Wednesday’s federal Liberal budget won’t announce plans to sell off Canada’s major airports, even though such a move could raise billions in one-time revenue for a government that has little room left for new spending.
The Globe and Mail has learned that, while the the issue of airport privatization will continue to be debated inside government, it will not be resolved in this week’s budget.
The Liberal government’s second budget is expected to be a relatively low-key, stay-the-course document that will outline new details on several federal priorities that have already been announced, including infrastructure spending, innovation and skills training.
While rumours of potential tax hikes on investment income have alarmed Bay Street, The Globe has reported that major tax changes are not expected to be enacted in the budget. The government will likely announce the elimination of some targeted tax credits, but any more complicated tax changes would be recommended for further study.
“Work is ongoing and to the extent that there’s any major conclusions [on tax changes], we need to take some time to get them right,” a senior government official told The Globe Monday.
The government has been facing questions for months about airport sales after Finance Minister Bill Morneau approved a contract last year with Credit Suisse AG to analyze several options for fully privatizing Canada’s top eight airports: Toronto, Vancouver, Montreal, Calgary, Edmonton, Ottawa, Winnipeg and Halifax.
Ottawa also hired Morgan Stanley Canada Ltd., an investment bank, to review ownership options for 18 Canadian ports.
The senior government official also confirmed to The Globe that the federal review of ports and airports is an continuing issue and no decisions will be announced in Wednesday’s budget.
Mr. Morneau has pledged that, while deficits are forecast to be larger than what the Liberals promised during the election, the government will still be able to keep the federal debt from growing as a share of the economy.
That guideline means the government is not in a position to promise much in terms of new spending without cutting elsewhere or raising taxes.
The debate over airports has become politically charged in the run-up to the budget. Both the Conservatives and NDP criticized the government in Question Period Monday for considering airport privatization.
Prime Minister Justin Trudeau declined to provide a clear response, stating that the government’s economic plans will be revealed in Wednesday’s budget.
Interim Conservative Leader Rona Ambrose is planning to use an Opposition day Tuesday to press the government on the issue, meaning it will be debated throughout the day in the House of Commons.
The C.D. Howe Institute released a report in February that estimated Ottawa could raise between $7.2-billion and $16.6-billion in revenue by selling equity in airports.
Mr. Morneau’s economic advisory council, led by McKinsey & Co. managing director Dominic Barton, urged the government last year to consider asset sales as a way of stimulating investment and raising more revenue.
The council promoted a concept known as “asset recycling,” in which governments sell hard, revenue-generating assets such as airports and then use the profits to build new infrastructure.
Major Canadian airports are currently run by non-profit airport authorities and pay rent to the federal government. A review of the Canada Transportation Act urged the government last year to consider various privatization options.
Some Canadian airport authorities, including Ottawa, Calgary and Vancouver, have spoken out strongly in public against the idea of full privatization. Other major airports, including Toronto’s Pearson, have taken a more neutral stand during the debate.
The decision not to include privatization of airports in the budget is a victory for Canada’s two largest airlines, which have voiced concerns about existing ground fees and other charges and argue that private ownership will increase costs further.
“Right now, the structure is not for profit,” Michael Rousseau, chief financial officer of Air Canada, said in an interview earlier this month. “A new structure would be run by companies that require a profit margin. That profit margin is another layer of cost that would have to be borne by the airlines or customers.”
WestJet Airlines Ltd. CFO Harry Taylor recently noted that costs to operate an airline in Canada are among the highest in the world. New owners that have paid a steep price to buy airports will be seeking a return on investment so they will likely raise fees, Mr. Taylor told an analyst conference in Toronto last week.
Transport Minister Marc Garneau said last week that the government is studying privatization, but any actions that will be taken will be aimed at improving service and lower costs where possible to increase competition.
The federal government conducted focus groups with Canadians across the country last year and found “lukewarm” support for the idea of privatizing airports, ports and roads as a way of paying for infrastructure improvements.
Participants expressed safety and security concerns and questioned whether privatization would lead to higher user fees and less service. Some also expressed concern that infrastructure assets would move to foreign ownership.
With a report from Greg Keenan in TorontoReport Typo/Error