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37th PARLIAMENT, 2nd SESSION

Standing Committee on Transport

EVIDENCE

CONTENTS

Tuesday, December 10, 2002

1600

The Chair (Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.))

Mr. Stan Keyes (Hamilton West, Lib.)

The Chair

Mr. Randy Williams (President and CEO, Tourism Industry Association of Canada)

The Chair

Mr. Martin Taller (Director, The Association of Canadian Travel Agencies)

The Chair

Mr. Dan Adamus (Vice-President, Canada Board, Air Line Pilots Association International)

The Chair

Mr. Randy Williams

1605

The Chair

Mr. Stan Keyes

1610

The Chair

Mr. James Moore (Port Moody—Coquitlam—Port Coquitlam, Canadian Alliance)

Mr. Stan Keyes

Mr. James Moore

Mr. Stan Keyes

The Chair

Mrs. Bev Desjarlais (Churchill, NDP)

The Chair

Mr. Mario Laframboise (Argenteuil—Papineau—Mirabel, BQ)

The Chair

Mr. Stan Keyes

The Chair

Mrs. Bev Desjarlais

The Chair

Mr. Martin Taller

1615

The Chair

Mr. Dan Adamus

1620

1625

The Chair

Mr. James Moore

1630

Mr. Dan Adamus

Mr. James Moore

Mr. Dan Adamus

Mr. James Moore

Mr. Dan Adamus

Mr. James Moore

Mr. Art LaFlamme (Senior Representative, Air Line Pilots Association International)

Mr. James Moore

Mr. Art LaFlamme

The Chair

Mr. Mario Laframboise

1635

Mr. Randy Williams

Mr. Mario Laframboise

The Chair

Mr. Mario Laframboise

Mr. Randy Williams

1640

The Chair

Mr. Roger Gallaway (Sarnia—Lambton, Lib.)

Mr. Randy Williams

Mr. Dan Adamus

Mr. Martin Taller

Mr. Roger Gallaway

Mr. Dan Adamus

Mr. Art LaFlamme

Mr. Randy Williams

Mr. Martin Taller

Mr. Roger Gallaway

The Chair

Mrs. Bev Desjarlais

The Chair

Mrs. Bev Desjarlais

1645

The Chair

Mrs. Bev Desjarlais

The Chair

Mrs. Bev Desjarlais

Mr. Randy Williams

Mr. Martin Taller

Mr. Dan Adamus

The Chair

Mr. Art LaFlamme

The Chair

Mrs. Bev Desjarlais

1650

The Chair

Mrs. Bev Desjarlais

The Chair

Mrs. Bev Desjarlais

Mr. Dan Adamus

The Chair

Mr. Marcel Proulx (Hull—Aylmer, Lib.)

Mr. Randy Williams

Mr. Marcel Proulx

Mr. Randy Williams

Mr. Marcel Proulx

Mr. Randy Williams

Mr. Marcel Proulx

Mr. Randy Williams

Mr. Marcel Proulx

Mr. Randy Williams

Mr. Marcel Proulx

Mr. Randy Williams

The Chair

Mr. Dan Adamus

Mr. Marcel Proulx

The Chair

1655

Mr. Marcel Proulx

The Chair

Mrs. Lynne Yelich (Blackstrap, Canadian Alliance)

Mr. Art LaFlamme

Mrs. Lynne Yelich

Mr. Art LaFlamme

Mrs. Lynne Yelich

Mr. Art LaFlamme

The Chair

Mr. Mario Laframboise

Mr. Dan Adamus

Mr. Mario Laframboise

Mr. Dan Adamus

Mr. Mario Laframboise

Mr. Randy Williams

1700

The Chair

Mrs. Bev Desjarlais

Mr. Dan Adamus

Mrs. Bev Desjarlais

Mr. Art LaFlamme

Mrs. Bev Desjarlais

Mr. Art LaFlamme

Mrs. Bev Desjarlais

Mr. Art LaFlamme

1705

Mrs. Bev Desjarlais

Mr. Dan Adamus

Mrs. Bev Desjarlais

Mr. Art LaFlamme

Mrs. Bev Desjarlais

Mr. Art LaFlamme

Mrs. Bev Desjarlais

Mr. Art LaFlamme

The Chair

Mr. Marcel Proulx

Mr. Art LaFlamme

Mr. Marcel Proulx

The Chair

Mr. Art LaFlamme

The Chair

1710

Mr. Martin Taller

The Chair

Mr. Art LaFlamme

The Chair

Mr. Art LaFlamme

The Chair

Mrs. Bev Desjarlais

The Chair

1715

Mr. Stephen Richardson (Senior Assistant Deputy Minister, Tax Policy Branch, Department of Finance)

1720

The Chair

Mr. Serge Dupont (General Director, Tax Policy Branch, Department of Finance)

The Chair

Mr. James Moore

1725

Mr. Serge Dupont

Mr. James Moore

Mr. Stephen Richardson

Mr. James Moore

Mr. Stephen Richardson

Mr. James Moore

Mr. Stephen Richardson

Mr. James Moore

1730

Mr. Stephen Richardson

Mr. James Moore

Mr. Stephen Richardson

1735

Mr. James Moore

The Chair

Mr. James Moore

The Chair

Mr. André Harvey (Chicoutimi—Le Fjord, Lib.)

Mr. Stephen Richardson

1740

The Chair

Mr. André Harvey

Mr. Stephen Richardson

The Chair

Mr. Mario Laframboise

Mr. Stephen Richardson

Mr. Mario Laframboise

Mr. Stephen Richardson

1745

The Chair

Mrs. Bev Desjarlais

The Chair

Mr. Stephen Richardson

The Chair

Mr. Stephen Richardson

The Chair

Mr. Mario Laframboise

Mr. Stephen Richardson

Mr. Mario Laframboise

Mr. Stephen Richardson

Mr. Mario Laframboise

Mr. Stephen Richardson

The Chair

Mr. Stephen Richardson

1750

Mr. Mario Laframboise

The Chair

Mr. Mario Laframboise

Mr. Stephen Richardson

The Chair

Mrs. Bev Desjarlais

1755

Mr. Stephen Richardson

Mrs. Bev Desjarlais

Mr. Stephen Richardson

Mrs. Bev Desjarlais

Mr. Stephen Richardson

Mrs. Bev Desjarlais

Mr. Stephen Richardson

Mrs. Bev Desjarlais

Mr. Stephen Richardson

Mrs. Bev Desjarlais

Mr. Serge Dupont

Mrs. Bev Desjarlais

Mr. Stephen Richardson

Mrs. Bev Desjarlais

Mr. Serge Dupont

Mrs. Bev Desjarlais

Mr. Serge Dupont

Mrs. Bev Desjarlais

Mr. Serge Dupont

Mrs. Bev Desjarlais

Mr. Serge Dupont

Mrs. Bev Desjarlais

Mr. Stephen Richardson

Mrs. Bev Desjarlais

Mr. Stephen Richardson

Mrs. Bev Desjarlais

Mr. Stephen Richardson

Mrs. Bev Desjarlais

Mr. Stephen Richardson

Mrs. Bev Desjarlais

1800

Mr. Stephen Richardson

Mrs. Bev Desjarlais

Mr. Stephen Richardson

Mrs. Bev Desjarlais

Mr. Stephen Richardson

Mrs. Bev Desjarlais

Mr. Stephen Richardson

Mrs. Bev Desjarlais

The Chair

Mr. Stephen Richardson

Mrs. Bev Desjarlais

Mr. Stephen Richardson

Mrs. Bev Desjarlais

Mr. Serge Dupont

1805

Mrs. Bev Desjarlais

The Chair

Mr. Stephen Richardson

The Chair

Mr. James Moore

The Chair

Mr. James Moore

The Chair

Mr. James Moore

The Chair

Mr. Roger Gallaway

Mr. Serge Dupont

1810

Mr. Roger Gallaway

Mr. Serge Dupont

Mr. Roger Gallaway

Mr. Serge Dupont

Mr. Roger Gallaway

Mr. Serge Dupont

Mr. Roger Gallaway

Mr. Serge Dupont

Mr. Roger Gallaway

Mr. Stephen Richardson

Mr. Roger Gallaway

Mr. Stephen Richardson

Mr. Roger Gallaway

Mr. Stephen Richardson

Mr. Roger Gallaway

Mr. Stephen Richardson

Mr. Roger Gallaway

Mr. Stephen Richardson

Mr. Roger Gallaway

Mr. Stephen Richardson

Mr. Roger Gallaway

Mr. Stephen Richardson

1815

Mr. Roger Gallaway

Mr. Stephen Richardson

Mr. Roger Gallaway

Mr. Stephen Richardson

Mr. Roger Gallaway

Mr. Stephen Richardson

Mr. Roger Gallaway

Mr. Stephen Richardson

Mr. Roger Gallaway

Mr. Stephen Richardson

Mr. Roger Gallaway

1820

Mr. Stephen Richardson

The Chair

Mr. Roger Gallaway

Mr. Stephen Richardson

The Chair

Mr. James Moore

Mr. Stephen Richardson

Mr. James Moore

Mr. Stephen Richardson

Mr. James Moore

Mr. Stephen Richardson

Mr. James Moore

Mr. Stephen Richardson

Mr. James Moore

Mr. Stephen Richardson

Mr. James Moore

The Acting Chair (Mr. Roger Gallaway)

Mr. Marcel Proulx

1825

Mr. Stephen Richardson

Mr. Marcel Proulx

Mr. Stephen Richardson

Mr. Marcel Proulx

Mr. Stephen Richardson

Mr. Marcel Proulx

Mr. Stephen Richardson

Mr. Marcel Proulx

Mr. Stephen Richardson

Mr. Marcel Proulx

Mr. Stephen Richardson

Mr. Marcel Proulx

Mr. Stephen Richardson

Mr. Marcel Proulx

The Chair

Mr. Stephen Richardson

1830

The Chair

Mr. Stephen Richardson

The Chair

Mr. Stephen Richardson

The Chair

Mr. Stephen Richardson

The Chair

Mr. Stephen Richardson

The Chair

1835

Mr. Stephen Richardson

The Chair

Mr. Stephen Richardson

The Chair

Mr. Serge Dupont

The Chair

Mrs. Bev Desjarlais

Mr. Marcel Proulx

The Chair

Mr. Roger Gallaway

Mr. Stephen Richardson

Mr. Roger Gallaway

Mr. Stephen Richardson

Mr. James Moore

The Chair

CANADA

Standing Committee on Transport

NUMBER 006

2nd SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, December 10, 2002

[Recorded by Electronic Apparatus]

º (1600)

[English]

The Chair (Mr. Joe Comuzzi (Thunder Bay—Superior North, Lib.)): Pursuant to Standing Order 108(2), a study by the transport committee of aviation security fees, do we have a quorum, Mr. Clerk?

Mr. Stan Keyes (Hamilton West, Lib.): Mr. Chairman, I have a point of order. May I ask the clerk if we have quorum to consider a motion that I put forward as a notice of motion to the committee? What do we need for quorum for that, Mr. Clerk?

The Clerk of the Committee: Nine.

Mr. Stan Keyes: We need nine to consider a motion. I shall defer until I count nine.

An hon. member: Was it on aviation security fees?

Mr. Stan Keyes: No, it's on the subcommittee for the seaway maritime.

The Chair: When I asked you a question, George, it wasn't to hear the witnesses. It was to hear the motion. Perhaps I'll ask the clerk to find out from our opposition members if they're going to attend the hearing or not.

We welcome the Tourism Industry Association of Canada, Mr. Williams, the president and chief executive officer, and welcome to all of your colleagues. Mr. Williams, do you want to introduce them yourself, please? Or are they all separate groups?

Mr. Randy Williams (President and CEO, Tourism Industry Association of Canada): They're separate groups.

The Chair: Oh, I see. We're hearing all of these together. Mr. Taller, the director of the tourism association, is that correct?

Mr. Martin Taller (Director, The Association of Canadian Travel Agencies): The Association of Canadian Travel Agencies.

The Chair: The Association of Canadian Travel Agencies. Air Line Pilots Association International, Mr. Adamus. Is that correct?

Mr. Dan Adamus (Vice-President, Canada Board, Air Line Pilots Association International): Yes.

The Chair: And Mr. LaFlamme, senior representative of the Air Line Pilots Association International.

So we have three witnesses today, is that correct?

The usual process is an introduction. You have an opportunity to give opening comments, then the questioning of the witnesses follows. What I'll do, with the agreement of the committee, is hear all of your submissions and then we'll ask questions.

Thank you.

Mr. Williams, you can lead, if you would please.

Mr. Randy Williams: Thank you, Mr. Chairman, for the opportunity to present to you today.

I'm here on behalf of the Tourism Industry Association of Canada to express the concern of our members regarding the air travellers security charge. It should concern all Canadians, and especially the federal government, because tourism makes an important contribution to our national economy.

Tourism spending amounted to over $54 billion last year alone. Almost a third of that total was spent here by foreign travellers, making tourism Canada's fourth largest export industry. The industry employs more than 560,000 people directly across the country. Those jobs provide vital incomes for individuals and families, and they are the economic lifeblood of entire communities.

The air travellers security charge boosts the costs of plane tickets by $12 for a one-way and $24 for a return fare. Furthermore, passengers can end up paying the tax twice when using two separate airlines on the same trip. We acknowledge that the government introduced a policy this past July that allows passengers to claim a refund in such cases, but we are concerned that the policy has not been publicized sufficiently.

It is a serious cost issue that impedes the mobility of travellers and thus hurts many businesses that depend on people's propensity to travel. In fact, in a recent survey of our members 84% of respondents told us that the air travellers security charge was a significant deterrent to travel and tourism in Canada.

The air traveller security charge was imposed without consultation. TIAC believes the federal government misread the Canadian public's willingness to pay excessive user fees, even when measured against the value of promised increases in security. At the same time, there is no clear link between the fees air travellers are paying and the level of security they receive. The Canadian tourism industry recognizes the need, obviously, for enhanced security at airports, but all Canadians gain from security improvements, and to make one group pay for them is poor public policy. Security is a public good and should be paid for out of general revenues, not a dedicated tax on travellers.

At present, however, travellers are bearing the entire cost of air security, while the federal government is not making any financial contribution. I ask the committee to keep in mind that the tourism industry already generates significant tax revenues, estimated at $16.9 billion a year, of which $9.3 billion ends up in the federal coffers. Simply put, the air security tax is making many Canadians think twice about buying plane tickets. Overall, passenger traffic at Canada's top 25 airports fell 10.2% in the first eight months of this year when compared to the same period in 2001. This translates into a loss of over four million paying passengers. Because the air travellers security charge has contributed to reduced passenger volumes, the government is collecting less revenue from the tax than it budgeted for.

The tax is also forcing carriers in the short-haul, regional, and economy markets to reduce or cancel flights to some communities. For example, WestJet Airlines has cut 31 weekly flights between Calgary and Edmonton as a direct result of the tax, and short-haul traffic handled by Air Canada is down 30% on a year-over-year basis.

I remind the committee that the Atlantic Liberal caucus task force on air access also recognized this unfortunate situation. It pointed out that airlines had begun to reduce their flight schedules because of the negative impact the tax was having on short-haul flights in Atlantic Canada.

º (1605)

Canada's air security tax is by far the highest in the world, 300% higher, for example, than its American equivalent. In the United States the air security fee is only $2.50 per segment to a maximum of $5 one way, or $7.65 Canadian. In Australia the fee is $8 Canadian and in France it's $10 Canadian. Israel, which is recognized as having the most secure air transportation system in the world, charges just $12, and that's for two-way travel. Thus, the air travellers security charge puts the Canadian travel and tourism industry at a disadvantage vis-à-vis its international competitors.

The average airfare in Canada for a one-way ticket is $209. The air travellers security charge represents an almost 6% increase in the price of air travel, which we believe will have and has had the effect of reducing air travel by 5% to 6%, half the amount I talked about earlier, the 10% drop. We attribute half that drop to the air travellers security charge.

TIAC has repeatedly asked the federal government to eliminate this unfair tax. Failing that, we support the reduction, obviously, of the air travellers security charge to levels that are in line with security charges in the U.S. We also want Ottawa to provide taxpayers with accurate and timely information on the present and projected costs of providing enhanced security services. Moreover, this new surcharge was put into place to pay for increased capital costs of security for all Canadians. Our members want to know, when that equipment is paid for, will the tax be removed?

In conclusion, the Tourism Industry Association of Canada calls on the House of Commons Standing Committee on Transport to recommend to the federal government that the air travellers security charge be eliminated.

Thank you very much.

The Chair: Thank you, Mr. Williams.

Yes, Mr. Keyes.

Mr. Stan Keyes: I have a point of order, Mr. Chairman. I beg your indulgence and apologize to the witnesses who are appearing before us, but I was wondering if we could possibly deal with the consideration of a motion to strike the subcommittee.

I made notice of a motion back on Tuesday, December 3, when I moved that the Standing Committee on Transport strike a subcommittee to study marine transportation and that the subcommittee be chaired by Roger Gallaway, MP for Sarnia--Lambton.

Here is a brief explanation. The marine transport industry has come to many of us and outlined to us the trouble they're having in their industry, specifically the Canadian Shipowners Association, in some of their dealings. They have made it clear to us that they would like to move quickly, that is to say, be able to make their case and allow the subcommittee in this case to hear all sides on the debate and try to make a recommendation to the Minister of Transport in a timely fashion. Then we could, if not deal with the entire issue of marine transportation as a whole, at least deal selectively with, for example, some of the charges that are of concern to the shipowners association and the troubles they will face financially if we don't act quickly.

I know that the government members and members of the opposition care that this industry should remain competitive and strong in order to keep employees working in the industry. For that reason, because of the agenda we have as an entire transport committee, I feel there should be an opportunity for us to pursue an agenda to study marine transport and, to be quite honest, specifically to try to resolve some of the issues facing that industry.

I would hope that you could consider that, Mr. Chairman.

º (1610)

The Chair: Thank you, Mr. Keyes.

We're open for discussion.

Mr. James Moore (Port Moody—Coquitlam—Port Coquitlam, Canadian Alliance): I have a question. Again, I'm totally sympathetic with the concerns. Two of the three cities in my riding begin with the word “Port”, so I'm very conscious of the concerns. Can their concerns be addressed when we look at the Marine Act in the late winter or early spring?

Mr. Stan Keyes: If I may, Mr. Chairman, through you to Mr. Moore, the answer is absolutely. Many of the current concerns can be dealt with when we review the CMA or in fact the CTA when it comes our way. But some of those issues can be dealt with in a more timely fashion. We can wait for an examination of the CMA or the CTA, a process that might take six, nine, or thirteen months before the government has the authority to act, but we can as a subcommittee select out an individual issue, come up with a recommendation, take that to the minister, and have that dealt with in a timely fashion.

Mr. James Moore: Is the push to get it done pre-budget?

Mr. Stan Keyes: No, the push isn't on to get it pre-budget. The budget, of course, is in February or in that area of time, usually. I don't think we could complete it, but we could certainly have the work of the subcommittee begin and be entrenched, then come forward with a recommendation, say, as early as April, then have our Minister of Transport deal with it quickly.

The Chair: Ms. Desjarlais.

Mrs. Bev Desjarlais (Churchill, NDP): I'm not suggesting it isn't an important issue, Mr. Keyes, but first off, I am disappointed we would have our witnesses delayed because we're having this discussion now, probably because some of us may have to run off somewhere--which I respect, too. But in all fairness to witnesses appearing before our committee, I think they should have been given the opportunity to make their presentations before we had this discussion.

Quite frankly, as a member of the committee, I would like to hear more about what the concerns are. As a whole committee, we didn't even set an agenda for exactly what other items we'd be following down the road. Maybe we don't have a situation where we have to break off as a subcommittee; maybe we'd do it as a whole committee, addressing the issue, because just as you indicated, it's quite important. This issue is important. That one is probably equally important, but I think we need to give them the full benefit of all the committee's wisdom rather than breaking down into subcommittees and working piecemeal.

The Chair: Did you have something to add, Mr. Laframboise?

[Translation]

Mr. Mario Laframboise (Argenteuil—Papineau—Mirabel, BQ): Mr. Chairman, I fail to understand why this is coming up at this stage in the meeting. We have witnesses appearing with regard to a very important issue that we all agreed to study. I see that we will be discussing the future business of the Committee at the end of the meeting. Let us therefore wait until the end of the meeting to discuss this. We must first hear the witnesses and try to deal with one thing at a time, unless you all want to pass a resolution demanding the abolition of the tax. If we adopted such a resolution, that would solve the problem right away. If we abolished the tax, we could move on to the issue brought up by Mr. Keyes.

[English]

The Chair: Your concerns are noted.

All those in favour of the motion, please signify. And those opposed.

(Motion agreed to)

The Chair: Thank you very much, ladies and gentlemen. We tried to answer your concerns; now the motion is passed.

Mr. Stan Keyes: Once again, Mr. Chairman, thank you for your indulgence. Again, my apologies to the witnesses because I moved the motion. I had to move the motion but, unfortunately, I have another pressing engagement in less than 20 minutes. Thank you.

The Chair: Thank you, Mr. Keyes.

If you noticed on the minutes of the meeting, Ms. Desjarlais, we accommodated you last week. We tried to get this done last week, but you were not available.

Mrs. Bev Desjarlais: Actually, you didn't allow the proper amount of time, Mr. Chair.

The Chair: Mr. Taller, please.

Mr. Martin Taller: Thank you, Mr. Chair, gentlemen and ladies around the table.

The Association of Canadian Travel Agencies represents about 6,000 agencies across Canada that issue about 70% of all the airline tickets sold in Canada. One issue that unites the many sectors that make up Canada's tourism industry, from travel agents to hotels, to air carriers, to the tourism association is the air travellers security charge. ACTA recognizes that the government had to act promptly to strengthen security at crucial locations across the country, especially at airports that were particularly vulnerable. The effective screening of passengers, their baggage, and airline employees had to be enhanced along with other new security measures. It was clear the federal government needed to intervene on airport security matters. However, ACTA believes that this is a collective security issue, which leads to our first comment.

Since the security charge was first implemented last April, our association has argued that the costs of providing enhanced airport security should be paid out of the consolidated revenue fund, not solely borne by Canadians who purchase airline tickets. This fact is reflected in the legislation itself.

Section 6 of the Canadian Air Transport Security Authority Act states that:

The Authority must carry out its responsibilities under this section in the public interest, having due regard to the interest of the travelling public. Those responsibilities are a governmental function.

Section 27 states that:

The provision of screening at an aerodrome is conclusively deemed for all purposes to be a service that is necessary to prevent immediate and serious danger to the safety of the public.

These clear statements indicate that airport screening is a government responsibility arising out of the need for public safety. It does not make sense that only certain Canadians are charged with paying for the service. All Canadians benefit from safe air travel, and not just those travelling. External threats and violence affect all Canadians, and not air travellers alone.

This argument was further reinforced by an important fact. A wide range of enhanced security initiatives were announced at a substantial cost. This included, in 2001 and 2002, border initiatives, emergency preparedness, and intelligence and policing.

All of these initiatives, with the exception of air security, are funded from general revenues. Only air security is funded by a user fee. This is unfair and it discriminates against air travellers. Ensuring security is a right and responsibility that should be afforded to all Canadians.

We would like to now turn to the specific terms of the security charge. When the security charge came into being last spring the amount of the charge, the $12 one way and the $24 return, was arrived at through a statistically flawed method of calculation. The government had indicated that no impact studies were carried out at the time. Nor was the revenue stream to be generated by this new charge matched with the estimated costs.

The former finance minister promised that the charge would be reviewed in the fall and it would be reduced if revenues exceeded the costs of the enhanced security. This has had a negative effect. The flat rate of $12 and $24, regardless of the type or length of trip, is having a negative impact on the short-haul and regional and discount airline services. This bias does not make sense. It discourages small airlines from entering local and regional markets. It hinders the development of efficient and inexpensive short-haul air service as an alternative to bus and car. It discourages the growth of discount carriers. Small communities served by smaller regional carriers have begun to reduce or eliminate their flight schedules. On some routes, capacity has been cut by as much as 50%.

The House of Commons finance committee has recommended in its pre-budget report in November that the federal government change the size and method of calculating the air travellers security charge. They recognized that many witnesses, including ACTA, believe the cost of enhanced security should be financed from general revenues rather than from a dedicated tax. The report also recommended that revenues collected should be sufficient to cover the reasonable costs of air security.

In conclusion, we urge the Minister of Finance to follow the recommendations of the parliamentary committee. As stated earlier, our association, along with many others in the travel industry, believe that the tax should be paid from general revenues. At a minimum, the tax should be reduced or eliminated to a more reasonable level and costs shared with the federal government, as is the case in other countries.

Thank you for the opportunity to speak to the committee. I'm available to answer any questions.

º (1615)

The Chair: Thank you very much, Mr. Taller.

Mr. Adamus.

Mr. Dan Adamus: Thank you, Mr. Chair, committee members.

I am Captain Dan Adamus. I am here representing the Air Line Pilots Association International. I am the vice-president-elect of ALPA's Canada board. As well, I'm a pilot for Air Canada Jazz and I would like to thank you for the opportunity to speak to the committee today.

The Air Line Pilots Association International, or ALPA, represents more than 66,000 professional pilots who fly for 43 airlines in Canada and the United States. As our member-certified bargaining agent and as the representative in all areas affecting their safety and professional well-being, ALPA is the principal spokesperson for the airline pilots in North America. ALPA, therefore, has a significant interest in the economic health and well-being of this industry.

It is our view that the myriad of taxes, charges and additional costs the government has imposed upon the airline industry have had a significant and negative impact upon its viability. Of particular and immediate concern in this respect is the air travellers security charge. At a time at which, by any measure, the industry is in a state of crisis, the policy direction reflected by such a tax is seriously misplaced and unfair.

In Canada, Air Canada lost close to $1.3 billion in 2001 and, although indicating small profits in two quarters, is not expected to make a profit in 2002. Air Canada Jazz recently cited a 30% decrease in traffic. Canada 3000, which was to be Air Canada's principal competitor, declared bankruptcy last year. This state of affairs is part of a much larger trend. North American airlines lost a staggering $6 billion U.S. in 2001 and are expected to lose $7 billion U.S. in 2002.

Aviation ties this country together and is important to the economic well-being of Canada. It employs tens of thousands of highly skilled workers who live in hundreds of communities across Canada, paying taxes and spending their hard-earned income. As the airline industry retrenches, aircraft, engine, and avionics delivery orders are down significantly.

The aerospace industry is a major player in Canada's economic well-being. In 2001, the aerospace industry reported revenues of $23.2 billion, of which $17.8 billion were from exports. I note that $15.2 billion of these exports were to the United States. The aerospace industry employed 83,600 highly paid and skilled workers in 2001. However, this fell from a high of 91,500 in 2000.

After years of impressive growth, 2002 will see a significant downturn in revenues, exports and employment. Canadian companies, such as Bombardier, CAE, and Pratt & Whitney Canada remain very vulnerable to reductions in airline traffic.

Under the banner of “Air Industry Turbulence” in last Friday's Financial Post were the following headlines: “United Closes in on Bankruptcy Financing” and “Bombardier Shares Hit by United Woes--Airline's feeders are major customers of 50-seat CRJ200”. The article went on to report that Bombardier's shares fell 9.3% on fears of an imminent chapter 11 filing by United would lead to cuts in Bombardier's deliveries and profits next year. Yesterday, United Airlines filed for bankruptcy protection.

A great portion of the industry's woes is being caused directly by the federal government, which has created a significant and negative impact upon the viability of Canadian airlines by its imposition of a myriad of taxes, charges, and additional costs that eat away any potential profit. These costs generally add anywhere from 7% to 40% to tickets, and in some cases even more.

Take, for example, a Moncton-Halifax return ticket on a super low web fare. This base web fare is $138. Now add on the Nav Canada fee, the security charge, airport improvement fees, and the harmonized sales tax, for a total of $91 on a base fare of $138, or a shocking 66% premium.

In addition, the federal government functions as landlord at most of Canada's airports, but an abusive one at best. In 2001, the eight largest airports took in from airlines and passengers $765 million in revenues from airport improvement fees and terminal and landing fees. However, the large airports are required to pay rent to the federal government. This amounted to $250 million last year and will increase another 9.2% in 2003.

º (1620)

But the federal government does not cover any of the cost for operating or maintaining airport infrastructure. Who does? The airports are required to do so, passing on these costs to the airlines and the travelling public.

The aviation infrastructure model recently established by the Canadian government, characterized by the devolution of airports and the commercialization of the air navigation system, has resulted in higher costs to the airline industry. Contrary to the normal laws of supply and demand, airports and Nav Canada are required to raise their charges to offset reduced traffic volumes. As the current crisis demonstrates, this increase in costs occurs precisely when airlines are least able to afford them. Simply put, it is a recipe for crisis and it is not fair.

Higher ticket prices, which are due in large part to these fees, taxes, and charges together with the hassle-factor perception of travelling by air, have resulted in significant reductions in passenger traffic. Further compounding this dilemma is the inability of the airlines to fully absorb these costs in their ticket prices. In particular, the air travellers security charge passengers pay to finance national security is perverse and unfair. Clearly, the status quo is not sustainable within the airline industry itself or in the many industries that support it.

It is no wonder that traffic is down, even more so on the shorter routes where travelling by car or rail can be a viable alternative. In this context, ALPA is particularly concerned with the unfair competition VIA Rail gives airlines on their short-haul routes. In addition to an annual subsidy exceeding $300 million, VIA Rail was provided with $402 million to replace aging equipment and facilities. VIA Rail spent $559 million last year, of which only $254 million came from outside revenue sources. In other words, the taxpayer provided the other $305 million, which is 55¢ of every dollar spent by VIA. It is patently unfair to encourage one mode of transportation over another through government subsidies.

We believe that the air travellers security levy is the prime example of this unfairness. The surcharge is a punitive levy on the Canadian domestic airline industry, imposed at a time when the industry is least able to withstand it. The user-pay concept is entirely inapplicable in the current circumstances. It is important to recall that on September 11 the terrorists were not targeting the air transport system but were utilizing it to turn aircraft into weapons of mass destruction against the general public, government, and corporate institutions.

Of the $7.7 billion identified to improve security in the December 2001 budget, it is remarkable that only the $2.2 billion for aviation security is targeted for clawback through a user charge. In this case the user is the air travelling passenger. There have been no similar charges for users of marine ports or border crossings, where extensive and costly measures have been incorporated to facilitate the flow of goods into the United States.

However, it remains ALPA's view that security at airports is in the broader public interest and as such should be funded through general tax revenue, not solely by the travelling public. We find it ironic, to say the least, that this charge to improve security of air travel in Canada could assist in air travel's very demise, particularly on short-haul routes.

The events of the last year have illustrated the critical importance of the aviation system to the overall functioning of the national economy. Support for this industry, especially at this time, is clearly in the broader public interest, and the government should not abandon its responsibility over a critical part of Canada's infrastructure. Government must stop treating travelling passengers and airlines as cash cows by imposing never-ending costs on them. We urge you, first of all, to kill the security tax, and second, to rethink the policy of escalating charges passengers and airlines are being required to shoulder.

I would like to thank you again for the opportunity to appear before you today, and I would be pleased to answer any questions you may have.

º (1625)

The Chair: Thank you.

Mr. Moore.

Mr. James Moore: Thank you.

It's hard, frankly, to disagree with a lot of what's been said there, though I think it may be a bit hyperbolic to say that the travel industry is down because of the air tax and that it doesn't have anything to do with the dollar or a whole bunch of other things. However, far be it from me to defend the air tax, because I frankly side with your position that it should be abolished immediately.

That being said, there's one thing I did want to ask the Air Line Pilots Association. From the members and people you've talked to, have pilots noticed an improvement in aviation security? That's the first question. Related to that, the second question is, can you inform this committee about the straw poll that was taken of Air Canada pilots where they asked to arm themselves with Tasers?

º (1630)

Mr. Dan Adamus: First of all, we do not represent the Air Canada pilots, so you would have to bring them in separately and ask them for their comments on that.

As far as security at airports goes, for the pilots themselves there certainly has been an increase, because we pilots are now going through the same screening as passengers go through. In the past we were able to bypass security, but now we are sent through a screening process. In a lot of cases we're singled out and asked to remove our shoes and belt buckles, almost to a point where the screeners are sort of taking advantage of the situation. But certainly, security overall has increased and is significantly better.

Mr. James Moore: You're saying that the screeners are on a power trip, that in that 30 seconds of fame they can belittle a pilot. Is that right?

Mr. Dan Adamus: We've had many complaints from our line pilots about the rigmarole they've had to go through to get through security as of late, yes.

Mr. James Moore: But there is no opposition to it, I suspect, in terms of the broader public interest.

Mr. Dan Adamus: No.

Mr. James Moore: I don't really have many other things. I appreciate a lot of the things you've said. With regard to the $24 tax, though, and the improvements you're seeing, what isn't happening that should be happening and where are we in the process of securing cockpit doors?

Mr. Art LaFlamme (Senior Representative, Air Line Pilots Association International): I'll take that, Mr. Moore.

With respect to cockpit doors, the rules requiring strengthened cockpit doors become effective on April 9, 2003, when all doors must meet those new standards. In the interim there are rules that require the present doors to be locked, and then those doors are to be replaced by April 9, 2003, in both the United States and Canada. The United States also requires any other foreign carriers to have those strengthened doors on that date as well if they're flying into the United States.

Mr. James Moore: I have one last question, actually just on a point of curiosity.

Last December this committee tabled a report where every single political party agreed that pilots should not be armed. Has your organization taken a position with regard to the arming of pilots? I'm curious about the issue of American planes flying onto Canadian soil. How does that work if the U.S. government allows them to carry arms?

Mr. Art LaFlamme: Right now, again, our pilots in the United States belong to ALPA, which has come out publicly in favour of guns in the cockpit. In Canada we acknowledge that there are cultural differences and other factors at play here, and as long as security improvements are being made by Transport Canada and CATSA, we are not pursuing the issue in Canada. But I must mention that it is under very stringent conditions in the United States. It's voluntary. A pilot must meet qualification criteria and must undergo training, and it's only with respect to the use of the gun on the flight deck.

That being said, we are not pursuing it in Canada, and with respect to pilots flying into Canada, the laws of Canada are paramount. I believe the legislation in the United States says that the security administration must coordinate with the Secretary of State for trips outside the United States.

The Chair: Thank you, Mr. Moore.

Mr. Laframboise.

[Translation]

Mr. Mario Laframboise: Thank you, Mr. Chairman.

My first question is for the Tourism Industry Association of Canada. Mr. Williams, air travel accounts for what percentage of your industry? What percentage of your customers travel by plane?

º (1635)

[English]

Mr. Randy Williams: That's a good question. I don't have that on the tip of my tongue, how many Canadians are travelling by air. Maybe you folks do, but I don't know that. We would have it, but I don't have it with me.

[Translation]

Mr. Mario Laframboise: You could supply that number to the Committee later. I have no problem with that, Mr. Chairman.

[English]

The Chair: Just to rephrase that, do we have the information you just requested?

[Translation]

Mr. Mario Laframboise: I would like to know the percentage of people who travel by air in the tourism industry.

From the very beginning, the Bloc québécois has been saying that the government has not given the airline industry the help it should have. And the story gets even worse: you are the ones who are bearing all of the costs, and the air travellers security charge was probably the straw that broke the camel's back. It is important that you reemphasize this with the Liberal MPs. It seems we are being told that the imposition of a $24 or of a $12 tax does not change things very much since the cost of plane tickets is sometimes very high. But we know that these are set charges that apply to short runs as well as to long hauls and that the effect of this tax is such that the industry will have to multiply the number of long haul trips in order for the airplanes to cover their costs. The big losers are therefore the regions.

I would like to hear all of your views in turn, in order for the government to fully grasp the import of this tax. You are perfectly right. You had NAV CANADA as well as the airport improvement fees which were in some cases excessive. When the market is healthy, we can afford to pay for nicer-looking airports. But when things are not going so well, that is not the time to send us more and more bills to pay. That is what I would like you to explain to the government in order for it to understand the effect of this tax, which is, indeed, the straw that is breaking the camel's back.

[English]

Mr. Randy Williams: Thank you so much for the question. We appreciate the support of the Bloc Québécois for TIAC's position to remove the tax. We think it's a solid position and one that we obviously support.

I think it's important to realize, as I said in my remarks, that the tax alone represents about a 6% increase in the cost of travel. Surveys of price elasticity show that a 1% increase in the price of a ticket results in a 1% decrease in demand. So when we see a 10% drop in demand, we attribute that—and I think fairly—to a 5% to 6% increase in the price of a ticket just through the air travellers security charge. So we think it is fair to say that half of that drop is because of the ATSC.

Now, as the other member suggested, the economy obviously has an effect. The terrorist attacks, and so on, all have an effect. That would be, I think, the other 5%. But if the government wanted to help a struggling airline industy, one that we as Canadians have been wrestling with now for too long—going back to 1999, when we merged Air Canada and Canadian Airlines, and even before that—if it really wanted to put the airline industry in a better position, it should remove the tax. We believe that would give a 5% jump in the propensity or willingness to travel by consumers.

We think if you want to quote somebody in your recommendations to the federal government, quote a Canadian like me, who says, “How dare you charge me extra for security”. It is poor public policy for the federal government, or any government, or any business, to charge extra for security. My God, we would expect security to be built into what we're paying for taxes already.

º (1640)

The Chair: Thank you very much.

Mr. Gallaway.

Mr. Roger Gallaway (Sarnia—Lambton, Lib.): Thank you, Mr. Chairman. I'll be very brief.

I'll ask all of what I would characterize as an open-ended question. Prior to the imposition of the ATSC, were any of you or your organizations consulted about this charge in any way?

Mr. Randy Williams: No, we were not. In fact, we have a Department of Finance budget survey sent out in November 2001. We've looked at this survey, which was done two months after September 11. There's not any question in here to Canadians about whether or not they'd want to pay an air travellers security charge of $12 one way. There are questions about whether they would support a travellers fee. But as a whole line in a whole bunch of other things, they threw in a travellers fee. Not every Canadian travels by air, so if you asked all Canadians if they would support a travellers fee, of course you're going to get the majority saying, sure, charge air travellers a fee.

There was one comment in here saying there was “strong support for tighter air security”, which is obvious two months after September 11, “and for a user pay approach”, which is also obvious if you're asking all Canadians. They would say, yes, target it on the air travellers. Then they said in here: “Best justification: 8 - 12 dollars is well worth the expense to increase air support security.”

So what did they do? The government took the maximum of the $8 to $12 rang and doubled it. We have a $24 security charge in Canada. This report out of the government's own Department of Finance set the range as $8 to $12, but they took the maximum and doubled it. That's a problem.

This is the only consultation that went on. Our industries weren't asked.

Mr. Dan Adamus: No, we were not asked at all.

Mr. Martin Taller: No, our industry was not asked.

Mr. Roger Gallaway: Okay, I have a second question, and that will be it. On November 8, the finance minister announced a “public consultation”. I'm not quite certain what this means, but he's inviting the public to comment.

Have you been contacted by the Department of Finance or anyone therein to review the $12 charge? This is ostensibly a review of what has already occurred. Have you been contacted with respect to this? Has anyone sought your input? Have you received some communiqué from the department? Have you been given a date to appear?

Mr. Dan Adamus: No.

Mr. Art LaFlamme: Can I take this?

ALPA has not been communicated to directly. We noticed it on the website, because part of my job is to monitor this type of thing. The wording of the review was such that there was no mention of eliminating the tax as a possibility. It was only on how it could be restructured, or words to that effect. So we've expressed our concerns to the finance department in this regard.

But the answer to your question is no.

Mr. Randy Williams: TIAC would respond the same way. We weren't asked, and we did find it on the website.

In the announcement, they also promised there would be some access to some studies that have been done. We have not been given access to those studies to take a more informed position as well.

Mr. Martin Taller: Similarly, our association has not been made aware or informed of it. We would welcome the opportunity to participate.

Mr. Roger Gallaway: Okay.

Thank you, Mr. Chair.

The Chair: Thank you, Mr. Gallaway.

Mrs. Desjarlais, you have the floor.

Mrs. Bev Desjarlais: Thank you.

The Chair: So do what you want. I know you were getting excited there, so go ahead.

Mrs. Bev Desjarlais: I like things to flow. Mr. Keyes isn't here, but I'll apologize for the nasty remark. It sets us off on a bad thought. I prefer courtesy for the witnesses, harmony.

Actually, I'm not aware of any studies, so if you don't mind, I want to ask our researchers whether we are aware of any studies on this airport security tax. Probably the most that has been done about the airport security tax would be through this committee or individual MPs.

As far as we know, nobody's heard of any. Is that fair enough to say? Okay.

Actually, I'm glad to hear you commenting about terminating the tax as such, because from what I've seen of the different aspects of it, I think it's the only fair way to go. I have heard numerous different aspects of it. The way I feel it should be dealt with--and from what I see, it seems a lot fairer than some ways--is that we should go back to the situation at one time where the airlines paid for a certain amount of the baggage-handling security costs.

Airport authorities are still paying for their own security; it's not covered under the security tax. They're still paying for their perimeter security--that's the terminology for that. There is some concern that airport authorities are taking in a fair amount of money and it isn't really getting divvied back fairly. That concern has been there since I came on the transport committee. There's a concern that they pay a whole lot of rental dollars to the federal government and really don't get anything back.

So I suggest we go back to charging the airlines a little, the airport authority still covers some, and the rest comes out of general revenue, since there's a good amount of revenue coming in on rental dollars anyway. And that's one way of everybody benefiting without having to get into a whole lot of different areas regarding how we're going to get this money back.

I also am really concerned about how this money will be tracked. If it's coming through CCRA into general revenue, there's already a concern in the way some other areas are being set up. Even with this tax now they're not sure they can track it properly.

º (1645)

The Chair: I'm sure you're going to have a question in there.

Mrs. Bev Desjarlais: I do have a question. Don't you think that's the best reasoning you've heard so far about how to address this whole security issue?

I'm going to be honest with you. I've heard ones about charging by distance. I think I can shoot that down by asking, how is it you need a higher cost between Thompson and Winnipeg than you would, say, between Las Vegas and Toronto when you can get a cheaper fare, so you have the problem with excursion fares? I've heard all these different arguments about sizes of planes, but in return, going from two smaller communities in B.C. with rather large aircraft, is there a greater security risk necessarily? Not really.

The Chair: I'm sure you're going to allow the witnesses to answer.

Mrs. Bev Desjarlais: Yes, I am.

I'm wondering if they think that seems like a reasonable option.

Mr. Randy Williams: Perhaps I can be the first to jump in. Thank you for the question. We also believe there's enough money in the system being collected in other ways, through airport rents or certainly from our tax. As I said in my remarks, we pay $9.3 billion every year in tax through tourism expenditures already. There are ways to pay for this without adding a new surcharge.

Mr. Martin Taller: I would like to echo the same sentiments as Mr. Williams. The difficulty when a tax is collected is eliminating it and replacing it with something else, because people get used to the revenue. The question is this. Where will the revenue come from and how are you going to justify that?

I think the Canadian public probably feels, as we do, that there is sufficient revenue in the system to be able to pay for the security for all airports and for other issues in Canada. I think that when the information related to how this tax has been collected and where it's going does come out from the finance minister, then we'll have a better idea of what those costs are.

Mr. Dan Adamus: I might answer the question in a slightly different way. All of us have been saying here today that security is of national interest and it should be paid for out of general revenues. There should not be an extra charge. In that respect, kill the security tax and let the general revenues pay for security.

The Chair: Mr. LaFlamme.

Mr. Art LaFlamme: In addition, with respect to your comments on the airport rents, Mrs. Desjarlais, the reality is that the federal government as a landlord is not fulfilling any responsibilities with respect to the upkeep of the property. It's completely the responsibility of the airport authority. So they have to pay for everything and still pay a rent to the federal government. In our opinion that rent should be eliminated as well.

The Chair: You have a response, Ms. Desjarlais.

Mrs. Bev Desjarlais: Yes, let me add that I actually spoke to some members of the airport authorities and there had recently been articles in the papers about the huge profits some airport authorities had made. They did indicate to me that, really, it's not profits because they have to reinvest. However, I did question them and asked whether they could have some subsidiary businesses where dollars that go into those businesses don't necessarily have to be reported quite the same way, and there was concern because of some of the business deals some airport authorities were getting into.

So although it might be seen as excessive, earlier on in committee hearings in the last few years, I asked for the real estate values of certain airport authorities if you were buying that real estate. Let's use Toronto. If you were buying that amount of real estate in Toronto, what would you be paying? So is the value equivalent of the rents that are being charged...? I was still waiting to get the figures; I don't think the airport authority really wanted to give them to me because I don't think they could afford that real estate otherwise.

º (1650)

The Chair: Was there a question there, Ms. Desjarlais?

Mrs. Bev Desjarlais: I was referring back to the rental side. Is it only questions, or do we get to make comments, too?

The Chair: I thought it was question and answer. You judge for yourself accordingly. You have all the time you want. You have another minute if you want to make some more comments.

Mrs. Bev Desjarlais: I don't know whether I want to make more comments. Actually, I will ask Mr. Adamus a question in regard to the security.

You indicated that you thought the security was better. Was that statement coming from the side of what's happening as passengers are going onto the plane? Or are you aware that security, say, with checks of cargo, has increased? Are they picking up more things than were getting through before? Are there more RCMP or police officers in the area doing security checks?

Mr. Dan Adamus: Certainly, the passenger screeners themselves have had more training as of late and they've been trained to pick up things a little differently than they have in the past. In that respect, security has increased.

I think the policing of airports has increased. The awareness factor, as well, for the agencies overseeing security has increased and with the explosive detection devices that are being introduced, certainly security is getting better, but there's always room for improvement.

The Chair: Thank you, Mr. Adamus.

Now we'll go to Mr. Proulx. We're still on the first round.

Mr. Marcel Proulx (Hull—Aylmer, Lib.): Thank you, Mr. Chair.

Very briefly, I'm wondering if our witnesses have any statistics as far as the percentage of airline tickets purchased by individuals versus corporations, companies, and so on are concerned. Do you have any of those statistics?

Mr. Randy Williams: We have them in our records in the office, but I don't know what they are offhand. However, I can send those as well--

Mr. Marcel Proulx: Would you supply the committee with the statistics?

Mr. Randy Williams: —the relationship between business travel versus pleasure or leisure travel. We have that through BSP Canada, which is the bank settlement program the airlines use to process tickets.

Mr. Marcel Proulx: Also, there's no doubt in my mind that some customers are kept away from airlines because of the increased costs. Would you agree with me that a lot of travellers are keeping away from airlines because they are scared of flying? You must have feedback, especially in your industry, sir. In the travel industry people must be saying to you “I want to travel but I don't want to fly; I'll either bus or I'll boat”.

Mr. Randy Williams: The studies that we've seen, and there have been a number of them since September 11, have shown that the effects of terrorism on September 11 are gone.

Mr. Marcel Proulx: Really?

Mr. Randy Williams: Yes. People do feel that air travel is a safe way of travelling, so nobody is residually feeling that... In the studies we've seen, it has bounced back. There are still people who are afraid of flying. There will always be people afraid of flying, but the fear of flying because of a terrorist attack—

Mr. Marcel Proulx: Exactly. That's gone.

Mr. Randy Williams: —is right down to where it was before September 11, in the studies I've seen.

Mr. Marcel Proulx: Are these studies available to this committee?

Mr. Randy Williams: Most Canadians feel that air travel is a safe way of travelling.

The Chair: Do you have information to back up that statement, Mr. Williams?

Does anybody else want to comment on that?

Mr. Dan Adamus: We don't have any specific data, but certainly as an observation, we'd echo Mr. Williams' comments.

Mr. Marcel Proulx: Thank you.

Thank you, Mr. Chair.

The Chair: You've asked a very good question, Mr. Proulx, but the answers we got don't reflect the information that we're getting from the United States.

º (1655)

Mr. Marcel Proulx: No, not at all.

The Chair: So they must be much more worried than we are as Canadians.

Mr. Harvey, no questions? Then we're on the second round.

Mr. Moore--

Mrs. Lynne Yelich (Blackstrap, Canadian Alliance): I'd like to ask one question. I'm wondering if perhaps CATSA will help the airline pilots in having some reprieve from having to go through the same security as we passengers have to go through. I do actually have sympathy, watching you go through those lines.

Mr. Art LaFlamme: The Minister of Transport announced recently, based on recommendations of the Aviation Security Advisory Committee, of which we are a part, having an enhanced national pass system for airport workers and air crew. So once this enhanced pass system using biometrics, like a fingerprint scan or a retina scan, is in place, pilots will no longer have to go through passenger screening.

Mrs. Lynne Yelich: I'm pleased to hear that. What do you think of having the biometrics? Is that any problem at all?

Mr. Art LaFlamme: We've been a strong proponent of that. We appeared before the Senate security committee last August, stating that we felt this was a necessity in Canada to improve airport security, to ensure that anybody who has access to an aircraft is the person they say they are and has a reason to be there. We need this technology to improve security in this regard.

Mrs. Lynne Yelich: How much information should be on that biometric card?

Mr. Art LaFlamme: It has to be able to identify the individual and what their occupation is, whether it's a maintenance worker or a pilot, or that type of thing. As part of the process that's already in place, individuals have to go through a security and criminal background check, but that would not be on the card itself.

Mrs. Lynne Yelich: Thank you.

The Chair: Monsieur Laframboise.

[Translation]

Mr. Mario Laframboise: Thank you.

Mr. Adamus, do your members have to pay the security tax when they are working or is everyone exempted?

[English]

Mr. Dan Adamus: When we're actually working, no. If we are travelling to and from work, yes, we do pay the same charges as the other passengers.

[Translation]

Mr. Mario Laframboise: It is when you go through other airports on your way to work, correct? I have received complaints with regard to pilots who had to pay this tax. This is what you are explaining to us, is it not? When you travel by plane to get to work, you must pay.

[English]

Mr. Dan Adamus: No, when you're working you don't pay the security tax. I believe what these individuals were talking about was when they were travelling on their own, on their personal passes. As airline employees we have the ability to travel a lot cheaper. There is a fee, but that has certainly increased in the past.

A lot of workers commute to work. For example, I live here in Ottawa, but I work out of Toronto. My ticket has increased about 60% as of late, just to get back and forth to work.

[Translation]

Mr. Mario Laframboise: My second question is for you, Mr. Williams.

Mr. Proulx asked a question with regard to the studies that have been done. That is where the problem lies. The Liberal Party seriously believes that people take the plane less often because they are afraid. This is how they explain the drop in your clientele, whereas you were saying earlier that every time the rates go up by 1%, there is a 1% reduction in passenger traffic. I think you should supply them with this study to prove to them that going after an extra $24 is having an impact. I am convinced of this. When any industry increases its prices, people do not rush to its door to use its services.

That is the link that you should be making. I have heard Liberal Party members not only here, but elsewhere as well, and they are convinced that the drop in your revenues is solely attributable to the fact that people are afraid. They are convinced that once people regain some confidence, everything will fall back into place, but that is far from being the case.

[English]

Mr. Randy Williams: For a year now, I have been through a lot of hearings in committees and presentations and discussions on this air travellers security charge, and I don't see any industry or business that's involved supporting it.

Unanimously, everyone is saying it is a deterrent to travel, and we, on this side of the table, are supposed to be the experts in this area. We are telling you that it is hurting an already struggling industry, and the fear of flying is minuscule compared to the hassle factor with security now at airports, the increased fees and charges, and all the surcharges that are on there. All this stuff is a heck of a lot more damaging to air travel than fear of flying. Fear of flying is not even a factor anymore compared to the 6% hike in the price--and I think this whole thing about long distance is a bit of a red herring.

Before I came here, just out of curiosity, I took three flights: one, a Tango flight from Ottawa to Vancouver; another one, a WestJet from Ottawa to Vancouver; and another, an Air Canada flight from Ottawa to Vancouver. So you have three different companies--well, Tango and Air Canada.... You have three different products flying you from Ottawa to Vancouver. I would call that long-haul, and in most circles that's called long-haul.

Interestingly enough, for the Tango flight, the air travellers security charge--and I can give you these--is 4.9% of that long-haul trip. So if you're buying a Tango ticket from Ottawa to Vancouver, your flight just went up 5% for the federal government's extra charge so you can feel secure. If you're travelling on WestJet, it's a 4.8% increase, so 5%. If you're travelling on Air Canada, it's almost 1%; it's 0.75%. Obviously on Air Canada that is a minuscule amount, but this is an example of how economy carriers have been hurt, because you've just increased their price 4% more than that of a competitor.

But it's also a red herring about this long distance, because I'd call Ottawa to Vancouver a long distance, but on two out of the three carriers, you have a 5% hike in price. That's more of a deterrent than the fear of flying.

» (1700)

The Chair: Mrs. Desjarlais, for five minutes, for whatever statements you want to make and whatever questions you want to ask.

Mrs. Bev Desjarlais: Mr. Chairman, Christmas is coming; you have to start being nice.

Mr. Adamus, you mentioned--or one of you mentioned--that there had to be security and background checks with the biometrics card. Isn't that happening now?

Mr. Dan Adamus: Yes, it is.

Mrs. Bev Desjarlais: So even before September 11, as employees, as pilots, there were criminal, security, and background checks. So that's not something new.

Mr. Art LaFlamme: No. The biometrics would prevent a fraudulent card being used, for example.

Mrs. Bev Desjarlais: Is there any kind of risk that biometric cards can be reproduced in any way, shape, or form?

Mr. Art LaFlamme: Never say never, but it would be extremely difficult with the current technology in place.

Mrs. Bev Desjarlais: Extremely difficult. I guess just with what I've seen over the years, I have very little faith that there isn't always some way of getting around it, so I like to know that the system we're putting in place has a whole lot of checks and balances, not just relying strictly on a biometrics card, that there will still be other security measures in place for employees.

Mr. Art LaFlamme: I would like to mention that certainly we would have to agree with you. The pilots would want those additional checks and balances, and the system that is being set up by CATSA now will have random screening of non-passengers taking place from time to time, to ensure the integrity of the system.

» (1705)

Mrs. Bev Desjarlais: You mentioned the system that CATSA is setting up. Have you been actively involved with discussions with CATSA as to how they're going to address security?

Mr. Dan Adamus: We have been speaking with members of CATSA, and it's an ongoing process. We haven't been dealing with any of the specifics, but certainly in a broader aspect of security with the national pass system. As my colleague just mentioned, they are going to be holding formal consultations here in the new year, and we will be taking part in that.

Mrs. Bev Desjarlais: Do you think you could give any indication as to why those consultations aren't taking place till the new year, when... I'm sure they said when they appeared before us that they would be taking charge of things at the end of December. They've been receiving money since April 1. Is there some reason they wouldn't have been doing consultation? Were you given any indication of why something hasn't been done before now?

Mr. Art LaFlamme: CATSA was only given this mandate. I'm not here defending CATSA by any means, but CATSA was given this mandate just about a month ago, and it would take them some time to get the process in motion. We received a briefing at the Air Transport Association of Canada's annual meeting in November on the timeframe that was being put into place, and they were hoping to have this all completed by early summer.

Mrs. Bev Desjarlais: I could swear the minister said that they were going to be active far before now, but I'd have to--

Mr. Art LaFlamme: No, I'm sorry. That's with respect to the consultations on the pass system, but CATSA will be in operation on December 31 of this year.

Mrs. Bev Desjarlais: Okay, and have they had consultative discussions with you on other issues prior to this?

Mr. Art LaFlamme: Not formal consultations, no.

The Chair: Mr. Proulx.

Mr. Marcel Proulx: Thank you, Mr. Chair.

Mr. Williams, while I think of it, don't let Mr. Laframboise tell you he's a good mind reader, because according to my personal experience his rate of success is very low, especially in my case.

Mr. Adamus or Mr. LaFlamme, I don't know if you saw or read an article in The Ottawa Citizen of Saturday, December 7, written by Mr. David Harris. The title of it is “Flying the deadly skies” and it's in regard to the danger of shoulder-fired missiles. He's saying that the government should equip all airliners to detect and deflect these horrific projectiles, and there's no doubt in my mind that he's right. I'd like to know what your position is and who should pay for this, do you think, because this would be in addition to what we're doing now, right?

Mr. Art LaFlamme: We can't discount the threat posed by surface-to-air missiles. We don't believe the risk is high, but like any other risk it has to be addressed.

As to Mr. Harris, yes, I read that article. Again, we're not defending the present situation, but we would have to acknowledge that it would be extremely expensive to equip these aircraft with these defence systems. I believe that it's something Transport Canada should be reviewing with the stakeholders and that it should be consulting with its allies in the United States and elsewhere with respect to the best approaches to meet this risk. Although low, it needs to be addressed.

Mr. Marcel Proulx: Thank you, Mr. Chair.

The Chair: I've read a lot on this, too, but is it effective, whatever you've said the aircraft should be equipped with?

Mr. Art LaFlamme: Well, we have to look at the broad spectrum. Surface-to-air missiles are designed to shoot down fighter aircraft; they're heat-seeking missiles. Fighter aircraft generally have their engines centre-mounted, and if they have more than one, they're next to each other. With civilian aircraft you have engines spaced out, and they're much larger than fighter aircraft, so the threat to a civilian airliner versus a fighter is different. Fighter aircraft are usually equipped with flares, and they have equipment to detect an incoming missile and then throw off a flare or a series of flares at the right point in time to deflect the direction of the missile. These are the systems that would have to be looked at for civilian aircraft, but you'd have to weigh that in light of the actual threat to civilian aircraft as opposed to military aircraft.

The Chair: Thank you.

If that's the extent of the questions, I have a couple. Mr. Taller, travel agents have been decimated over the last several years. I'm surprised you're here to defend the airlines, and I'll give you a minute to comment on that.

» (1710)

Mr. Martin Taller: In the spirit of the season, I'll answer that.

The retail travel industry is still a preferred channel of distribution for most consumers. Most travel agents have adapted and restructured to accommodate the Internet and web-based fares and things of that nature. The retail trade is currently examining new ways to create opportunities and revenue streams that are not necessarily impacted by external threats, just as one would find anywhere in the world these days. We would like to help develop our Canadian tourism as well, and we work closely with TIAC and other trade associations in Canada to develop a new inbound product as Canada is still perceived to be a very safe destination. One of the issues we're looking at right now is how to do that, and that is one of the revenue streams we see as being very opportune.

You wanted to know about tickets. When the air security charge was being implemented, there was a moratorium up to a certain date for ticketing. There was a spike in the issuing of tickets for corporate and leisure clients in that those tickets were being issued before the tax was implemented.

The Chair: In one of my previous lives I used to be a lawyer, and when presenting your case you'd always put your best facts before the court. Eventually, as you got more mature, you'd find out that you should put all the facts out.

One of the things you folks have failed to bring forward is the fact that before the new security system was implemented--and I'm not coming to the defence of the security tax, especially since there is some debate as to whether the money that was previously collected wasn't sufficient as Canada had a better system than most other countries--the money for the security system then in place was paid by the airlines. I don't think there's any dispute about that. Once the security system was put in place, the security cost became free for the airlines; the airlines no longer had to pay. You're aware of that.

I think the cost was somewhere around $85 million a year. That was disbursed by the transport department and was paid on a proportional basis by the airlines that used the airports, so Air Canada or Jazz would have been able to keep a substantial amount after implementation. This was no longer a cost item; it was shifted from the airline to the travelling public.

Is that pretty accurate? I just wanted to point that out, that maybe that should have formed part of your--

Mr. Art LaFlamme: That's true, Mr. Chair, but I'll make a rebuttal in the sense that the airlines did not pay for the explosive detection systems or other equipment being used that was being provided by the government. Right now CATSA is doubling the wages of the screeners. I'm not suggesting they shouldn't be paid that, but I'm saying the costs are very, very much higher currently than they were under that regime.

The Chair: We have evidence here that shows that there's a proposed increase; we're not sure that they've received the increase yet.

Mr. Art LaFlamme: Under the budget, $445 million per year was to be collected through this tax, which is a lot more than the $85 million.

The Chair: Well, we haven't had very good success in the last little while, as you all know, with budgets.

Mrs. Bev Desjarlais: Mr. Chair, when they were giving their presentations, some witnesses did have a question about what was going to happen once all the security equipment was bought. I just wanted to comment on that. CATSA actually did appear before us and did indicate that there would be ongoing costs for new equipment, so they don't intend that the costs should go away.

The Chair: Thank you for that, and thank you so much to our witnesses.

I apologize to the witnesses for the length of time we took; we were late in starting. As you can well appreciate, there was some kind of motion or vote in the House that seemed to gain national attention. Maybe that's why my good friends on my left are a little cranky today, I don't know.

Some hon. members: Oh, oh!

The Chair: I'm teasing you.

Thank you all for coming. We're going to meet and make some kind of a report.

» (1715)

Our next witnesses are Mr. Richardson and Mr. Dupont.

Thank you for coming and bearing with us at this time of the evening. We're sorry to keep you. How do you want to handle this? Does Mr. Richardson or Mr. Dupont want to make a statement?

Mr. Stephen Richardson (Senior Assistant Deputy Minister, Tax Policy Branch, Department of Finance): Mr. Chair, if it meets with your approval, I have opening remarks I would like to present.

I'll begin by introducing myself. I am Stephen Richardson, the senior assistant deputy minister for tax policy in the Department of Finance. With me is Mr. Serge Dupont, who is the general director in the Tax Policy Branch of the Department of Finance.

We appreciate very much the opportunity to appear before the House of Commons Standing Committee on Transport to discuss the air travellers security charge. As you know, budget 2001 allocated $7.7 billion through the 2006-07 year for a comprehensive plan to enhance personal and economic security for Canadians. This amount included $2.2 billion to make air travel more secure in accordance with rigorous new national Transport Canada standards, including the creation of a new federal authority, the Canadian Air Transport Security Authority, or CATSA. This commitment to enhanced air travel security responded to a crucial need to assure air travellers that Canada continues to have one of the safest and most secure air transportation systems in the world.

To fund the enhanced air travel security system, the budget announced the introduction of the air travellers security charge to be paid by air travellers beginning April 1, 2002. Enhanced air travel security benefits principally and directly the air travellers who use the Canadian air transportation system. In these circumstances, a user charge is fair and fiscally responsible.

Accordingly, the charge was set at a level to achieve full cost recovery, and all of the proceeds from the charge, including the applicable GST/HST component, go to pay for the enhanced air travel security system.

For air travel in Canada, the total cost of the charge is $12 per emplanement to a maximum of $24 per ticket; for transporter air travel to or from the continental United States, the charge is $12 per emplanement in Canada; and for other international air travel, the charge is $24 per emplanement.

For travel in Canada, the ATSC applies to flights between the 89 airports where security comes under the responsibility of the new Canadian Air Transport Security Authority, CATSA, and where security enhancements have taken place or are planned. Direct flights to or from smaller or more remote airports that are not among the listed airports are not subject to the charge.

The government has committed to reviewing the charge over time to ensure that revenue remains in line with expenditures for enhanced security. The first review is currently underway, and if revenue from the charge is projected to exceed the estimated cost of enhanced security, the government has indicated that the charge will be lowered.

On November 8, 2002, the government released an update on the review process together with a request for industry stakeholders and other interested parties to provide input to the review of the ATSC. A backgrounder providing up-to-date information on the charge accompanied the November 8 news release. We've provided to the committee copies of the news release and the backgrounder.

What follows is a brief overview of the key points. Let me first address revenue issues. The November 8 release provided an updated revenue forecast based on ATSC collections to date and projections for air passenger traffic. Under this forecast, revenue from the charge through 2006-07 is not expected to exceed the cost of enhanced air security as set out in budget 2001. As such, there is little scope on the revenue side for reducing the charge at the present time.

However, the government's change to full accrual accounting, possibly as early as budget 2003, could provide an opportunity for reducing the charge. Under full accrual accounting, capital assets are amortized over several years rather than expensed in the year of acquisition. So the costs to be recovered from the charge through 2006-07, as determined by this method, may be lower than those set out in budget 2001.

» (1720)

The relative impact of full accrual accounting would depend on a range of factors, including the amount of capital that is employed, when the assets are put into service, and the amortization schedule for depreciating the assets. Further work is being undertaken with the Canadian Air Transportation Security Authority to assess the amount of any potential cost adjustments.

I would note that the ATSC review is broad enough to consider technical issues related to the application of the charge as well, including its structure, provided that revenue covers the costs of enhanced air travel security and that no one pays more.

Some industry participants have suggested that the amount of the charge should be partly or completely a function of the airfare or the distance travelled in order the limit the potential impact for short-haul or low-cost travel. The current structure of the ATSC reflects the fact that security services for a passenger are generally the same, regardless of the fare paid or the distance travelled. From this standpoint, the current flat rate structure has two merits: it's relatively simple; and it's the same for all travellers.

Options for reducing the charge must be very carefully considered, whether they are flat rate or based on some measure of airfare or distance. Representations from communities and industries need to be taken into account, while ensuring fair application of the charge in a manner that is also relatively easy to understand and administer. The government will review carefully input from industry and Canadians, mindful of the guiding principles that revenue must cover costs and no one pays more.

The review is also addressing more technical issues. The government has already announced transitional relief for charter air travel and tour operators, as well as special treatment for certain air travel donated through charities.

Other technical issues that have been identified by industry in stakeholder submissions include direct ticket purchases from multiple air carriers--for example, over the Internet--and aircraft departures from portions of listed airports where no passenger screening is provided. Officials have already discussed these issues with industry, in particular, through the Air Transport Association of Canada, ATAC, and will continue to evaluate them.

As indicated earlier, the review is intended to ensure that revenue through 2006-07 is in line with the cost of the enhanced security system, estimated in budget 2001 to represent $2.2 billion over the same period. Transport Canada and the Canadian Air Transportation Security Authority have indicated that expenditures on enhanced air security are underway and are expected to be generally in line with the framework set out in budget 2001.

Industry stakeholders and other interested parties have been invited to submit written representations to the Department of Finance prior to December 31, 2002, to help ensure timely review of the charge. Further information is available at the finance website.

I'd be pleased to answer any questions that you might have.

The Chair: Thank you, Mr. Richardson.

Mr. Dupont, do you want to add anything to that?

Mr. Serge Dupont (General Director, Tax Policy Branch, Department of Finance): No.

The Chair: Thank you.

Mr. Moore.

Mr. James Moore: Thank you.

Thank you both very much for coming.

Mr. Dupont, it's good to see you again. You may remember me from last time. We had an energetic intervention at the finance committee.

» (1725)

Mr. Serge Dupont: I do.

Mr. James Moore: At that meeting, after a protracted crowbar attempt on my part, you admitted that the government did no impact assessment before it implemented the $24 air security charge. Have you now done an impact assessment, and what is it telling you?

Mr. Stephen Richardson: Let me begin by answering the question.

As part of the review process that is now underway, we have commissioned a number of studies. When we have these in final form and have them translated, they will be made available publicly, which we hope will happen before the end of this month.

One study we've commissioned relates to low-cost and regional air travel in Canada. Another study we've commissioned relates to the elasticities of demand--that is, how sensitive to price increases is air travel demand among consumers, and particularly, how sensitive is that demand in various segments of the market, including different distances and different price ranges?

We've also had, and are in the midst of, an open consultative process, through which we're reviewing information from industry, which we have received from a number of stakeholders and other interested parties, and we expect to receive more. We anticipate taking account of all this information, including whatever information comes out of your own deliberations, in formulating recommendations for the minister within the context of the review.

Mr. James Moore: I look forward to those studies.

In your statement, you said, “From this standpoint, the current flat rate structure has two merits: it's relatively simple; and it's the same for all travellers.” Of the 89 airports that are listed, Vancouver South Terminal is on the list. Vancouver South Terminal has no security whatsoever. Can you tell the people who travel there and the businesses that operate there why they're paying the $24?

Mr. Stephen Richardson: I think I can respond to the question. The reason it is on the list, as you mentioned, is that the air travellers security charge applies to all domestic flights between any two of the 89 listed airports. These 89 airports are ones for which CATSA is responsible for security, and at which we understand enhanced security is planned. We are aware of the situation you referred to at the Vancouver airport. But our understanding, from CATSA and the Department of Transport, is they are reviewing and anticipating security in the circumstance you provided.

Mr. James Moore: I would invite you to call a fellow by the name of Daryl Smith. He owns or is president and CEO of Pacific Coastal Airlines. Give him an answer for why his passengers ought to be paying the tax they are not receiving any service for.

There are so many things to talk about, but another point you made here...I'll ask this question. The argument for CATSA and the air tax is that they will benefit air security. Why isn't the $24 air security charge dedicated specifically to go to CATSA? Why does it have to be channeled through general revenue?

Mr. Stephen Richardson: The decision was made by the government that it would be used for air security, in the sense that the revenue from the charge over a period of time would be used for enhanced air security. We're now looking at a planning horizon going from late 2001 until the year 2006-07, in government fiscal years.

This can be done without dedicating the amount. In fact, the very purpose of the review is to ensure the amount of the charge over time is not at such a level that it would raise revenue beyond that used for the purposes of enhanced air security.

Generally, the government has been reticent to absolutely dedicate or earmark amounts for a particular purpose, because it affects flexibility, particularly from period to period. For example, in this circumstance, the revenue of the charge will not be the same as the expenditures on a month-by-month or a year-by-year basis. In fact some of the expenditures may be in excess of the revenues in early years, and below in later years. Over the time period, though, the results should be the same.

Mr. James Moore: Yes, you're not getting the month-by-month stability because the travel industry is cyclical. It goes up and down. What is also cyclical is consumer demand for products. Prices fluctuate relative to carriers and relative to taxation. As an economist, why didn't you or Transport Canada or Finance Canada take into account the principle of static analysis versus dynamic analysis with regard to the inelasticity of ticket prices? This is to say, when you raise the cost of consuming a product, demand for consuming the product will go down. Fewer people are flying because the cost is higher. But you guys have assumed the same number of people will fly this year as flew last year prior to the tax. Therefore, fewer people are flying, and you have less revenue, and you are surprised why the revenue is short. How could you let this happen?

» (1730)

Mr. Stephen Richardson: I don't think we are necessarily surprised, because I don't think we are necessarily short on the revenue. But let me take a moment to explain the revenue circumstance.

The revenue circumstance is as follows. The 2001 budget's analysis of revenue is a prediction of $430 million of revenue from the air travellers security charge for the initial year, and then $445 million of revenue a year for each subsequent year through 2006-07, for a total of $2.2 billion of revenue. Through that period, this is the amount of the planned air security expenditures.

This was based on a number of assumptions, including the following: first, that there would be a 10% drop in airline passenger traffic in the initial period; second, that there would be zero growth over the time period of the determination; and third, it included all of the GST revenue relevant to the air travellers security charge as well. These were conservative estimates, made at a time when this had to be done, in the fall of 2001, when no one knew very much about how the airline industry would react or rebound to the events of September 11, 2001.

We've now had about five months' of experience with actual revenue collections from the air travellers security charge. The five months of actual revenue, relating to April, May, June, July, and August, because the charge went into effect on April 1, indicate we have about $150 million to $160 million of revenue for this period of time.

If we take this amount of revenue and we extrapolate it over the first year, we determine that we would have about $370 million of revenue for the first year, and about $400 million to $420 million of revenue over succeeding years, which are full years. However, as I mentioned, we have done the original estimates with zero growth built in for successive years. Based on our observations since September 11, and since the introduction of the charge, we now feel comfortable that it's reasonable to apply a growth factor to revenues over succeeding years. So if we take the $400 million to $420 million of revenue for full years, and we apply Transport Canada's updated passenger projections for growth estimates, we then come up with an amount of money of just about $2.2 billion over the period.

So at the moment, we do not project being short of revenue.

Mr. James Moore: In the first part of your statement, you wrote: “As you know, Budget 2001 allocated $7.7 billion through to 2006-07 for a comprehensive plan” for all aspects, such as borders, ports, airports, etc. But it's only in the air industry where passengers are paying 100%. When you pass borders, you're not asked to pay a $50 toll to go across the border for increased border security. But in the air industry, you are.

Just so the official knows, I don't think there's a person at this table whose province or region hasn't had air service cut. Bev is from Thompson, Manitoba. She has lost air service. I'm from British Columbia and the Lower Mainland. We've lost service. Lynne Yelich is from Saskatoon. They've lost service. And they've lost service principally because of this policy decision, which you or your department advocated.

Given that you make recommendations to the finance minister and then to lateral ministers, my question for you is, why is it only in the air industry where 100% of the charge for security is only on the shoulders of those who use it? No other industry faces this—rail, car, or trucking. It's only the air industry. Why?

Mr. Stephen Richardson: First of all, as I mentioned, the tax isn't put on the industry; the tax is put on the users.

Mr. James Moore: Where's it from?

Mr. Stephen Richardson: You would have to do an economic study to determine this. But we can discuss it. I'm happy to respond to questions on this, if you would like.

In describing the tax, the tax is not on the industry; the tax is on the users. In fact, as the chair noted a few moments ago, the industry was relieved of over $70 million in costs it was previously subject to. If it had been subject to higher standards for the same costs it was incurring before, these costs would have gone up. The industry would have been subject to more costs. Without dealing with the exact incidence question, I'm happy to mention that I think the charge is a user charge. It is the only user charge as part of a $7.7 billion package. We don't disagree with that conclusion.

As I mentioned, the reason for it is that there is a large $7.7 billion security package, which was put in place as part of budget 2001 to ensure the economic and personal security of Canadians. One major aspect of that, which was extremely important, was the air transportation security situation. As you point out, it is $2.2 billion of the $7.7 billion. After September 11, it was and still is extremely important that Canada be in a position to assure that the air transportation security system remains one of the safest and most secure in the world.

The primary beneficiaries of this safety and security are the air travellers. It was decided by the government that it was appropriate and fair that they pay for this. They are not paying all of the costs related to all of the security. There is other security, and there are other security-related costs. There are intelligence costs. There are other costs. What they're paying is the direct cost of the air travel security.

» (1735)

Mr. James Moore: I have just one final comment.

The Chair: You don't pay attention to the time either, but go ahead.

Mr. James Moore: Just FYI, ten times the number of people died on the ground than in the air on September 11. It is a national security preoccupation, not an air security preoccupation.

The Chair: Thank you.

I've put you on the list for another round of questions, Mr. Moore.

The next one is Mr. Harvey.

[Translation]

Mr. André Harvey (Chicoutimi—Le Fjord, Lib.): Thank you, Mr. Chairman.

I would like to start by thanking the witnesses for having come to have this exchange with us on this issue that is of great concern to our fellow citizens, and more particularly to rail passengers, and on this charge that is being added on to the cost. We are hearing that this is having a considerable impact on the crisis in the airline industry. What comments would you care to make in this regard? Do you consider that this charge is absolutely unbelievable and that it is the main cause of the difficulties the air travel industry is having?

[English]

Mr. Stephen Richardson: Thank you for the question.

Again, I think we are cognizant of the fact that when you increase costs on a service, that will affect the utilization of the service. However, the question is what's the fairest and most fiscally responsible way to cover these costs, and I think I've expressed the view of the government at the time of the imposition of the air travellers security charge that it was fair and fiscally responsible to impose this set of costs on those who most directly and principally benefit.

There are various segments of the market that perhaps have different effects. One of the things we will be looking at with our studies that I referred to earlier is the question of the elasticities of demand, which means whether or not the demand for these services in particular circumstances, such as short-haul or regional circumstances compared with other circumstances, are more affected or seriously more affected by increased costs. So we'll certainly be looking into that question.

I would note, though, that as for the air travellers security charge itself and the effect those charges had on travel, there has certainly been a number of difficulties in the airline industry after September 11 that do not relate to those charges. As other commentators have pointed out, there is a number of reasons why airline traffic is reduced over last year in any comparison you would make. For example, the information we have in Canada is that our most recent figures through the end of August for airline traffic generally show that passenger traffic is down 10% year over year, and we understand that in the United States, where there's a different fee structure, it's down 11%. So the effects are fairly similar in different places, and that suggests it's not a particular charge that's involved but that there are a number of factors in play.

» (1740)

The Chair: Thank you.

Mr. Harvey.

[Translation]

Mr. André Harvey: Do other Western countries impose similar charges for air travel security?

[English]

Mr. Stephen Richardson: Yes, there are, and my colleague may want to add some more information. But the charge we're most familiar with that is brought up as a comparison is in the United States where, in fact, there are a whole range of charges applied by the federal government of the United States to airline travel. One of those charges in the United States is specifically recognized as a security charge, I guess in some way similar to our charge. That's a charge of $2.50 U.S. per segment. That is the way they do it, and it means that in a normal return trip, or if you made one connection, the charge would be about $10 U.S., or $16 Canadian.

The thing that's interesting to compare in the U.S. is that, again going back to the remark about the fact that airlines have been relieved of the costs of security in Canada, in the U.S. there is the security charge, but the airlines continue to be subject to significant costs of security directly. We understand there are currently negotiations going on between the airlines in the U.S. and the U.S. government as to a range of potential costs that would be borne by the airline industry in addition to the security charge. Numbers that have been used in these discussions range between $500 million U.S. and $1 billion U.S. per year for additional costs on the airline industry.

I think there are also other charges in other countries. Serge, I don't know if you have any specific information. However, we can provide you with that information if you would like us to follow up.

The Chair: If you have that information, we would appreciate it. Thank you.

Mr. Laframboise.

[Translation]

Mr. Mario Laframboise: Thank you, Mr. Chairman.

I will follow up on what Mr. Harvey said. This would mean to say that you do not believe what the witnesses who preceded you told us. They told us, among other things, that in the airline industry, a 1% cost increase brings about a 1% drop in demand. Do you not believe that is the case?

[English]

Mr. Stephen Richardson: I don't have a comment on the specific 1% to 1% comparison. In fact, I think what they were referring to is a measure of what we refer to as elasticity or sensitivity of demand. This will be dealt with, at least to some extent, in one of the studies that we have commissioned, which we should have shortly. I am interested, as you are, in looking at the results and seeing what those results are, particularly if they're different results in different segments.

We recognize that when there's an increase in cost, there will be a reduction in demand. I can't tell you whether it's one to one.

[Translation]

Mr. Mario Laframboise: That is not what you were saying earlier. You stated that in the United States there was an 11% drop in demand whereas here there has been a 10% drop, and that it is therefore not this tax that is the cause. However, a tax is a cost increase. Therefore, there is something wrong somewhere. You seemed to be saying that it was not the tax that was involved.

[English]

Mr. Stephen Richardson: Exactly, because I think what I'm trying to say is that there has been an observed decline in airline passenger traffic in a number of places, whether there is a tax at a particular level or not. It may be that the decline in passenger traffic could be affected by the tax--we're not saying it's not affected--but there are obviously other factors that are also involved in these declines.

Witness the United States. For example, in information I have from the United States, where the tax as we just described, the direct tax, is somewhat less than the security tax in Canada, but where the airlines cover some of the cost, there has been an observed reduction in short-haul traffic of 26%. That would indicate to us that there are a number of factors at play, in addition to the tax.

» (1745)

The Chair: Excuse me, Mr. Laframboise.

You say there are other factors. I don't want to interfere with the questioning, but--

Mrs. Bev Desjarlais: I don't either, but was that from the U.S.?

The Chair: That was in the U.S.

Mr. Stephen Richardson: That was a U.S. number.

Mrs. Bev Desjarlais: Thank you, Mr. Laframboise.

The Chair: Do you have the other factors?

Mr. Stephen Richardson: Yes, other factors have been mentioned by the industry as well: the decline in business travel; questions in the public relating to concerns about security; fear of flying; and in some cases, just the comparability of the difficulty of flying compared to other modes of transport. These are important factors, Mr. Chair.

The Chair: I'm sorry, Mr. Laframboise. It was an interesting observation that you had made, and I thought--

[Translation]

Mr. Mario Laframboise: Do you believe that the train could eventually be a competitor of airlines for reasons of cost?

[English]

Mr. Stephen Richardson: I don't have any particular information to compare rail. I would just say, in general terms, based on some of the factors that I was mentioning, there may well be more people taking rail compared to air travel particularly, where rail is more competitive in terms of the amount of time spent on the shorter distances.

[Translation]

Mr. Mario Laframboise: Do you consider it normal that all of these security charges are being imposed upon the air transport industry, whereas rail is subsidized at a rate of $300 or $400 million depending upon the program? You have just told us that there are probably more people who travel by train. Do you find that normal?

[English]

Mr. Stephen Richardson: Within the context of my job and responsibilities, all I can really comment on is the justification for putting the air traveller security charge on the users who travel, which I think I've explained and I feel is appropriate.

I can't really comment on transportation policies relating to rail.

[Translation]

Mr. Mario Laframboise: If I understood correctly, you stated earlier that other security measures had been taken, for example at border crossings for trucking and travel by car. Are those people who cross the border in this way asked to pay a charge to cover the new security costs?

[English]

Mr. Stephen Richardson: I don't have information directly on what the cost structure is for transportation by other modes, for example, trucks at borders. We can obtain this information for you if you would like us to follow up with that.

The Chair: Mr. Laframboise, I appreciate your question.

Perhaps we should ascertain if Mr. Richardson and Mr. Dupont are here exclusively on the airport tax.

Of the $7.7 billion that was set aside in the budget, of which $2.2 billion was set aside for airport security, is your role and your responsibility exclusively in that $2.2 billion, Mr. Richardson? And if that's correct, then I can eliminate any questions that don't pertain to that.

Mr. Stephen Richardson: That is correct.

» (1750)

[Translation]

Mr. Mario Laframboise: Mr. Chairman, one witness is General director of the Tax Policy Branch whereas the other is Senior Assistant Deputy Minister. I would have thought that they would be able to answer questions dealing with such issues, but they are probably stuck in their respective boxes.

[English]

The Chair: Mr. Laframboise, I think those questions are very relevant. I think this committee is going to have to bring somebody back in to find out that...

Mr. Laframboise: [Inaudible—Editor]

The Chair: No, no, I like your questions. I think it may be unfair... I'm trying to protect the integrity of the witnesses, and they've explained, Mr. Laframboise, that they're only here in their position as... the $2.2 billion of the overall security. I would very much like answers to those questions and we should get them.

You'll get your chance in a minute, Mrs. Desjarlais.

[Translation]

Mr. Mario Laframboise: With regard to the $24 tax, when I read the press release you put out on November 8 for the December 31 presentations, I see here that there is no room to manoeuver. The second last paragraph of the press release says the following:

The ambit of the review of the charge is such that we will be able to take into account technical questions with regard to the application of the charge, as long as the revenue covers the cost...

This means that we will not be able to ask for the abolition of this charge. We may propose new solutions such that no one would have to pay a higher rate. In other words, everyone must pay the same amount.

It was my understanding that you had two possibilities. First of all with the new accounting technique. Accrual accounting would allow you to depreciate your capital expenditures over several years. You will certainly be able to tell me, because you have certainly done this work, how much money can be amortized over 10, 15 or 20 years. Have you carried out your analyses? You could certainly table them, because that is part of your job. How might we find some room to manoeuver? How many millions of dollars might that represent?

[English]

Mr. Stephen Richardson: Thank you for that question. I think you've read the release correctly. The ambit of the review we're conducting is, I think, the way you described it, which is that our responsibility is to review the charge but within the confines of ensuring that the revenue covers the cost and that nobody pays more. As we pointed out in the release and as I mentioned in my remarks, even though at the moment the revenue on a cash basis appears to be roughly in line with the expenses on a cash basis over the time period, one possibility for some creation of room to reduce the charge would be if the expenditures on capital assets were amortized over a period of time. Depending on a number of factors, particularly the kind of thing you just mentioned, including the length of time over which we would amortize the assets, the time at which the assets are required, and the appropriate rates to apply in these circumstances, it may be that the cost of the expenditures for these assets would result in being less than it otherwise would have been, and the $2.2 billion over the planning period may be less. I can't answer the question specifically as to what period of time because it would certainly depend on the individual assets.

What we would plan to do at such time as the government makes a decision to follow accrual accounting and if the appropriate approvals or concurrences are obtained--I think this also involves discussions with the Office of the Auditor General--is we would explore with Transport Canada and CATSA the nature of their expenditures. We would review what the capital assets are that they are requiring and when they're being required, and we would try to determine appropriate amortization periods, and then see if that resulted in a lesser expenditure.

The Chair: Thank you, Mr. Richardson.

Next is Ms. Desjarlais and then Mr. Gallaway.

Mrs. Bev Desjarlais: Thank you, Mr. Chair.

I have a couple of specific questions first, and please answer them as briefly and precisely as possible.

Who's doing the study in relation to the low-cost regional air travel?

» (1755)

Mr. Stephen Richardson: Sypher:Mueller, who are aircraft industry consultants.

Mrs. Bev Desjarlais: They're an aircraft industry--

Mr. Stephen Richardson: They're air industry consultants.

Mrs. Bev Desjarlais: Who's doing the study on the elasticity of demand?

Mr. Stephen Richardson: Dr. David Gillen.

Mrs. Bev Desjarlais: Who is he?

Mr. Stephen Richardson: I believe he's a professor of economics at Wilfred Laurier.

Mrs. Bev Desjarlais: Who are they meeting with in the industry with regard to these studies, or do you know?

Mr. Stephen Richardson: I'm not sure who they would be meeting with. The studies are basically--

Mrs. Bev Desjarlais: That's okay. I just wanted to know who they were meeting with.

I'm going to be short because I don't know how long the chairman is going to be nice to me.

Mr. Serge Dupont: If I could add just one point, Sypher:Mueller has surveyed up to 40 low-cost and regional carriers across Canada. So they've been in touch with 40 carriers.

Mrs. Bev Desjarlais: With regard to the airport security tax and the release that went out inviting industry people to take part, can you tell me how they were invited? Were letters sent out to all the airline carriers, the air travel agency association, and the airport authorities, or was it zapped up on a website, saying you can do this if you like?

Mr. Stephen Richardson: It was put on the website, and we also discussed the matter with ATAC and other interested groups.

Mrs. Bev Desjarlais: Did you contact any of those other individual groups specifically and give them any indication that this was happening?

Mr. Serge Dupont: I'm familiar with discussions with ATAC. But our experience is that all the groups would be connected very quickly to that kind of information. With the news release--

Mrs. Bev Desjarlais: Would the travel agents be involved with ATAC?

Mr. Serge Dupont: Certainly the association. Then the associations quickly disseminate that kind of information to their members.

Mrs. Bev Desjarlais: What about pilot groups or any of those kinds of groups that were involved? Would they have any way of...?

Mr. Serge Dupont: Same answer.

Mrs. Bev Desjarlais: Would they would be involved with ATAC?

Mr. Serge Dupont: No, but all of these groups are sufficiently connected to the sources of information on this kind of matter, including news releases by the Department of Finance. The information circulates very quickly to these associations, whose job it is to monitor these kinds of developments and to disseminate the information to their membership.

Mrs. Bev Desjarlais: Okay. Not quite so specifically, but just because of some of the comments that have been made, it's interesting to note that you're working on the premise that the revenue must cover the costs.

So just as a simple yes or no question, if the revenue doesn't cover the costs, is the tax going up?

Mr. Stephen Richardson: We don't have any reason to believe the revenue won't cover the costs.

Mrs. Bev Desjarlais: That's not what I want. If the revenue does not cover the cost, is there an intention that the cost will go up?

Mr. Stephen Richardson: There is no intention that I'm aware of.

Mrs. Bev Desjarlais: So your position that revenue must cover the cost is not strictly the premise you're working on?

Mr. Stephen Richardson: The position that revenue must cover the cost was enunciated by the Government of Canada; it's not my position.

Mrs. Bev Desjarlais: Okay, good enough.

On your comments about the capital assets being amortized over time coming into play, my understanding is that when the equipment was put in place before for security, it was bought and then the cost was pretty much covered by the Government of Canada. It was handed to whatever agency it was, and then that same equipment was used. I think they said the cost for providing that equipment was something like 7¢, in the end, per whatever passenger.

So really, the position that it would be amortized over a period of time would make sense, except that CATSA gave us the impression that there were going to be ongoing costs all the time for equipment because of changes. So how would that kind of cost factor on the capital cost and the amortization work into play to keep costs down?

Mr. Stephen Richardson: CATSA could probably give more detailed information about the equipment use over time, but generally, if you amortize equipment over time, even though you have to replace the equipment, at the front end of the time period you will get lower costs than if you account for it on a cash basis. So it would have probably some effect in the earlier years. It doesn't mean that over time you don't end up with the same costs, which is the case.

Mrs. Bev Desjarlais: Just as a comment...and I have to admit that it's sort of going in line with the comment that the parliamentary secretary made when he said it's coming in the blueprint. He was sort of responding to Mr. Laframboise's questioning of the charges happening to the airlines but not to other industries.

So I'm thinking, is there an intention in the tax department to incorporate into policy additional taxes in other industries to cover security? Is that something that's being worked on?

¼ (1800)

Mr. Stephen Richardson: Our group is not working at the moment on any other taxes or charges related to security.

Mrs. Bev Desjarlais: I don't have you on the witness stand here, but I'm just curious. Are you aware of whether or not there has been discussion?

Mr. Stephen Richardson: All I can say is we're not working on anything. We have no instructions to work on it.

Mrs. Bev Desjarlais: You mentioned--and again, you're saying it's a government position--that the security tax should cover the costs. As a tax policy person, is that the premise you work on, that in any manner, when the security costs or other costs are coming into play, that's the position you take through the tax policy, that it should be covered by the user?

Mr. Stephen Richardson: There are things in favour of the user-pay principle in some circumstances. There are factors that could militate against the user-pay principle.

We obviously use it in the country in a number of circumstances. We have toll roads in some places, and we have free roads.

It's a policy decision to be made by the government, based on a number of considerations, including its fiscal position and the appropriateness of putting the user-pay liability on those who are involved.

Mrs. Bev Desjarlais: I just wonder how someone would feel coming up to Parliament Hill, knowing that security has obviously increased.

I think we'll recognize that security has increased on Parliament Hill, a variety of security measures. My guess is that it has increased in cost. Is it reasonable, then, that users, anybody coming onto the Hill, should have to pay a security cost?

Mr. Stephen Richardson: I can't comment on that. I would expect not, in those circumstances.

Mrs. Bev Desjarlais: This is going to be as much a comment, Mr. Chair.

In the discussions comparing Canada's situation with a security fee to the U.S.'s, there have been numerous polls that I've heard of in the last number of months on how U.S. citizens feel about flying as compared to Canadian citizens. There's no question that those in the U.S. are more concerned about flying than those in Canada, simply because I think most of us think the U.S. has greater risk of attack than Canada might. I think that's just generally a feeling that the Canadian population and the U.S. population have.

If I can somehow make that premise, then, that this is probably why a lot of Americans aren't flying--and you indicated a 26% decrease in short-haul in the U.S.--we don't have that problem in Canada. We had people flying, and their greatest reason for not flying, or at least a good portion of it...and we listened to the industry here today tell us that they feel that at least 5% of the 10% decrease is as a result of this tax.

Contrary to popular belief, I do think in a good number of industries they do know how to keep track of what's happening, and I'm actually surprised that you would suggest even comparing the decrease in number of passengers flying in the U.S. to that in Canada.

The Chair: If you can understand that question...

Some hon. members: Oh, oh!

Mr. Stephen Richardson: I didn't know if it were a question or a comment.

Mrs. Bev Desjarlais: I'm surprised you would have even suggested here that somehow there's a comparison as to how people feel about flying in the U.S. and in Canada. Even Canadians going into the U.S. are a little more concerned than they are about flying within Canada. They feel quite comfortable. Yet it's our regional industries in Canada that are being hit the hardest, without question, as a result of the security tax.

The Chair: Mr. Richardson.

Mr. Stephen Richardson: I would only add that I would like to think part of the reason is the excellent air security system we have and the way we've managed to pay for it.

Mrs. Bev Desjarlais: With regard to the way you've managed to pay for it, again I say to you, as has been mentioned earlier, I've been flying since April 1. I've been paying that security tax, but I don't have security. I've been paying for it from Thompson to Winnipeg every time. There are equally large airports in Manitoba. From the third largest airport in Manitoba into Winnipeg, nobody pays. Quite frankly, I don't think they should. I don't think it's necessary that it's there. But where is the logic to the issue of security?

Mr. Serge Dupont: With regard to Thompson, as Mr. Richardson indicated, the purpose of the charge is to fund security enhancements. Our understanding--and this is something that would have to be validated by Transport Canada and CATSA--is that screening will be provided at Thompson airport as of January 1. We're not the ones providing that information, but I was aware of the question you had posed to other witnesses last week, and we verified that with Transport Canada, which provided that information to us.

¼ (1805)

Mrs. Bev Desjarlais: But is it fair that I pay a wand screening security charge of $12 and someone flying out of Toronto paying for bomb equipment and whatever else pays the same fee? Is it fair that regional areas that are not going to have the same degree of security are paying the same charge?

The Chair: I think this is going to be your last question.

Go ahead, please.

Mr. Stephen Richardson: The principle established under the air travel security charge is that there's a selected group of airports for which CATSA is responsible and at which security is provided, and it's travel between those airports where the charge applies. There are over 300 airports in Canada. There are only 89 airports on the list. That list is determined by CATSA and Transport Canada based on the plan to have security. If there's absolutely no security in an airport, then we can't necessarily explain why the charge should apply. But our understanding, as Mr. Dupont mentioned, is that this is the list we've been given to work with by the authorities who are responsible for security as to where they plan to have security.

The Chair: Thank you, Mr. Richardson.

I've put you, Ms. Desjarlais, on the second round of questioning. I thought you would want to be on there.

Mr. Gallaway.

Mr. James Moore: I have a point of order.

The Chair: Is it pertaining to the discussion?

Mr. James Moore: Absolutely. We were supposed to be out of here at 5:30. It's now 6:10. What's our timeframe?

The Chair: Let's answer that in the context of what happened previously. You indicated to the chair that you were very upset because we took three or four minutes to pass a motion and we inconvenienced the witnesses to such an extent, and there was an apology.

Now you're asking, what's the agenda? The agenda is to allow all of our committee members to be satisfied that they've had as much time as they need in order to get the information they need from Mr. Richardson and Mr. Dupont from the Department of Finance.

It's obvious that we're going to have to get other people before the committee--and this is not being disrespectful to what you're saying here today--maybe the ministers, to answer the broad questions that Mr. Laframboise, Ms. Desjarlais, and you have asked.

My agenda today, and I would hope that it would meet with the approval of the whole group, is that we would like to have Mr. Richardson and Mr. Dupont stay with us, if they will, to answer the balance of the questions. Then we're going to adjourn. We're all going to go and break bread. But we haven't allocated any money through this committee, so it's Dutch treat. How's that? Unless the finance department wants to pick up the tab.

Some hon. members: Oh, oh!

Mr. James Moore: I have another question. How long are we expected to go? We can't have a whole laundry list of things—

The Chair: We're going to have at least 10 minutes from Mr. Gallaway. Mr. Proulx has indicated he is through answering. Ms. Desjarlais will have five more minutes, if she wants. Mr. Laframboise has five more minutes. And you're going to have five minutes, if you want.

Now we're operating on the principle that the longer it goes, let's cancel the questions.

Well, let's go. Who is next? Mr. Gallaway.

Mr. Roger Gallaway: Thank you, Mr. Chairman.

Mr. Richardson, I'd like to go back to the beginning. What consultations occurred between the Department of Finance and Transport Canada in arriving at this global budget of $2.2 billion we've been told about? Did you receive input into the quantum, or were you instructed simply to go out and find the money?

Mr. Serge Dupont: I think there'd be two parts to the question. One is the expenditure part and the other is the revenue part.

The expenditure part clearly was discussed between the two departments over a period of time, in trying to ascertain the costs associated with the enhanced security system. Through various discussions with the Department of Transport and the Department of Finance, the profile that was set out in the budget was developed.

It was then incumbent upon the Tax Policy Branch to look at identifying the corresponding source of revenue for that through a user charge. In that context, there were subsequent discussions with the Department of Transport in trying to develop a charge that would essentially recover the amounts of money involved on the expenditure side of that equation.

So there were discussions with the Department of Transport over a number of weeks on both sides of the package.

¼ (1810)

Mr. Roger Gallaway: So you were aware of the $2.2 billion request?

Mr. Serge Dupont: I wouldn't necessarily characterize it as a request. It was a process involving the Department of Finance, the Department of Transport, and a number of other agencies and parties in Ottawa in identifying a package suitable to respond to the security situation with regard to the air transportation system.

Mr. Roger Gallaway: Could you then tell me what other agencies were involved? It was the Department of Finance and the Department of Transport. Who were the other agencies?

Mr. Serge Dupont: Sir, I was not party to those particular discussions personally, but—

Mr. Roger Gallaway: I'm not asking you that. I'm asking you who are the other agencies.

Mr. Serge Dupont: —the other agencies would include the security agencies and the Privy Council Office. Essentially there were discussions among all parties involved in security matters to assist, not only the $2.2 billion, but also in the context of the $7.7 billion package.

Mr. Roger Gallaway: What does the Privy Council Office have to do with security?

Mr. Serge Dupont: I think it does have a responsibility for coordination of policy across government.

Mr. Roger Gallaway: All right.

Mr. Richardson, to quote you from a few minutes ago, you talked about the “excellent air security system” being provided. What measurement does Finance take in terms of the adequacy the air security system? That is, do you measure value for this ATSC?

Mr. Stephen Richardson: We rely on Transport Canada and CATSA for that.

Mr. Roger Gallaway: Okay. So your reflection of an excellent air travel security system is what you're being told by Transport Canada and CATSA. Is this correct?

Mr. Stephen Richardson: Generally, yes.

Mr. Roger Gallaway: Okay.

As we've heard, on November 8 you announced a review, which you've been asked several questions about. Who has carriage of that review? Is it CATSA? Is it Finance? Is it Transport Canada? Or is it the Privy Council Office, perhaps?

Mr. Stephen Richardson: The Department of Finance has carriage of that review.

Mr. Roger Gallaway: All right.

I know that at Finance you're very concerned about transparency. What transparency is there going to be in this process? Are you going to have public hearings?

Mr. Stephen Richardson: We don't plan on holding specific public hearings. However, we have asked for submissions. We are open to meeting with interested groups. As we've mentioned, we will publish all material we've derived for purposes of the review and make it available to those who wish to review it themselves and discuss it with us. We'll also take into account the deliberations of your committee, or others which might be considering matters that are relevant.

Mr. Roger Gallaway: Will there be a transcript of your meetings?

Mr. Stephen Richardson: We don't normally do transcripts of meetings when we do individual consultations.

Mr. Roger Gallaway: Then where will the transparency be in this process? How can an outsider or an airline—we've heard from a number, such as WestJet, for example—know that you have really taken this and weighed the evidence and arrived at a conclusion?

Mr. Stephen Richardson: I think they can request a meeting with us, which we'd be happy to do. We've had more than one meeting with representatives of WestJet. We'd be happy to discuss with them the materials that are available and any analysis we've been able to develop at the time.

Mr. Roger Gallaway: Now, you say you'd be happy to meet with them. So is this on an as-requested basis, or are you going to publish something?

Mr. Stephen Richardson: We've already published a request for interested parties. Our experience so far is that WestJet, at least, and others have not been shy about coming forward and asking us to discuss these matters.

¼ (1815)

Mr. Roger Gallaway: You will appreciate, Mr. Richardson, that one of the frustrations that both industry and travellers suffer from is the fact that you have embarked on this review, or have announced that you're embarking on this review, yet the details of the review are less than transparent. Nobody knows when the meetings will occur or how they will occur. Indeed, you've heard from the prior witnesses, who were here just before you, that the only way they found out about it was from a website.

So I'm looking for a level of comfort from you. I'm afraid I'm not getting any. As we know in this place, a departmental review is generally an in camera or behind-closed-doors process. People are looking for transparency. It's something espoused by your department, but you're not giving committee members any comfort that what you are about to embark on, as announced on November 8, will indeed have any of these criteria of transparency.

I wonder if you could us a little more in terms of the details of what this will involve?

Mr. Stephen Richardson: I may have mentioned this, but I'm happy to go over it. The review involves meetings with interested parties. It involves obtaining, analyzing, and then discussing with any interested parties the studies that have been commissioned. These will also be posted on the website and made public for anybody to review and discuss with us. As I mentioned, we are open to further discussions with anybody who would like to discuss any aspect of the review.

Mr. Roger Gallaway: Okay. From your press release, how are people to contact you? As I read it, there's an absolute absence of information about how people are going to make this input, unless you're a big industry airline. How's the average user of an airport going to plug into this?

Mr. Stephen Richardson: I think there's a name and telephone number.

Mr. Roger Gallaway: That's it, a name and telephone number.

Mr. Stephen Richardson: Yes. In our experience, that has worked fairly well.

Mr. Roger Gallaway: Okay, that's your experience. That's fine.

Now, next question. You said here that the declines in Canada in terms of passenger volumes roughly equate to those in the United States. I wonder if you could tell us if, in your opinion, the pressures and factors affecting passenger volumes in Canada are in fact identical to those in the United States.

Mr. Stephen Richardson: I can't tell you that.

As I mentioned, I can tell you that, based on the information we have through the end of August, the decline in Canada was about 10% year over year and the decline in the U.S. was about 11%.

I can't tell you whether the factors are identical. I'd be surprised if they were identical. But I would also be surprised if they were radically different. There are a number of things going on that affect air travel in North America. I think there are different views, which have been expressed right here in the room, about whether there's a difference between the fear or lack of fear of flying in Canada and the U.S. I don't have any empirical evidence to justify a conclusion one way or the other. There's some element of that in both places. There's also an element of a business decline in travel in both places. There are also increased costs in both places.

Mr. Roger Gallaway: Okay.

This committee has heard, particularly from industry, that this tax, created without consultation with them, is in fact having a dire effect on passenger volumes. Would you say—which you appear to be doing, in any event—they're wrong and you reject their assertion?

Mr. Stephen Richardson: No. In fact, I believe I mentioned earlier that we concluded, from theory and experience, that any increased cost in the service would have some impact on the utilization of the service. But if the industry feels they have specific analytical evidence to show how much that reduction is and how much it relates to the air travellers security charge cost, we would ask them to bring it forward and give it to us, so we could have the benefit of it.

Mr. Roger Gallaway: So let's assume they do come forward, because they've had no problem coming forward here. What do you foresee in terms of an adjustment to the $12? In your brief you say there's little scope on the revenue side for reducing the charge at the present time--which is included in your press release, by the way. Won't it really be a disincentive, a discouragement, if you say, “Come and tell us how you're being affected, but we don't have any room to manoeuvre. This is the way it is; this is the $12”? Is there real scope to lower the tax within this review you're undertaking?

¼ (1820)

Mr. Stephen Richardson: We were trying to be open and transparent there. Based on the existing revenue results--our calculations and the Transport Canada numbers--the fact is there is not very much room for reduction. If amortization of capital expenditures over time, as a result of accrual accounting, comes to fruition, there is a possibility for reduction.

The Chair: I'm going to give you five minutes.

Mr. Roger Gallaway: I just have one question. In the interest of openness and transparency, what has your department calculated will be the income from this tax for 2002?

Mr. Stephen Richardson: For the fiscal year of the government 2002-03, we're currently estimating it will be $350 million to $370 million.

The Chair: Thank you, Mr. Gallaway.

Now we have, on the second round, Mr. Moore, Mr. Proulx, and anyone else.

Mr. James Moore: I find it very surprising that you say you haven't seen any empirical evidence that this has had an impact on the air industry.

Mr. Stephen Richardson: I don't believe I said that. If I said that, I am mistaken. I said I would like to see analytical evidence to show how much of any reduction in air passenger traffic is a result of the air travellers security charge.

Mr. James Moore: So you haven't seen the evidence. Your responsibility to the public isn't just to say, “We have $2.2 billion in spending over seven years, so $24--yes, that squares. That's how we're going to get our numbers”. It seems to me the responsibility of the Department of Finance isn't just to make numbers square, but to look out for the economic interest.

So since April 1 you're saying you haven't consulted ATAC, Air Canada, WestJet, regional carriers, airports, the tourism ministers, the provincial finance ministers, or anybody.

Mr. Stephen Richardson: We've been in discussions since April 1 with ATAC, airlines, and provinces. We've heard from tourism ministers, finance ministers, and localities. We've heard from many Canadians.

Mr. James Moore: But doesn't the information you've seen, which this committee has also been privy to, tell you this is bad public policy?

Mr. Stephen Richardson: That information doesn't tell me how much of the reduction in air traffic that we're referring to is a result of the air travel security charge.

Mr. James Moore: So no one from any of the corridors, chambers of commerce, or groups has made a case--articulated or couched it--in a manner you would like?

Mr. Stephen Richardson: It's not a matter of how people couch it. Lots of people have said there has been a reduction as a result of the air travellers security charge. I'm just saying that when we do our work, try to apply actual numbers, and do a calculation of the reduction in air travel, there has been a reduction in air travel--we accept that; it's obvious--and there has been some effect from the air travellers security charge. But the question is, how much?

Mr. James Moore: So therefore, until you see that, you won't make recommendations to the government to cut the tax?

Mr. Stephen Richardson: I think I've already described the scope of the review, and that is to review the charge, including the structure of the charge, subject to the two requirements that revenue cover costs and that people don't pay more than they're now paying.

Mr. James Moore: Thank you.

The Acting Chair (Mr. Roger Gallaway): Monsieur Proulx.

Mr. Marcel Proulx: Thank you, Mr. Chair.

Mr. Richardson, do you have statistics as to who the travellers are, whether they're individuals on leisure time or rather if they're business people? Do you have statistics in that regard for the period since the tax has been in effect? If you have anything, you could forward it to the committee.

¼ (1825)

Mr. Stephen Richardson: I don't believe we have a breakdown between personal travel and business travel, but I would be happy to review that and see if we have anything to forward to the committee.

Mr. Marcel Proulx: Mr. Richardson, I understand that you're a senior assistant deputy minister. I have to presume that you're going to look at all the different factors that are brought to your attention in regard to this situation. What are the elements that would bring you to make a recommendation in the sense that the tax should either be...? I'm not going to use the word “removed” because I wouldn't want you to lose sleep over this, so I'm going to say “reduced”. What are the elements that would bring you to make such a recommendation to your superiors?

Mr. Stephen Richardson: Within the ambit of the current review, based on what I've been instructed, that would be that the revenue would be in excess of the expenditures.

Mr. Marcel Proulx: The fact that airlines might bring you figures contrary to yours showing that there has been a drastic decline, would that not be a factor for you to take into consideration and make a recommendation based on the fact that this is damaging to the airline industry?

Mr. Stephen Richardson: We would certainly take forward all information, including information from airlines, if it showed drastic reduction of travel as a result of the air traveller security charge and put that in front of the Minister of Finance for his consideration.

Mr. Marcel Proulx: So in the end, what you're saying is that the decision to either decrease or remove the charge would be strictly a political decision?

Mr. Stephen Richardson: I think what I'm saying is that the review as it's presently been established has a purpose as set out, and that is simply to compare the revenue from the charge to the costs of the enhanced security and see if there is excess revenue. It doesn't mean that information that comes out of the review that is relevant to the overall impacts of the air traveller security charge won't be brought forward and put in front of the minister. That isn't my responsibility at this point.

Mr. Marcel Proulx: I appreciate that and I appreciate your being very honest about it. Your mandate is to see where everything fits, to see what the revenues are in comparison to the expenses, and then to put that in front of your superior.

Mr. Stephen Richardson: And if the revenue exceeds the expenses, then there's a commitment to lower the charge. Then we would look at different structures for possibly doing that, whether it would be a reduced flat rate or some kind of ad valorem component. That would be within our responsibility as well.

Mr. Marcel Proulx: It would be within your responsibility.

Mr. Stephen Richardson: Absolutely.

Mr. Marcel Proulx: You could be looking at distances, or you could be looking at all these different--

Mr. Stephen Richardson: Yes, we would be comparing the various alternatives there might be for reducing the charge.

Mr. Marcel Proulx: Thank you, sir.

[Translation]

Thank you, Mr. Dupont.

[English]

The Chair: Since Ms. Desjarlais, Mr. Laframboise, and Mr. Moore seem to be fine, I have a couple of questions.

Mr. Richardson, I sense here a disconnect. Let me start this way. In the event that as we go down this road of trying to supply security services for the airlines and air passengers, how will subsequent budgets be placed before this committee--if in fact they come before this committee or before another committee and are then presented to the House? Will that be in the form of the annual budget or will it be in the form of supplementary budgets?

Mr. Stephen Richardson: Mr. Chair, I'm not sure that it's within my competence or my range of information to tell you how matters relating to budgets would be brought before parliamentary committees. If we're referring to the ongoing review of the air travellers security charge, I'd have to repeat my account of the constraints and limitations we have in our current instructions as to how to review this charge on an ongoing basis--if that's the question. If it relates to new measures, then that would certainly be up to the minister.

¼ (1830)

The Chair: The Minister of Transport?

Mr. Stephen Richardson: If we're talking about the air travellers security charge itself, I would think that would be my minister, the Minister of Finance.

The Chair: If I might, I'll give you a hypothetical on that. Let's assume that--somebody was mentioning the threat of shoulder-launched missiles--it was decided that an expense should be borne...on equipping aircraft to counteract that threat, and it was something that had not been reviewed by this committee. That expenditure would come before either the finance committee or the transport committee and have to come by way of a supplementary budget, right? Would it come to this committee or would it go to the finance committee?

Mr. Stephen Richardson: I'm afraid I can't tell you which committee it would go to. I would hope that it wouldn't be a decision for us to make, that it would be a decision for the relevant ministers, presumably the Minister of Finance and the Minister of Transport, to make in consultation with the appropriate committees, whether the transport committee, the finance committee, or both of them.

The Chair: Maybe if I try to tell you, Mr. Richardson, or try to ask you...and this is just by way of advice to the committee. In the last several days we've gone through some horrific experiences of things that just shouldn't happen. The Department of Finance was involved; since it was a money issue, it had to be the Department of Finance.

I want some information from your department on how we would become aware of some over-expenditures, how they would come to the committee, how there would be accountability in the spending, and how there would be--what's Roger's word?--transparency. How can everyone know what's happening every step of the way with respect to airport security, not only what's happening with how it's working and the effectiveness of how it's working, but also how it's being paid for and how members of Parliament are made aware of that issue? Is that a clear question?

Mr. Stephen Richardson: Yes, it is, Mr. Chair. Certainly with regard to accountability for spending on security, I would assume that it would be the responsibility of the Minister of Transport and CATSA. I don't have any disagreement with the comment you made, but for my part, I can't give you a commitment to deal with that.

The Chair: You have answered that, basically, inasmuch as you've said that this then becomes the responsibility of the agency. Let's be truthful; the gun agency we set up, that obviously wasn't. But this becomes the responsibility of CATSA or whatever it is.

I'll tell you what prompted the question. We were not impressed with the evidence that was given to this committee. We were not impressed.

So that would be CATSA that is responsible to the Minister of Transport, who should have the ultimate responsibility for what's happening with airline security. They then just come to the finance department and say, we need this money. Is that correct? Is that the process?

Mr. Stephen Richardson: It is my understanding that they have that responsibility. If they required further funding, they certainly would come to the Department of Finance.

The Chair: And what then would be the involvement of this committee since it comes to CATSA, which is basically responsible to this committee and the House of Commons? What would be the involvement of this committee? How could we be entirely, completely aware of the process as we go down the road as to expenditures and the viability and the necessity of those expenditures? It would not be the Department of Finance; it would be Transport, then, is what you're saying.

¼ (1835)

Mr. Stephen Richardson: Yes.

The Chair: And the Minister of Transport would be responsible.

Mr. Stephen Richardson: That's my understanding.

The Chair: Mr. Dupont, do you have any other thing to say? Would you agree with that?

Mr. Serge Dupont: CATSA is a crown corporation reporting to Parliament through the Minister of Transport.

The Chair: But what if the minister doesn't report to...? Somebody enlighten me on this. Because the Minister of Transport reports to Parliament, does it mean that the transport committee reports to Parliament? Do you see the dilemma we're faced with? Because the minister reports to Parliament, does that mean this committee reports to Parliament? Is it taken for granted that—

Mrs. Bev Desjarlais: We need to ask that question of the minister.

Mr. Marcel Proulx: We don't report to the minister. We report to the House.

An hon. member: Right.

The Chair: Okay, that's a process. As we go down this road together, the committee should be aware of every procedure. We will then make our interim reports to the House of Commons.

Mr. Roger Gallaway: I have a couple of questions. In the imposition of this ATSC, was any consideration given by your department to having federal agents or employees at airports collect it, as opposed to imposing upon airlines to collect it for you?

Mr. Stephen Richardson: We gave a little bit of consideration to whether or not it could be done like an airport charge. But early on, I think we discarded it as being extremely expensive and difficult compared to levying the charge on the ticket. There was an example or precedent for it, which was the old air transportation tax, which you may be familiar with. It was done in a very similar fashion.

Mr. Roger Gallaway: As you are no doubt aware, more and more people are booking tickets online. It's a trend in the industry. Since this isn't a tax but a charge, was any consideration given to those collecting it? Was any consideration given in terms of the discount they're offering to the Department of Finance? As you know, credit card charges are factored or discounted in terms of payment to the air carrier. On $12, I believe most carriers are losing 48¢. So, in effect, it's costing them $12.48 to collect $1, or whatever cost is added to remit to you.

Have you considered giving air carriers, just the corporations themselves, a break on this?

Mr. Stephen Richardson: We haven't looked in any way into the manner in which air carriers would either have costs from, or would make money on, the collection of the charge. There is also a cashflow for people who levy the charge. But we've imposed this charge in the normal way it would be applied. We haven't taken special account.

Mr. James Moore: That's a cost of doing business. Air carriers can choose whether or not to elect to sell tickets using Visa. They can choose this. It's a cost of doing business.

The Chair: Are there any other questions?

Thank you both very much, Mr. Richardson and Mr. Dupont.

We will go in camera now to discuss the report. We ask everybody who is not involved in the process to leave the room.

[Proceedings continue in camera]