Raise the Hammer

It's not draconian to use taxes to influence behaviour. Taxes (and tax breaks) are powerful tools of social engineering that are being used all the time. RRSPs and TFSAs only exist because the government wants to encourage Canadians to save for retirement so they don't have to subsidize you in your old age.

Similarly the "sin" taxes on a wide variety of products are more than a form of revenue, they're also done to engineer social behaviour, discourage overconsumption of certain items the government considers inappropriate.

When we look at the tax break for vacant buildings, it might not necessarily encourage an owner to vacate an existing building (since they'll have a negative net income from that property). However neither does it encourage owners to find a use for a vacant building. Owners may find renting out a building actually costs more than leaving it vacant once repair (some of them are in dire condition as we well know), property management, and higher taxes come into play.

It's similar to the welfare debate: People who start working at a part time job to try and become better off get their welfare clawed back, and never get ahead.

I think the big hurdle for a few of these projects is the capital costs in making the building usable again. The best way to address this is probably a tax holiday for new buildings/uses within the downtown core. This will give them a fixed period of time to recoup the capital outlay of making the building usable before placing a tax burden on them. It will make projects more financially attractive to investors, and at the end of the tax holiday even if that particular business finds it can't sustain itself, at least we have a rennovated usable building that another business can take a shot in, rather than starting the process over from scratch.