3 GOVERNMENT SPENDING

Government involvement in transport has changed significantly in recent years, especially at the federal level, producing reductions in subsidies, in government spending on transport operations, and in compensation for imposed public duties.

This chapter describes spending on transport by the various levels of government and their agencies. Where possible, both gross spending on the sector and revenues obtained from it are delineated, so that net spending can be identified. Most of the figures are presented for standard Canadian government fiscal years, from April 1 to March 31. The federal government figures are provided in the greatest detail, as they are the most complete and available.

A conceptual problem arises in identifying revenues to government by sector. Standard policy at all levels of government in Canada has been for revenues to be paid into the central "consolidated revenue" accounts, unconnected to the allocation of spending budgets; in other words, without hypothecation, or dedication to a specific budget. At the federal level, the policy has changed in some notable ways in recent years, with many of Transport Canada's main revenues from operations - the air transportation tax, or ATT (paid on airline tickets), revenues from federally operated airports and ports, air navigation fees, and a number of licence fees - effectively being paid into the department's budgets for those operations. With this process, known as "vote-netting," the budget allocated by Parliament is reduced by the amount of revenues received. However, this process is not normally used in provincial accounting systems, where, for example, vehicle licence fees are not applied to provincial transport department budgets. Nor is it usual for any component of municipal revenues to be charged specifically for roads or transit services, or applied to budgets for those services. And the major source of revenue raised directly from transport activity - taxes on fuels levied by federal and provincial/territorial governments - has in all instances been viewed as an important source of general government revenue, with no intention of dedication to the sector.

Table 3-1 shows total spending by all three levels of government (federal, provincial/territorial and municipal) on transport services, and indicates which agencies of government provide them. All transport services identified in the relevant accounts are included, with the (major) exclusion of road traffic policing costs, which are not distinguished from other policing in official accounts. It is also possible that some transport spending is overlooked as a result of being allocated within other budgets; possible examples are facilities constructed by parks departments or rural development agencies, or transport services provided within health or social services budgets.

The federal figures are shown net of those revenues mentioned above that are credited to specific services. As the figures at all levels are net of transfers from other levels of government, they indicate the amounts of final spending borne by each level. Federal figures are up-to-date, including estimates for 1996/97 based on actual spending during the nine months to December 1996. The compilations of provincial/territorial and municipal spending rely on Statistics Canada publications or special analyses, which are not yet available comprehensively for years beyond fiscal 1993/94.

Spending averaged nearly $17 billion during the early years of this decade. Over the three years shown, reductions at the federal and the provincial/territorial level were, together, in the order of 10 per cent, or about $1.2 billion, while municipal spending rose by about $800 million, or more than 14 per cent. An overall reduction of about $400 million resulted.

Without joining the debate over dedication, it is possible to describe those fees and taxes that are raised solely from transport users, providing revenues for the accounts of the relevant governments that are not forthcoming from activities in other sectors. Table 3-2 shows the major sources of such revenues: transport user licence and registration fees (primarily from motor vehicles) and fuel excise taxes imposed independently by federal and provincial governments. In the case of provincial/territorial fuel taxes, an attempt has been made to exclude any component equivalent to provincial sales tax. ^{note 1} The $11.4 billion in revenues raised in 1993/94 amounted to an increase of about 13 per cent over the previous two years. Fuel tax revenues continued to rise through the other years shown, as fuel use rose rapidly, especially with federal tax rate increases in 1995.

Expenditures by the federal government on transport include the entire budgets of Transport Canada, the Canadian Transportation Agency, the Transportation Safety Board of Canada, and the Civil Aviation Tribunal of Canada, as well as certain expenditures by other federal departments, notably:

• the Department of Fisheries and Oceans for the Coast Guard and a network of small harbours and ports;
• Heritage Canada, Public Works and Government Services Canada, Indian and Northern Affairs Canada and the National Capital Commission on roads under their jurisdiction; and
• federal subsidies to the Crown corporations in the transport sector (included as part of the budget of Transport Canada), and a number of other direct and indirect subsidies,which are enumerated below.

Actual gross spending (not accounting for revenues) by the federal government on transport during fiscal year 1996/97 is expected (at the time of writing) to be $3.1 billion, down from its peak of nearly $4.7 billion in 1991/92 (see Table 3-3 ).

As can be expected, Transport Canada spent the lion's share of those amounts - 75 per cent of the total in 1996/97. Departmental and total spending fell sharply during 1996 as a result of radical changes to the department's role in recent years. Operation of major airports has been gradually transferred to local agencies or other levels of government, the Canadian Coast Guard was transferred to the Department of Fisheries and Oceans in 1995, and ownership and operation of air navigation services was transferred to the private, not-for-profit corporation Nav Canada in 1996. Large reductions in direct subsidies were realized in 1996 compared to 1995, through the federal budget and subsequent action by the Minister of Transport, particularly to freight traffic under the Western Grain Transportation Act (WGTA) and the Atlantic Region Freight Assistance (ARFA) program, ^{note 2} previously paid by the National Transportation Agency. These reductions are largely obscured in the total spending by "Other" agencies because of the near-simultaneous transfer of the Coast Guard.

As a proportion of government spending, transport has declined significantly. In 1981/82, total federal gross spending on transportation represented 4.1 per cent of total federal spending; in 1996/97 that ratio had dropped to 1.8 per cent.

Transport Canada's major sources of revenues in recent years have been the ATT (charged on airline tickets), receipts from direct operations of airports or from leases for commercialized airports, air navigation fees (charged to carriers), and fees from direct operation of ports and harbours. With the extension of the department's policy of cost recovery in 1994/95, total revenues rose to a peak of almost $1.2 billion in 1995/96 (see Table 3-4).

However, devolution of air navigation services and airport operations has included the transfer of the revenue to the newly responsible agencies. The major changes have occurred in consequence of the transfer of air navigation services, previously funded directly from the ATT, and air navigation fees. In preparation for the transfer, the ATT was credited to the federal government's Consolidated Revenue Fund for the two years 1996/97 and 1997/98. A large reduction in Transport Canada revenues is expected as a result: $689 million in 1996/97 and as much as $780 million in 1997/98.

Nav Canada is to take sole control of revenues for its services in 1997/98, including the overflight fee introduced by Transport Canada in November 1995, which generated much higher air navigation fee revenues than were realized in previous years. Transport Canada's air navigation fees will thus cease during the coming year, and the ATT will be discontinued by 1999.

Transport Canada's most significant source of revenue is now major airports, which are leased on a long-term basis to Canadian airport authorities.

Direct Federal Subsidies to Transport

Throughout much of Canada's history, a large share of federal spending on transport has been in the form of direct subsidies, grants, or payments to Crown corporations. Recent policy has eliminated some major subsidies and reduced a number of others, such that in 1996/97, subsidies are about 49 per cent of what they were in 1993/94 (see Table 3-5).

For many decades, rail services received the largest proportion of federal subsidies. Of greatest significance were those for the transport of grain from Western Canada - which included direct subsidization of freight rates and the rehabilitation of the branch network - and those for the support of unremunerative passenger services judged to be in the public interest. The latter are mainly to Via Rail, the Crown corporation passenger carrier. Elimination of the WGTA and the Atlantic Region Freight Assistance program in 1995, together with successive reductions in payments to Via Rail, have combined to reduce rail's share of total direct subsidies from over a billion dollars in 1993/94 (65 per cent of subsidies) to less than $300 million in 1996/97 (about one-third).

The following tables provide details of the categories contained in Table 3-5, by transport mode.

In fiscal 1993/94, the $633 million in statutory payments under the WGTA accounted for more than 92 per cent of total freight subsidies, over 60 per cent of all rail subsidies and almost 40 per cent of all federal transport subsidies. This program has now been completely eliminated from the federal transport accounts (see Table 3-6).

The ARFA program has also been eliminated, with transitional payments from the transport accounts destined for highway improvements (see Table 3-7). Cuts in financial assistance to passenger rail have been gradual: payments to Via have dropped by about one-third ($107 million) over a three-year period.

Roads and Bridges

Federal subsidies for roads and bridges during the last three decades ( Table 3-7) have been primarily in the form of contributions under bilateral cost-sharing agreements with individual provinces, territories, or (occasionally) municipalities. The amounts have fluctuated substantially from year to year. Added temporarily since 1995 are the transition funds provided after the elimination of the ARFA program.

Trucking

Subsidies to trucking activity identified in Table 3-8 are primarily the payments to carriers under the Atlantic Region Freight Assistance program that were eliminated in 1995. The table also includes payments to provinces/territories under agreements to implement national Safety Code provisions (which applies also to bus transport).

Marine

Subsidies for both marine facilities and ferries have diminished over fiscal years 1993/94 to 1996/97 (see Table 3-9). Those for marine activities have either been substantially reduced or eliminated for a number of Crown corporations and activities. Subsidies to ferries are dominated by payments to Marine Atlantic Inc. for operation of its East Coast services (to Prince Edward Island, Newfoundland and Labrador, and in the Bay of Fundy). Lesser amounts are provided to a number of smaller services on the East Coast and an annual grant goes to the Government of British Columbia toward the operation of West Coast ferries. Total ferry subsidies fell to $133 million from $159 million over this period, primarily through reduced payments to Marine Atlantic.

Airports

The National Airports Policy of 1994 outlined plans for federally owned airports. In essence, Transport Canada retains ownership of 24 airports as part of the National Airports System, but is transferring their operation to Canadian Airport Authorities. The department is transferring both ownership and operations of regional, local and small airports to local entities, with Arctic airports being transferred to the territorial governments. Transport Canada retains ownership and operation of federal remote airports and remains responsible for all aspects of aviation safety. Table 3-10 provides subsidy details, which vary between $25 and $44 million over the period 1993/94 to 1996/97.

Other Transport Facilities and Services Provided at Federal Government Expense

In addition to the direct subsidization of services through money transfers to other agencies, certain facilities and services in the transport sector are provided through direct federal operations and funded from general revenues rather than through specific fees related to servicing recipients. As Transport Canada's role in the direct operations of the various elements of the transportation system decreased in recent years, so too did its net expenditures for airports, air navigation services, and harbours and ports.

User fees have increasingly been instituted as a way of ensuring that the cost of the service is borne to a greater extent by the user, rather than the taxpayer. Cost efficiencies introduced for all operations, including those of the Canadian Coast Guard, have helped to cap costs in recent years, and the restructuring of service delivery has resulted in transfers of a number of airports. The complete transfer of air navigation services to Nav Canada further reduced net government spending, and the recent integration of the Canadian Coast Guard into the Department of Fisheries and Oceans resulted in greater cost efficiencies. In consequence, total federal spending on operating these facilities and services has declined substantially. Table 3-11 shows the extent of spending on these activities during the past four fiscal years.

Federal Government Compensation for Imposed Public Duties

A normal feature of regulated transport industries is the requirement that carriers charge standard fees for services through their designated territory or network. This implies cross-subsidization of unprofitable services by those that are profitable (local services by express services, for example). Recognition of the inefficiencies and inequities of large-scale cross-subsidization led subsequently to the designation of those services considered to be in the public interest, and their direct subsidization from the public purse. Legislative and administrative mechanisms were devised (as in the National Transportation Acts of 1967 and 1987, the Railway Act and the Western Grain Transportation Act) to specify which services were required of carriers as public duties, and to determine the amounts of compensation for which they were eligible.

Such compensation to rail carriers for statutorily imposed public duties by the federal government consisted until recently of payments for Western grain transport under the WGTA, subsidies to railways for the continued operation of unremunerative branchlines under section 178 of the National Transportation Act, 1987 and subsidies to railways for the operation of unremunerative passenger services under section 290 of the Railway Act (other than those to Via Rail Canada, which as a Crown corporation received direct bud-getary funding). Amounts paid from 1993/94 to 1996/97 were identified in Table 3-6. With the elimination of the WGTA and the introduction of the Canada Transportation Act, all such statutory payments by the federal government for public duties imposed on rail carriers have been eliminated.

A statutory guarantee of service also exists for the principal ferry services from the mainland to Prince Edward Island (Cape Tormentine, New Brunswick, to Borden, Prince Edward Island) and Newfoundland (North Sydney, Nova Scotia, to Port-aux-Basques, Newfoundland). Expenditures on these services amounted to $61 million in 1995/96 and $51 million in 1996/97. The Prince Edward Island service will be replaced by the Confederation Bridge with federal payments for 35 years in lieu of the ferry subsidy forming part of the bridge financing. ^{note 3}

Provincial Government Expenditures on Transportation

In 1993/94, provincial and territorial governments spent $7.3 billion on transportation (see Table 3-12), increasing at a rate of 2.8 per cent per year over the period 1981 to 1994. By far the biggest item is spending on highways, roads and streets, accounting for 77 per cent of transportation spending in 1993/94. Transfers to provincial and territorial governments reached $213.8 million in 1993/94, the highest they have been in recent years.

Local Government Expenditures on Transport

By1993, gross expenditures by local governments had reached $8.4 billion (see Table 3-13). Over the period 1981 to 1993, these expenditures increased at an annual average rate of 6.2 per cent. Here again, roads and streets represent a large share of total expenditures on transport, some 81 per cent of total spending. That share has remained almost constant between 1981 and 1993.

note 1