Canada Taxes & Economics

Why Amazon HQ2 is Bad News For Toronto

In 2017, online retail giant, Amazon announced it’s intention to open a second headquarters in North America. This was met by a massive influx of responses as cities across the United States and Canada vied to declare their interest in the project. Some of whom, even included huge tax write-offs in their proposals to sway the decision in their favor. And last week, the business released a shortlist of the final 20 cities being considered for Amazon HQ2. Toronto is the only Canadian city on that list.

The second headquarters is expected to create 50,000 jobs and pump $5 billion in investment into the chosen city. As if this were not incentive enough, Canada as a whole would benefit from having a leading American business located and operating from within one of its cities. If Toronto succeeds with its bid, businesses will be encouraged to consider Canada rather the United States when deciding where to conduct their business. After all Canada has a lot to offer i.e. cheap labor and lower business tax rates than the US.

Toronto’s bid starts with a strong endorsement from Prime Minister Justin Trudeau and is divided into five sections that highlight what makes the city desirable: talent, business climate, quality of life, infrastructure and transportation. The city boasts the second greatest number of specialized degree holders in all of North America, behind only New York and attracts top international talent due to its welcoming immigration policy. Toronto offers its businesses cost advantages and Amazon could save up to $2 billion a year by locating there. It also has a great public transport system in place and is well on its way to becoming the next Silicon Valley. Almost any business would benefit from relocating here. And that is exactly what the bid tries to convey by selling Toronto as a cool, hip city. However, what’s good for Amazon is not good for Toronto.

Amazon has promised 50,000 tech jobs in the to-be-determined city, but may prove to be detrimental in the long-term. Amazon pays its employees top dollar, mainly to attract candidates of the right calibre and to keep them motivated, but this will drive up wages and make it harder for small businesses to retain their employees. When a big firm like Amazon moves into town, smaller firms tend to be the most effected. Amazon’s move will hinder start-ups considerably and Toronto must choose between short-term prosperity or long-term job creation.

When Amazon moved to Seattle in 2007, it detonated a city-wide gentrification bomb. Property prices skyrocketed and now the city has become very expensive to afford even on a $150,000  annual salary. Businesses, like Amazon are looking to relocate elsewhere and people are reluctant to move to Seattle. Similarly, with the tech takeover of San Fransisco, the city was overrun by overpriced coffee shops and pretentious restaurants. Toronto would suffer the same fate.

Image result for toronto amazon bid

Rent prices in Toronto could increase by a staggering 17%. There are currently 5,000 or so homeless people in the city and this number could very well increase by 2019, when Amazon is scheduled to open its second head office.  Congestion and never-ending construction is to be expected, but more importantly, can Toronto support 50,000 high income earners who all want nice homes and easy commutes? To make this even remotely possible, the Ontario government will have to shell out millions that could instead have been used on healthcare and education.

Amazon’s introduction would only serve to widen the income gap already present in Toronto, and long-term residents might find themselves pushed out in midst of the soaring prices and extensive changes. The e-commerce company may have doubts over moving to another country, especially with tensions with the Trump administration at an all time high. Their final decision could have larger implications for US and Canada relations. If this is the case, and Toronto is snubbed, it should view the decision as a blessing rather than a lost opening. Though, HQ2 is a great long-term opportunity, but the payment is also long-term.



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