Rethinking Municipal Finance for the New Economy

Abstract

While ongoing economic and employment trends are constraining government revenues globally, municipalities in Canada face additional challenges due to their unique governance and fiscal context. Our latest report offers the first systematic analysis of the impact of these trends on municipal revenues, and identifies ways in which municipalities can modernize their approaches to revenue generation for the 21st century economy. The study highlights that municipal revenue tools in Canada are inordinately reliant on land-based approaches to value that are becoming less relevant in a borderless digital economy built on intangibles. As goods-producing sectors wane, workplaces shrink, mobile work becomes more popular and the knowledge economy gains momentum, non-residential property-tax – a key revenue source – as a proportion of total tax-revenues is threatened. As a result, reliance on the residential property tax base is increasing. How should municipalities respond? The key will be modernizing municipal revenue generation to reduce reliance on land-based tax sources. But this is complicated by the fact that municipalities in Canada are ‘creatures of the province’ with limited authority, and cannot introduce new revenue tools without provincial approval. In light of these realities, this study presents a range of strategic and tactical approaches that municipalities should consider.