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The Montreal Economic Institute urges Ottawa to reduce the tax load on air transportation

Airline sector's specific payments to the federal treasury rose on average by 19.6% a year between 2000 and 2005, reaching $793 million in 2004-05.


September 19, 2007
By Carey Fredericks

MONTREAL, Nov. 22 – With today's increasing liberalization of airline markets, the tax load that weighs down the Canadian airline industry is threatening the competitive position of companies in this sector and should be lightened, says an Economic Note published today by the Montreal Economic Institute.
Economist Stéphanie Giaume, author of the document, says the airline sector's specific payments to the federal treasury (excluding federal taxes that apply to all companies) rose on average by 19.6% a year between 2000 and 2005, reaching $793 million in 2004-05.

Federal revenues collected from the air transport sector come mainly from airport rents (38%), the air travellers security charge introduced in 2002 (37%) and the excise tax on aviation fuel (16%).

Airport rents
Rents paid by Canadian airports to the federal government have amounted to more than $2 billion in the period from 1996 to 2006. They form a major obstacle to the competitiveness of Canadian airports compared to U.S. airports, which are required to pay no such rents. Moreover, the rents paid by airports are shared unevenly. In 2004, Pearson airport had a 31% share of the Canadian air traffic market but paid 48% of the rents collected by Ottawa. This situation affects the landing fees billed to air carriers. Following a 6.9% increase in landing fees, Pearson became the most expensive airport in the world to land a Boeing 747 in 2006.

Excessive fees for security
The air travellers security charge levied by Ottawa is another source of competitive disadvantage for Canadian air carriers. The United States government has also imposed security fees since the attacks of 2001. But even adding the two applicable U.S. fees (the September 11 Security Fee and the Aviation Security Infrastructure Fee), the total amount imposed in the U.S. is lower than in Canada, where fees paid by passengers range from $4.95 per flight segment for domestic flights to $8.42 for transborder flights and $17 for overseas flights.

The aviation fuel tax creates a further disadvantage for Canadian air carriers because it is three times higher than the comparable U.S. tax.

"The tax load weighing down the Canadian airline industry not only creates an obstacle to traffic growth in Canada but also has negative effects on other sectors of the economy that depend heavily on air transport, such as tourism and international trade," the document concludes.

"Along with its policy of more open markets, the federal government should also reduce the tax load that weighs down the airline sector".

Titled Ways to make the Canadian airline industry more competitive, the document is available at www.iedm.org.