A better way to save 2.6%

Late last year, some colleagues and I released a report on called ‘The Cost of Poverty in Toronto’. We found that poverty costs the Toronto economy between $4.4 and $5.5 billion per year. For this discussion, I will use a figure of $5 billion.

Since Toronto has never been poverty-free and there is no comparable city that has ever eradicated poverty, it is a difficult figure to calculate. In the absence of hard evidence, we looked at poverty-related costs incurred by the poorest 20 per cent of people in Toronto (the lowest quintile) compared to the cost profile of the next quintile of people (the second lowest quintile).

The second lowest quintile pays higher taxes while incurring far fewer costs related to healthcare, the courts and justice system. If the lowest quintile behaved in the same way as the second 20 per cent, their costs to the Toronto economy would be $5 billion lower.

The City of Toronto is proud to say that the local economy is responsible for 10 per cent of the nation’s GDP or approximately $184 billion take or leave a few billion.

Five billion dollars is 2.7 per cent of our $184 billion economy.

But what share of this $5 billion is ‘owned’ by the municipal government in Toronto?

The best way to answer that question is to look at the city government’s share of the economy. The city’s budget is $10.4 billion.

Therefore, the 2.7% cost of poverty attributable to the city’s budget runs to about $285 million.

In the context of the city’s budget debate, Mayor John Tory and Budget Chief Gary Crawford have floated proposals to save 2.6% through cuts. But we know these cuts would have a disproportionately negative effect on the poor which, in turn, would raise the costs of poverty.

We have therefore come to an important fork in the road.

Why? Because the city could count on saving 2.7% over time if it did its share to eliminate poverty starting now.

Toronto can pursue austerity and cuts or realize longer term savings through investment in poverty reduction.

This is the stark choice now before Council.

But since poverty has a cost to all sectors, Toronto can’t act alone to eliminate the problem. A coordinated approach is needed.

It is not up to the city government to create full employment but has an important role, as do the other levels of government, to create the policies that foster full employment.

And as Mark Carney used to tell us: the private sector has to play its part as well.

The city also has a role in promoting a living wage that would take people out of poverty and turn them into taxpayers and it can play a role in creating a safer and healthier city.

But the city of Toronto could lead the way and issue an important challenge to other levels of government and the private sector.

As our report says, the $5 billion cost of poverty is an unnecessary drag on Toronto’s economy and forms part of the reason we are in the fiscal difficulties we face today.

So perhaps rather than trying to reduce the city’s budget by 2.6% through cuts, the city government could more usefully apply itself to reducing its own share of the cost of poverty and in time, eventually save the same amount and perhaps a bit more.

And the Toronto we would create would be a much better place for all of us.