Toronto city manager Peter Wallace was blunt about the city's addiction to the municipal land transfer tax in an address to Mayor Tory's executive committee Tuesday.

Wallace said the tax accounts for only 3.8 per cent of the gross revenue for the city but will bring in over $500 million from "real estate transactions" this year.

"In very practical terms, the city of Toronto has been a free rider on a real estate boom," Wallace said. "If that tax did not exist, the city of Toronto would have gone through the fiscal wringer a long time ago."

Wallace said council will have to ask itself if money generated by the tax can continue to be a reliable revenue source.

Coun. Shelley Carroll senses Wallace is going to be fairly strict and disciplined with council.

"What he's saying is how you tax the residents and what you promise them is purely political, and I need your political direction," she told CBC News.

Carroll said that since the land transfer tax was introduced, it's increased every year and if the housing market crashed or levelled off, "we'd have a problem and some serious decisions to make about how we're going to spend on services that year."

Council heard 'straight talk'

Coun. Gord Perks said that council heard "straight talk" Tuesday.

"Torontonians were told today if you want the services you currently enjoy and the things your council has promised to deliver, we're going to have to pay more.

"I hope my colleagues are now realizing you can't have your cake and eat it, too," Perks added. "You either pay for things or you don't deliver them."

Perks says "there isn't a future where the city delivers the same or better services and we pay less."

Tory said he isn't underestimating the challenge Wallace put forward but would stick to his pledge to limit property tax increases.

He said the tax only represents one source of revenue and there are other avenues the city can pursue to make up the money needed to balance the budget.

Tory said he's confident "we'll achieve a balanced budget with a property tax increase at or below the rate of inflation and we'll do that in a way that will allow us to enhance services."