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Tuesday, 20th February 2007

Excess Baggage: Measuring Air Transportation’s Fiscal Burden

Excess Baggage: Measuring Air Transportation’s Fiscal Burden (PDF; 220 KB)
Source: C.D. Howe Institute

This Commentary introduces a new and unique analysis, comparing the effective tax rates on airline costs in Canada with those in other sectors and in the United States. In Canada, the marginal effective tax rate on airline costs is 14.5 percent, compared to 10.6 percent for passenger rail, for example. Canadian airlines also face a heavier tax burden than their counterparts in the US: The effective tax rate on airline costs for domestic flights is 16.8 percent in Canada, compared to 12.0 percent in the US. For international flights, the effective tax rate is 11.2 percent in Canada, compared to 8.9 percent in the United States.

If the aviation sector is to be at its most productive in facilitating personal and commercial travel, tax policy changes are in order. This Commentaryidentifies sensible places to begin. Among them:

  • reforming fuel taxes, which are problematic in their unequal application across provincial and international borders;
  • balancing the government’s airport security charge revenue with spending on security;
  • revising the rent formula so that Canada’s various airport authorities pay no more than the imputed rental value of the assets that they inherited from the government;
  • reducing the air transport sector’s effective tax rate relative to other sectors;
  • launching a review of airline ownership restrictions, and a reconsideration of their role in the global economic environment.



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