According to the KPMG report Competitive Alternatives 2008,16 the Toronto CMA does well on its total tax index, which measures total tax paid by businesses relative to their pre-tax income. This report uses the KPMG index to benchmark the Toronto CMA against 13 other metropolitan areas. On this basis, Toronto ranks fifth out of 14, better than all U.S. cities and earning Toronto an “A†Grade. This result, however, masks a very important issue: namely the business property tax differential between the City and the 905 region. This matter is not addressed in the KPMG study. The lacklustre economic performance of the City vis-à -vis the 905 region over the past 20-plus years has been attributed in part to the City’s higher business tax. A 2005 report prepared by the Canadian Urban Institute for the Toronto Office Coalition found that, in part due to this tax differential, there has been a 25 to 50 per cent increase in assessment value in other Greater Toronto Area municipalities between 1992 and 2005, compared with a decrease in Toronto’s assessment base over the same period.17 A companion report by the economist Peter Tomlinson notes that “instead of being driven by economic fundamentals, investment [due to the 416 / 905 tax-rate differential] is artificially driven outside the Toronto boundary.â€18 From 1992 to 2007, non-residential building permits have grown almost twice as fast in the 905 region — by 13.2 per cent per year compared with 7.1 per cent per year in the City. This rapid economic development has led to much faster employment growth in the 905 portion of the CMA (see “Job Growth in Toronto CMA†on page 38). No doubt, the fast pace of job creation in the 905 region attracted many new residents to that region. During the past 15 years, population growth averaged 3.4 per cent per year, compared with 0.9 per cent per year in the City. Given the importance of population growth in the determination of potential economic growth, the City has
reason for concern.