Industry Committee on June 17th, 2008

[Jim Facette]

The air service agreement Canada has with Japan is a traditional bilateral air service agreement. Traditional bilateral air service agreements dictate the number of seats and the destinations carriers can go between states. So the limitations put on any carrier, be it Air Canada or anybody else, are dictated by the air service agreement.

Canada just recently renegotiated its air service agreement with Japan. And I don't know that Japan is ready for an open skies agreement yet. I'm not sure. I believe that this government, given its new blue sky policy, probably proposed an open skies agreement with Japan. I don't know whether Japan is ready for it yet. But if there were an open skies agreement, all the capacity would be driven by the market. It would not be driven by an air service agreement. So any carrier from Japan could fly anywhere it wanted to in Canada.

The other thing we know, though, is that Air Canada recently suspended its flight between Vancouver and Osaka.

The cost of flying distances now, with the aircraft we have available, is increasing because of fuel costs. There's a point at which, on a flight, you actually have to fuel the airplane just to have fuel to get far enough. That is, you fuel to carry fuel. So the price of fuel is becoming a major issue on long hauls.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Merci, monsieur Arthur.

We'll go to Mr. Eyking.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

I've talked to quite a few international travellers over the last few years, and one of the things they say they notice, they appreciate, is getting the value-added tax back. You alluded to it already. Here it's called the GST, of course, and we don't give it back.

Many craft shops across the country--and we have substantial artwork in this country, and some of the pieces are worth $3,000 or $4,000 easily--are telling me that this GST rebate is really having an effect on them. A person would get $200 or $300 back on a substantial piece of artwork--it could be native artwork, it could be local artwork--and they're not buying it. So some of them are feeling that they almost have to go back to the people who are making the crafts and say, “We're going to have to give them the GST back, because they're not going to buy it knowing they don't have it.”

I had a couple of questions. Was there any consultation with your groups--consultation on the numbers, the impact it had--when the government decided to do this? How important is it that this rebate comes back?

[Randy Williams]

Well, it's important that it comes back, firstly. There was no consultation. Initially it was a decision that was made that surprised us all. Obviously it is important. We're one of the only countries in the world with a value-added tax that doesn't give it back to their visitors.

Tourism is an export industry. All other exports have their foreign end user not pay GST. But in tourism you decided to penalize us at the worst possible time by having our foreign customer pay the GST.

It's just wrong. In principle, it's wrong. So it is important.

I talked to a Montreal storekeeper who sells Inuit carvings. His business is down dramatically, because foreign visitors don't come in and buy product anymore because they don't get the GST rebate back again.

The government did give us back the volume ones--the convention--which is working perfectly, and it's fine. We congratulate the government for at least hearing us and giving us the convention side back.

The tour operator or tour package side was given back to us, but the program to manage that is too difficult, too bureaucratic, too administrative, so that most tour operators are just charging the GST. So the FCTIP, the government program, is meant to be an incentive program, but it's a disincentive for foreign tour operators. That has to be fixed, and Diane Ablonczy is aware of that, and she's committed to helping us fix that.

It's the individual program. We need that back again as well. We should look at broadening it. We should go beyond products and hotels. Let's do what other countries are doing and look at other ways to incent people to come to Canada.

[The Chair, Conservative, James Rajotte]

You have about 45 seconds.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

You mentioned the other countries. We're one of the last countries standing without this. So it would be a detriment.

For an average tourist from, say, Sweden or Europe coming here, how much would it total? If you took all their value-added tax for, say, a two-week visit to Canada, what is the average amount of money they would be getting back?

[Randy Williams]

I'm trying to recall the average. I think the average rebate was just over $100, the refund. We have those numbers and we can submit them to the committee.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

My sense of it is that it's not just the money, it's a token. It's a token to say, “You're welcome here, thanks for coming.” It's a token that means a lot to them, especially if they travel a lot, because they see it in other countries and all of a sudden they come to Canada and they say, “Well, what's this?”

[Randy Williams]

The government came out, when they made the decision, and said that only 3% of visitors were using it, which was wrong. They were counting babies and couples in that. Two-year-olds don't fill out rebate forms.

It was 13% when you do it properly, and that's 13% of a program that was really very, very hidden. It wasn't marketed. If you go into some countries, you can get it right at point of purchase. They advertise it.

In Canada we kept it a secret, and we don't do it conveniently at airports for other people, and we still had 13% of people claiming it. It took them two months to get the refund cheque, and we wouldn't give it in their own currency, we'd only do it in Canadian currency. All those kinds of things were done wrong, and we still had 13% of people wanting it back.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Eyking.

I'm going to take the next spot, and then we'll finish with Monsieur Vincent.

First of all, thank you for being here. Thank you for the information you're presenting.

Mr. Facette, I wanted to just make sure I had some of the numbers correct. You're saying the airport rent is $300 million per year.

[Jim Facette]

Approximately, yes.

[The Chair, Conservative, James Rajotte]

Approximately. The tax on aviation fuel, is that the 4¢ per litre on jet fuel and diesel?

[Jim Facette]

It is.

[The Chair, Conservative, James Rajotte]

On the airport rent issue, I certainly have in the past, and do today, have some sympathy on that issue. On the fuel issue, it's more challenging--and I think you can appreciate that--in the political sense for a government or a politician to recommend eliminating that tax when consumers themselves are paying a federal excise tax of 10¢ per litre. It's a challenge. So I don't know if you want to comment on that, but for us to say on jet fuel or recommend it for diesel fuel, because there's a fair amount of diesel in Canada as well.... But it's tough for us to sort of pick gasoline to have 10¢ per litre but eliminate it on jet fuel.

[Jim Facette]

I acknowledge the challenge in having to be strategic in some of the recommendations, Mr. Chair, but I think when you add all the little pieces up together, it makes a big difference in the long term.

And on the jet fuel side, it's only this one particular industry that uses it, and it's not just the large carriers, be it Air Transat, WestJet, Air Canada, or anybody else, that are going to benefit from that. You're also talking about some of the smaller carriers, the regional carriers, even some private operators, who will also get the net benefit of that. So the benefit of it is that it goes beyond just one particular market.

[The Chair, Conservative, James Rajotte]

And what's the revenue of that each year?

[Jim Facette]

I don't have those numbers in front of me. We can get them to the committee.

[The Chair, Conservative, James Rajotte]

I know you want the elimination of airport rent. Obviously you'd want it yesterday, but have you proposed a phase-out period that the committee can look at?

[Jim Facette]

We have given Transport Canada various options to phase it out, including even possibly turning the rent payments into something against the asset value over time, where it would be realized that we actually own the property. We looked at a passenger number. At the end of the day, if they were to say they would reduce the airport rent over the next three, four, or five years, all that would help in planning. At the end of the day, airports plan ahead as any other business does, so if there's any opportunity to reduce over a three- or four-year period, we'd welcome that.

[The Chair, Conservative, James Rajotte]

I appreciate your comments about open skies agreements. My understanding is that the government is totally on board and working very actively on that. I certainly think members of this committee would work with all your associations and industries on that issue.

I wanted to follow up, Mr. Williams, on some of the numbers Mr. Van Kesteren was pointing out. There's $80 billion that Canadian travellers spend on tourism outside Canada; the $70 billion is the tourism number within Canada. Of the $70 billion, how much is domestic Canadian travel and expense and how much is foreigners travelling to Canada and spending here?

[Randy Williams]

Michele, do you have that number? I think it's about $50 billion out of the $70 billion. It's about two-thirds of the amount.

[Michele McKenzie]

Yes.

[The Chair, Conservative, James Rajotte]

Go ahead.

[Michele McKenzie]

I'll just clarify. Of the $70 billion, it used to be two-thirds and now it's about three-quarters of that amount that is domestic spending. So $16.6 billion is coming from international markets. So we have $16.6 billion coming into our economy, and Canadians are spending about $26 billion outside our economy.

[The Chair, Conservative, James Rajotte]

Following up on the marketing issue, there's always a discussion about whether CTC should have more money for marketing. But following up on Monsieur Arthur's question, I think where he was going was to ask whether we, as a committee, can perhaps see some effectiveness in saying, here is the type of advertisement and marketing the CTC or other organizations actually do and here's a way of judging its effectiveness. Perhaps you can comment on it.

Do most people decide to travel...? Do they see an article in a newspaper? Do they see a TV ad? Do they see something online? Does someone tell them as a friend that they've been to this place and they should go? Is there a way for us to judge the efficacy of spending now, so we can then make an argument and say CTC should get more money because look how effective this has been in a very specific way?