Cities Have Outgrown Their Role as Mere Creatures of the Provinces

The Martin Prosperity Institute recently released the map below, which compares the GDP of several US metropolitan areas to the size of national economies. For instance, the Boston-Cambridge-Quincy metropolitan statistical area (MSA) has a GDP of $311.3 billion dollars. If it were a country, it would be the 40th biggest national economy on earth, ahead of countries such as Denmark ($310.1) and Greece ($303.4). The Houston-Sugar Land-Baytown MSA has a GDP of $378.9 billion, which would make it the 31st biggest national economy, bigger than Austria ($375.5) and Argentina ($368.9). New York-Long Island-Northern New Jersey ($1.28 trillion) isn’t all that far behind Canada ($1.57 trillion).

While trotting out such comparisons is an interesting exercise, the comparison also gives us some important perspective.  Despite the fact that these cities, as well as many others, produce as much as large countries, they have nowhere near the same fiscal levers at their disposal. Further, they are subservient to higher levels of government. The same problem exists in Canada. The Greater Toronto Area’s economic output ($233.9) is nearly equivalent to Finland’s total GDP ($270.6). Note that this definition is far less expansive than the US metro areas listed above. If the definition were expanded to include the entire Golden Horseshoe, it would be closer to the Size of Norway ($414.3 billion).  Yet the City of Toronto can’t finance a public transit expansion without the two senior levels of government. Calgary ($62.5 billion), roughly the size of Lithuania, couldn’t decide to create a municipal sales tax. Vancouver ($85.5 billion), slightly bigger than Serbia, can’t even decide how to allocate gas tax dollars without a special deal with the federal government.

The problem isn’t that we have too little government spending, but that revenue collection and spending decisions often happen at the wrong level. Revenue generation and spending should take place as close as possible to the point of delivery. There is no reason why someone in Moose Jaw should pay federal income taxes so that the Federal Government could partner with the province of New Brunswick to build a highway near Moncton. Similarly, there’s no reason why someone in Edmonton should send property tax dollars to the province so that it can pay for a transit expansion in Calgary. Not only is filtering money through multiple layers of bureaucracy inefficient, but it leads to bad decision making. Decisions both on the revenue, and expenditure side need to be made at the lowest level of government possible.

In order to ensure that cities can meet their infrastructure requirements, provincial governments should gradually devolve spending responsibilities and revenue generating capacities to the municipalities, and the federal government should end the practice of intervening in infrastructure issues altogether. Some municipalities may choose to raise property taxes, others may increase user fees, and still others may experiment with municipal sales taxes. But regardless of how municipalities decide to raise revenue, they are better placed to determine how much revenue is required, and which projects are really essential. More importantly, devolution gives more direct control over decision making to the people that are actually impacted by the decisions. Devolution means more accountability, and more local input. And if tiny Iceland can fund it’s own infrastructure, there’s no reason why Winnipeg or Edmonton couldn’t do the same.

This piece originally appeared at the Frontier Centre for Public Policy Blog.

Steve Lafleur is a public policy analyst with the Frontier Center for Public Policy.

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  • Provinces are still relevant

    In his recent book _The Limits of Boundaries_ (my review at, Andrew Sancton made the point that wider jurisdictions that the city or city-region remain relevant simply because urban areas expand so rapidly.

    In the specific case of the Toronto area, where do you draw the boundaries of the authority that's supposed to handle transportation (say) across the Greater Toronto Area? How do you create a cohesive sense of identity given that Toronto's own amalgamation from a half-dozen separate municipalities in the 1990s remains hugely controversial and a community spirit doesn't exist? Do you expand boundaries preemptively? What about outlying areas that want to retain their autonomy--are they to be forced to join? People like their boundaries and old communities, regardless of the complications as Brussels' altercations with Flanders and the failed merger of Berlin with Brandenburg proves. What happens as borders expand? Sancton made the point that as more of southern Ontario is drawn into Toronto's orbit, in order to avoid senseless frontiers the Toronto regional government would have to include most of southern Ontario. If this duplication--a Toronto metropolitan government, a Province of Toronto even--is the outcome, then what is the point of doing this?

    As for revenue collection, in the specific case of New Brunswick some external subsidies are needed if infrastructure in one of Canada's poorest provinces is to be maintained and the province not drop further behind the rest of Canada. Different areas have different resources available, and higher levels of government play a critical role in avoiding excesses of regional inequality. Too, they can prevent the hollowing out of particular regions--in the case of a Province of Toronto, what incentive would rump Ontario have to not adopt beggar-thy-neighbour measures in encouraging the outflow of jobs and wealth from a territory no longer under Ontarian rule?