3

GOVERNMENT SPENDING ON TRANSPORTATION

Introduction

This chapter describes the transportation expenditures and revenues of all three levels of government - federal, provincial/territorial and local. Where possible, expenditures and revenues are subdivided by mode.

The chapter begins by summarizing all transportation expenditures and revenues by levels of government. It then gives a synopsis of federal and provincial revenues from transportation users, followed by a detailed examination of consolidated expenditure by mode. Finally, it presents provincial/territorial and local government transportation expenditures.

Government Transportation Expenditures

This section covers spending on transportation by all levels of government and their agencies. Net expenditures are derived after taking into account the federal government revenues (other than fuel taxes) attributable to transportation users and government transfers received from other levels of government.

Table 3-1 shows that, over the past several years, total government net expenditures on transportation have consistently been in the $16-17 billion range. While the federal and provincial/territorial levels show no apparent pattern, the local government expenditures show a definite increase. From 1994/95 to 1998/99, net expenditures on transportation by local governments have increased, on average, by almost 2.5 per cent a year. Expenses by the provinces and territories increased by nine per cent in 1998/99, returning to the levels of the early 1990s.

Over the 1994/95 to 1998/99 period, net federal government expenses on transportation have been halved. Gross expenses by Transport Canada have been reduced by 52 per cent. Revenues dropped by 36 per cent, as a result of the divestiture of some airports and the elimination of the Air Transportation Tax (ATT) and other navigation fees from the federal government books. Prior to the airports being devolved, total revenues are included, while afterwards, only the lease payments to Transport Canada are shown. Other federal departments and agencies that have transport-related expenses include the Canadian Transportation Agency, the Civil Aviation Tribunal, Fisheries and Oceans Canada, Public Works and Government Services Canada, Heritage Canada (Parks Canada), the National Capital Commission, and Indian and Northern Affairs Canada. The transfers to Agriculture Canada of the adjustment for the elimination of the Western Grain Transportation Act (WGTA) subsidy, Treasury Board's infrastructure programs, and Public Works and Government Services Canada's Northumberland Strait Crossing are reflected in total expenditures by other federal agencies and departments. Over the period, gross transport expenses by all federal departments/agencies, other than Transport Canada, have fallen by 30 per cent.

Net expenditures on transportation by all levels of government in 1998/99 increased by $97 million, or 0.6 per cent, over the previous year's level. Both provincial and local governments showed an increase, while net transport expenses by the federal government fell by 33 per cent. Federal net transport expenses in 1999/2000 are expected to fall by $48 million, or three per cent.

The reduced share of federal expenditures recovered (20.8 per cent in 1999/2000 compared with 30.5 per cent in 1998/99) is tied to divestitures and commercialization initiatives. Former federal cost recovery responsibilities are now assumed by new entities.

Total Transportation Revenues by Level of Government

The federal government obtains revenues from the use of transportation facilities and services. Revenues from cost recovery are credited to a federal department's budget, while other revenues are credited to the government's Consolidated Revenue Fund. Both are included in this analysis. Excise fuel taxes collected by the federal and provincial governments, as well as provincial licence and other fees, constitute tax revenues collected from transport users. They are reported in Table 3-2.

In 1999/2000, federal government transport revenues, other than fuel taxes, are forecast to total $404 million, down from $700 million in the previous year and $1.0 billion in 1997/98. Most revenues originate from airport lease revenues, which should reach $263 million. Marine fees are to bring in an additional $79 million.

The Air Transportation Tax (ATT) has not been credited to Transport Canada since 1996/97, but is included here because its proceeds were subsequently transferred to NAV Canada to finance its operations. The sunsetting of the ATT is responsible for the substantial revenue reduction in 1999/2000. Other revenues not credited to Transport Canada, such as those from the leases of hopper cars or the sale of port assets, are also reported in Table 3-2.

In 1998/99, revenues collected from transport users as fuel taxes, and permit and licence fees by the provincial/ territorial governments, totalled $14 billion, an increase of 3.7 per cent over 1997/98. By far the largest component is fuel taxes, averaging 78 per cent of total government annual revenues from transportation from 1994/95 to 1998/99. Over the same period, the annual growth rate of fuel tax revenues and of licence and permit revenues was comparable.

Federal Expenses Related to Transport Facilities and Services

The federal government provides transportation facilities and services in all modes. As shown in Table 3-3, these include airports, port and harbour operations, modal safety and policy services, and services provided by the Canadian Coast Guard (now part of the Department of Fisheries and Oceans). The federal government also performs several multimodal activities, including the investigation of accidents and the regulation and monitoring of the transport of dangerous goods.

Between 1996/97 and 1998/99, direct federal transport expenses fell from $2.2 billion to $1.4 billion. The transfer of the operations of the Air Navigation System (ANS) to NAV Canada accounts for 65 per cent of the decline. In 1999/2000, the operating and capital expenses of the federal government in transport are forecast to increase by 0.6 per cent from the 1998/99 levels.

The Canadian Coast Guard now represents the largest single federal transport expense ($514 million by 1999/2000). The costs of operating federal ports and airports should reach $224 million by 1999/2000, down from $489 million in 1996/97. This reflects divestiture initiatives. Expenditure on safety and policy are forecast to reach $303 million by 1999/2000, up from $249 million in 1996/97, in accord with Transport Canada's increased orientation to a policy and safety role. Direct expenses on roads are forecast to fall from $175 million in 1996/97 to $148 million in 1999/2000.

Federal Subsidies to Transportation

Total direct federal subsidies, grants and contributions in 1999/2000 are projected to be $570 million, 38 per cent less than in 1998/99. This major reduction can be explained by the elimination of payments to NAV Canada and by the decline in highway transfers as transition and infrastructure programs are finishing. Since 1995/96, subsidies and transfers have fallen by more than 50 per cent. Subsidies to freight transport and ferry operations were either eliminated or substantially reduced. Highway transfers were also reduced. Table 3-4 gives more detail.

Distribution of Provincial/Territorial and Local Expenditure by Province

In 1998/99, provincial/territorial and local governments' spending on transportation amounted to $14.5 billion. This was a 6.6 per cent increase from 1997/98 and reversed two consecutive years of decline. The 1998/99 spending levels are higher than in 1995/96. Figure 3-1 illustrates the trends in provincial and local transport expenses from 1994/95 to 1998/99. Table 3-5 also gives more details.

Since 1994/95, transport spending by provincial and local governments has increased by 6.3 per cent. The largest increases were recorded in Prince Edward Island, Saskatchewan and Newfoundland. Expenditures have declined only in Quebec.

Federal transfers are equivalent to 2.7 per cent of transport spending by local and territorial governments. In 1998/99, Newfoundland was the province most dependent on federal transfers, which accounted for more than 24 per cent of its spending on transport. Table 3-6 shows more data on transport expenditure and revenues by mode and level of government.

Spending on roads and highways is the most important category of transport-related expenditure for all provinces, although other modes are equally important for some. The proportion for road and highway spending ranged from almost 100 per cent in Prince Edward Island, to only 44 per cent in the Northwest Territories, which spends more on air transportation (38 per cent) because of its remoteness.

Transit spending is the most substantial in Ontario, where it accounts for 24 per cent of provincial and local transport expenditures. High levels of spending on transit in Ontario reflect the settlement of commitments made prior to services realignment. Expenditures on transit are also significant in Quebec, where this sector represents 18 per cent of the local and provincial transport budgets.

Overview of Expenditures and Revenues by Mode

This section summarizes consolidated federal expenses and revenues by mode over the 1996/97 to 1999/2000 period. It also shows expenditures by other levels of government, netted against transfers received from other levels of government, from 1996/97 to 1998/99.
Table 3-6 gives detailed information on this.

In 1998/99, the air mode accounted for four per cent of gross spending on transportation, a decline of 57 per cent since 1996/97. Aviation users contributed the most, 85 per cent, to government revenues. As a result, net spending in aviation was only 0.5 per cent of net government transport expenditure in 1998/99.

Spending in the marine mode is responsible for about five per cent of government annual transport spending in 1998/99. Since 1996/97, expenses have been reduced by 12 per cent. Revenues from users were the same in 1998/99 as in 1996/97. However, they are projected to increase by nine per cent in 1999/2000.

Rail mode spending has fallen by 14 per cent since 1996/97. In 1998/99, it accounted for only 1.5 per cent of gross government spending on transportation. While most of the outlays are subsidies, revenues accrue in large part from the leasing of hopper cars. Recently, the provinces have reduced their spending on rail transport to less than $2 million a year.

Total spending on roads and transit systems was close to $14.4 billion in 1998/99, 2.1 per cent more than in 1997/98. Since 1996/97, the growth has been 2.2 per cent a year. Public expenses on transit systems have grown at a faster rate, 9.3 per cent, to reach $2.4 billion in 1998/99. This is one of the few transportation expenditure components that has shown a regular increase. In 1998/99, spending on roads and transit systems accounted for nearly 90 per cent of all net government expenditures on transportation.

The federal role in roads and transit systems consists of contribution to federal-provincial cost shared agreements, overseeing the management of the Confederation Bridge, and small road programs managed by federal departments other than Transport Canada; the maintenance of two Montreal bridges; a safety and policy function; transfer payments to provincial or local authorities; and small grants/subsidies to road users. Altogether, these expenses fell to $525 million in 1998/99, a drop of 48 per cent from the previous year. Expenses are expected to further fall to $400 million in 1999/2000.

The category "Other" in Table 3-6 includes overhead expenses by all levels of government expenditures related to multimodal policy, safety and economic analysis functions, as well as other activities such as Transport Canada's Security and Emergency Preparedness, and Research and Development. About four per cent of total net transport expenses are allocated to this category. Most of the revenues are recoveries from other departments for the provision of research projects or from fines and permits issued by Transport Canada.