse. Furthermore, some uncover a
growing divide between the prospects of 905 and 416 areas.
    Since 2002, the GTA's overall economic growth was 2.5 percent per year,
which is 0.5 percent lower than the national average, and well below the rates
of Calgary and Vancouver (5 percent and 3.4 percent respectively). The
unemployment rate dropped by about one percent to 6.5 percent, but for the
first time rose and remains above the national average. (The average
unemployment rate in the City of Toronto is substantially higher at 8.1
    Most troubling are measurements that track standard of living. Real GDP
per capita in the GTA (0.5 percent) increased by about one-half the rate of
the nation and one-third the pace of other large city-regions. The GTA's real
personal income per capita also slipped $1,000 further behind major American
cities to US$8,500.
    "The relative decline in standard of living leaves the GTA in a
competitive conundrum: At a time when we must invest more in existing and new
assets to compete globally, we have fewer resources to do so," said Don
Drummond, Chief Economist at TD Bank Financial Group.

    A financial straightjacket

    A number of financial factors, particularly in the City of Toronto, also
undermine the GTA's ability to enhance the region's future prospects. Most
problematic is the City's structural deficit, which runs in the range of
$700-million to $1.1-billion. The $70-million shortfall in the City's 2007
budget - despite drawing down reserve funds - is indicative of the problem.
Addressing this challenge will require a multi-prong approach:

    Controlling costs and improving service delivery: The City's last budget
identified $124 million in savings and efficiency gains; double the previous
year. Yet reviews have not included the full range of programs, agencies,
boards and commissions. Increased regional cooperation could also unleash
benefits. Furthermore, the City must employ innovative approaches to service
delivery, such as public-private partnerships, which are an effective way to
reduce public expenditures.

    Uploading the costs of social services: The TD Economics report urges
Queen's Park to upload a share of the City's social services and social
housing costs, as it is more efficient to fund these programs through the
income tax base, and could remove up to $500-million from the City's operating
budget. On another front, significant resources continue to be drained away
from the GTA in the form of income distribution to other parts of Canada.
Policymakers must ask if this current redistribution scheme is sustainable in
today's age of increased global competition among city-regions.

    Choosing tax measures to increase efficiencies: Should the above two
approaches fall short of addressing the structural deficit, the City must
develop new revenue tools to reduce its dependency on property tax. A greater
tilt toward user fees represents a more efficient way to raise public funds.
They also enhance accountability, as the City faces greater scrutiny in
spending money it has collected directly than through transfer payments. The
garbage collection fee is a step in the right direction, though a simple "tag"
system would be more efficient than a sliding scale based on bin size.
    Mr. Drummond added: "The City's structural deficit acts as a financial
straightjacket, limiting its flexibility in managing pressing challenges.
That's why the City must consider a number of new revenue tools. However we
urge it to evaluate them on their efficiency and ability to achieve social
good. In this light, a road toll is a viable option. Not only is it a
user-fee, it can also help to reduce gridlock and pollution. Alternatives
including the land transfer tax fall short in both regards. No matter how
council votes on the proposed new sources, a significant challenge will still
exist, which we argue would be best addressed through more efficient tools."

    Opportunity trumps poverty

    The prospects of the poorest families in the GTA have worsened in the
past five years. The lowest 20 percent experienced an outright decline in
income from 2001 to 2005 - the only group to do so. Studies show this problem
has become most concentrated in the City's inner-suburbs and within the
immigrant population, despite the fact that newcomers are better educated and
more highly-skilled than their predecessors in the 1980s-90s.
    A key challenge is the self-perpetuating nature of poverty. Those
communities most affected tend to record high drop out rates and weak academic
performances. Moreover residents rarely have the same links to opportunities
as those who are better-off. All this poses a greater risk to social cohesion
in the region.
    Important steps have been made to address the root of the problem,
including welfare reform, an increase in minimum wage, the Canada-Ontario
Affordable Housing Agreement, and the Federal Working Income Tax Benefit. The
private sector and community groups have also initiated important programs.
Yet all parties are urged to redouble their efforts, particularly as the
region's population growth will rely predominantly on newcomers and their
successful transition from school to workforce is fundamental to the region's
overall prosperity.
    "Left on its own, the social ills of poverty spread across geographical
and generational boundaries. We need to step up and stop poverty in its
tracks. The best way to fight poverty is to provide opportunity. Government,
business and community groups must work together towards this end."

For further information:

For further information: Don Drummond, Chief Economist, TD Bank
Financial Group, (416) 982-2556, don.drummond@td.com; Derek Burleton, Senior
Economist, TD Bank Financial Group, (416) 982-2514, derek.burleton@td.com

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