4. Government Spending on Transportation
With the overall reduction in subsidization and infrastructure
commercialization initiatives, total government spending on transportation
came down.
This chapter describes expenditures on and revenues from transportation
by all three levels of government - federal, provincial/ territorial and
municipal. It discusses subsidies to transportation by mode, as well as
the provision of facilities and services that are provided at public expense.
In addition, the chapter looks at the services provided by transportation
operators for imposed public duties. The figures presented are for standard
Canadian government fiscal years, from April 1 to March 31, unless otherwise
indicated.
Traditionally, government's involvement in transportation essentially
fell into three functions: regulation (economic and safety), provision of
infrastructure, and subsidization and production of transportation services.
Over the last few years, government's role in transportation has been redefined
and the economic regulatory framework has been lessened, paving the way
for a significantly greater role for market forces.
Government Transportation Expenditures and Revenues
Expenditures by Level of Government
This section covers spending on transportation by all levels of government
and their agencies, including operating costs, such as salaries, capital
expenditures and grants, as well as contributions and payments to corporations.
Where possible, gross spending on the sector and revenues obtained from
it are shown separately.
Most government revenues derived from a transportation activity or use
of a facility or service are not specifically earmarked for expenditures
in that sector. Instead, they are deposited into the government Consolidated
Revenue Fund. Federal and provincial/territorial revenues raised from taxes
on fuels, for instance, are considered an important source of general government
revenue - they are not allocated to the transportation sector.
Some other transportation revenues, however, such as those derived from
federally operated airports, are credited to Transport Canada's budget.
Until recently, the air transportation tax or ATT paid on airline tickets
was credited to Transport Canada's budget. This procedure, known as "vote-netting,"
is used mainly by the federal government. Parliament approves a voted amount
of money (net expenditures) to which vote netted revenues are deleted to
provide the total funds (gross expenditures) available for a program. Since
1996/97, the ATT has been credited to the Consolidated Revenue Fund and
Parliament has increased the voted (or "net") expenditures by
an equivalent amount.
For all levels of government, net expenditures on transportation dropped
to just over $15 billion in 1996/97, with the federal government accounting
for 18 per cent and the provincial/ territorial and municipal governments
for 41 per cent each. Table 4-1 shows the net transportation expenditures
by level of government.
Non-Credited Government Revenues
Government revenues collected from transport users that were not directed
to the transportation budget grew at an average rate of 4.7 per cent over
the past five years to reach $12.4 billion in 1996/97. These revenues come
mainly from motor vehicle use: permit and licence fees collected by the
provincial and territorial governments, and fuel taxes collected independently
by both the provinces/territories and the federal government.
Fuel taxes make up close to 80 per cent of the total of non-credited
taxes in 1996/97. Over the years, this percentage has increased as licence
fee revenues have grown at an average annual rate of just under three per
cent, while fuel tax revenues have risen an average of five per cent. Table
4-2 shows the non-credited government revenues from transport from 1991/92
to 1996/97.
In the case of provincial fuel taxes, an adjustment has been made to
deduct an amount equal to that of the provincial sales taxes where sales
tax is not levied on fuel. This adjustment is based on the assumption that
some fuel taxes replace provincial sales taxes. The intention here is to
identify only those taxes specific to transport use. Approximately $600
million is deducted per year.
Federal Expenditures and Revenues on Transportation
Gross Federal Expenditures
Expenditures on transportation by the federal government 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.
Spending includes operational and capital expenditures, subsidies, and grants
and contributions to Crown corporations and other "transportation"
entities.
Actual gross spending (not accounting for revenues credited to the budget)
by the federal government on transportation during fiscal year 1996/97 reached
$3.3 billion, after peaking at $4.7 billion in 1991/92. Spending in 1997/98
is expected to drop to $3.1 billion. Table 4-3 shows federal government
spending on transportation from 1991/92 to 1997/98.
Transport Canada's gross expenditures on transportation accounted for
about 76 per cent of total federal spending on transportation in 1996/97.
The department has shifted its focus from being an operator and subsidizer
to concentrating on the core areas of developing policy and legislation,
and enforcing safety and security standards.
To put federal spending on transportation into perspective, in 1981/82,
those expenditures represented 4.4 per cent of total federal spending. In
1996/97, that ratio dropped to two per cent and even further decreases are
expected in 1997/98.
Transport Canada Expenditures
As more and more departmental operations were transferred to other entities,
Transport Canada's budget was reduced accordingly. Operating expenditures
amounted to almost $1.8 billion in 1991/92, accounting for as much as 55
per cent of the entire budget. This declined to slightly more than half
a billion in 1997/98, representing less than 25 per cent of the total Transport
Canada budget. Table 4-4 shows Transport Canada's gross spending on transportation.
Transport Canada Revenues by Mode
Transport Canada raises revenues through airport fees and leases, and
port and harbour fees, which are credited to the departmental budget. These
cost recoveries amounted to $587 million in 1996/97 after peaking at almost
$1.2 billion in 1995/96, when the air transportation tax was still credited
to the departmental budget. Beginning in 1996/97, that tax was credited
to the Consolidated Revenue Fund. Revenues from it amounted to $737 million
in 1996/97, with estimates of $782 million for 1997/98. Table 4-5 shows
transport revenues credited to Transport Canada from 1991/92 to 1997/98.
In preparation for the privatization of the Air Navigation System (ANS),
which took place in November 1996, the department also introduced an overflight
fee in 1995 that resulted in higher revenues in 1995/96 and 1996/97 than
in previous years. With the sale of the ANS to Nav Canada, Transport Canada's
revenues from air navigation fees ceased on November 1, 1996. The air transportation
tax was reduced on March 1, 1998 and will be discontinued by November 1,
1998. It will be replaced by user charges by Nav Canada based on full cost
recovery.
With the loss of revenues from the air transportation tax, one of the
most important sources of revenue for Transport Canada will be the leases
paid by local entities looking after airport operations. By 1997/98, these
revenues will account for almost 70 per cent of the department's total revenues
despite the fact that, in absolute terms, this sum will be significantly
less than it was in 1991/92.
Cost Recovery Levels
Up until 1995/96, Transport Canada was recovering about one third of
its expenditures, which include operations and maintenance, as well as capital
expenditures and subsidies. In 1997/98, this percentage came down to 9.3
per cent. Table 4-6 shows Transport Canada's level of cost recovery since
1991/92.
Federal Subsidies to Transportation
Direct Federal Subsidies
For many decades, direct grants and contributions or payments to Crown
corporations represented significant expenditures on transportation. Although
recent policy changes have reduced some subsidies, such as those to VIA
Rail, or eliminated many large ones, such as those for the transport of
grain from Western Canada under the Western Grain Transportation Act
(WGTA) and the Atlantic Region Freight Assistance (ARFA) program,
some funds are still being paid out to ease the period of transition.
Subsidies are still being made as transition payments to the ARFA program
to upgrade the road network in the Atlantic region and Eastern Quebec. In
addition, the province of Newfoundland will receive some $350 million in
1997/98 for taking over the Labrador Ferry services.
Large interim payments (the air transportation tax) are also being paid
up to November 1998 to Nav Canada until it can put charging mechanisms in
place to recover costs. Therefore, it is not surprising that subsidies to
air, road and marine continue to appear high.
For rail services on the other hand, which until recently received the
largest proportion of federal subsidies (66 per cent of all direct subsidies
in 1993/94), the share has dropped to less than 15 per cent in 1997/98.
Table 4-7 shows the total direct federal subsidies, grants and contributions
from 1993/94 to 1997/98.
Rail
Direct subsidies to rail were over one billion dollars in each of the
two fiscal years 1993/94 and 1994/95. In those same years, payments under
the Western Grain Transportation Act (WGTA) accounted for close to
two thirds of total subsidies to rail and over 92 per cent of total subsidies
to rail freight. Starting in 1996/97, this program was completely eliminated,
as was the Atlantic Region Freight Assistance (ARFA) program. Combined
with reductions to VIA Rail support ($127 million over a four-year period),
total rail subsidies dropped to $281 million in 1996/97 and to $259 million
in 1997/98, or around 25 per cent of their peak value in 1993/94. Table
4-8 shows the federal government's subsidies made to the rail sector.
Roads and Bridges
Over the last few decades, direct federal subsidies for highways and
bridges have been primarily in the form of contributions under bilateral
cost-sharing agreements with individual provinces, territories and (occasionally)
municipalities. Subsidies totaled $317 million in 1996/97 and are expected
to increase to $322 million in 1997/98, equal to their level in 1995/96.
Without the transition payments to the Atlantic Region Freight Assistance
program in 1997/98, that total would have accounted for about ten per cent
of total federal transportation subsidies compared with 15 per cent in 1993/94.
Table 4-9 shows federal subsidies made to highways and bridges from 1993/94
to 1997/98.
Trucking
Subsidies to trucking activity shown in Table 4-10 are mainly identified
as payments under the ARFA program, which was eliminated in 1996.
The table also shows payments to provinces and territories under agreements
to implement National Safety Code provisions. Total direct subsidies to
trucking are expected to represent less than half of one per cent of total
federal transportation subsidies in 1997/98.
Marine
Although federal subsidies for ferries and marine facilities have dropped
from $171 million in 1993/94 to $148 million in 1996/97, the beneficiary
share of total federal transportation subsidies has increased from
11 to 14 per cent over the same period. Here again, subsidies have been
either eliminated or substantially reduced. Over the fiscal period 1993/97,
subsidies to ferries, dominated by payments to Marine Atlantic Inc., represented
more than 75 per cent of total marine subsidies. In 1997/98, total ferry
subsidies is dominated by a $348 million one-time payment to the province
of Newfoundland for the Labrador ferry services buyout. Without that payment,
total subsidies for marine activities and ferries would total $132 million.
Table 4-11 shows federal subsidies for the marine sector.
Air
Subsidies to air activities include those to airports, aviation and Nav
Canada. The National Airports Policy (NAP) of 1994 outlined plans for federally
owned airports. Transport Canada will retain ownership of 26 major airports
that make up the National Airports System (NAS). The operation of these
airports, however, will be transferred to local airport authorities. Many
of the NAS airports require no subsidies and those that do are still operated
directly by Transport Canada. The net costs of their operation therefore
are reflected as direct expenditures and discussed in that section of this
chapter.
The department is also transferring both ownership and operational responsibility
for regional, local and small airports to local authorities. Airports that
have been transferred will continue to receive subsidies for a certain number
of years. Contributions to the International Civil Aviation Organization
(ICAO) and smaller amounts paid in accordance with other international agreements
for air navigation and airways are shown under Aviation in Table 4-12.
As for Nav Canada, it will continue to receive the proceeds of the air
transportation tax as a form of subsidy until its own fee schedule for overflight
traffic is in place. If payments to Nav Canada are excluded for the fiscal
periods 1996/97 and 1997/98, total air subsidies in those two years amount
to $35 and $49 million, respectively.
Other Transport Facilities and Services Provided at Federal Government
Expense
Indirect Subsidies to Transportation
Apart from the direct subsidization of services through money transfers
to other entities, certain transportation facilities and services are provided
through direct federal operations and funded through specific departmental
or agency budgets. However, in recent years, Transport Canada's role in
the operation of various elements of the transportation system has diminished,
as have the department's expenditures on airports, air navigation services,
and harbours and ports. In addition to this, when the direct user of a service
is clearly identified, fees have either been instituted or increased, reducing
net expenditures even further. Furthermore, cost efficiencies related to
the integration of Canadian Coast Guard operations with the Department of
Fisheries and Oceans have helped cap expenditures on many operations. Table
4-13 shows federal spending on transportation facilities and services from
1993/94 to 1997/98.
Federal Compensation for Imposed Public Duties
When the government's role with respect to transportation was one of
regulating the industry (economic regulation), it was also directly subsidizing
transportation services in specific geographic areas that could not be serviced
without the carrier incurring a loss. Subsidized services were considered
to be in the public interest. Services that fell into this category were
referred to as "imposed public duties." Legislative and administrative
mechanisms, such as those in the National Transportation Acts of
1967 and 1987, the Railway Act, and the Western Grain Transportation
Act, were put in place to specify which services were required of carriers
as public duties, and to determine the amount of compensation for which
they were eligible.
Until recently, compensation to rail carriers by the federal government
for statutorily imposed public duties consisted of payments for western
grain transport under the Western Grain Transportation Act; subsidies
to railways for the continued operation of unremunerative branch lines 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 budgetary funding). With the
elimination of the Western Grain Transportation Act and the introduction
of the Canada Transportation Act, all such payments to rail carriers
were eliminated.
Statutory payments for imposed public duties exist for ferry services
such as between North Sydney, Nova Scotia, and Port-aux-Basques, Newfoundland.
Such payments to ferry services are not so much reflecting an "imposed
public duty" but constitutional obligations. Subsidies for these services
are included in Table 4-11 under Marine Atlantic Inc. and amount to $23.4
million in 1996/97 and $26.3 million in 1997/98.
Provincial Expenditures
In 1996/97, provincial and territorial governments spent about $7.4 billion
on transportation. The amount of this spending has fluctuated between this
level and $8 billion over the past six years. Both operating and maintenance
(including salaries) and capital expenditures accounted for about 36 per
cent each of their total gross spending in 1996/97, while transfers accounted
for 27 per cent. (Many provinces have moved to unconditional grants to municipalities
and, in many cases, it is no longer possible to trace amounts spent on transportation.
For this reason transfers spent on transportation may be under-reported.)
Spending on highways is by far the most important and amounted to $5.8
billion in 1996/97 or about 78 per cent of the total spending. This proportion
has remained more or less constant over the past five years. Spending on
transit is the next most important and amounted to $1.3 billion in 1996/97,
it has remained at about 17 per cent of total spending during the past five
years. Like total provincial transportation spending on both highways and
transit have fluctuated over the past six years not showing any real trend
while spending for the other modes as well as multimodal spending have all
declined. Multimodal spending includes specific spending on more than one
mode of transport as well as general departmental administration expenditures.
Federal transfers to the provinces and territories for transportation
were $265 million in 1996/97 and constituted only about 3.6 per cent of
gross provincial/territorial transportation spending. Federal transfers
have risen ten per cent a year over the past five years. The main increase
has been since 1993/94 and reflects road agreements as well as transition
payments in relation to the phase-out of the Atlantic Freight Rates Program.
Provincial and territorial transportation spending, net of federal transfers,
was $7.2 billion in 1996/97. This sum accounted for about 4.7 per cent of
their total government spending. This percentage has been falling in recent
years. By province, this percentage varies from a low of three per cent
in Newfoundland and Quebec to a high of 11 per cent in the Yukon. It is
five per cent in Ontario (Table 4-14).
Local Government Expenditures
In 1996, local governments in Canada spent a total of $7.8 billion on
transportation. If the $1.7 billion in transfers from other levels of government
is taken out, net local governments expenditures on transportation totaled
$6.1 billion. Over the period 1991 to 1996, local government expenditures
grew at an average annual rate of 1.2 per cent. They reached a maximum of
$8.4 billion in 1995. Spending on roads and streets have been falling in
relative terms while transit related expenditures have increased slightly.
Spending on roads and streets accounted for approximately 77 per cent of
total local government expenditures. Transfers to local governments were
$1.7 billion in 1996, about the same as in 1991, although they rose significantly
in 1994 and 1995. This increase came from the Special Infrastructure Program
and the resulting increase in federal transfers to local governments in
the past three years (Table 4-15).
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