Business
Bad federal policy helps increase airfare in Canada

From the Fraser Institute
By Jake Fuss and Alex Whalen
Canadian air travel can be summed up in a few words—poor service, high ticket prices and little choice. And as a federal election looms, Canadians should understand that bad federal policy is to blame.
According to the International Air Transport Association, Canada ranks 101st out of 116 countries for the cost of air travel. And customer complaints against Canadian airlines have grown more than sixfold between fiscal years 2018/19 and 2022/23.
Why are ticket prices so high?
For starters, taxes and fees (imposed by governments and airports) comprise a large portion (25 to 35 per cent) of airfare costs in Canada. For example, “airport improvement” fees average $32.20 per departing passenger at Canada’s largest airports compared to $6.47 in the United States and $16.38 in Australia. For air traffic control (ATC), airlines pay charges based on distance, geography and other factors, and these costs are passed to consumers. In one illustrative example, to fly a Boeing 777 in Canada, airlines must pay an estimated $802 in ATC fees compared to between $192 and $478 in the United States and $493 in Mexico (all figures in Canadian dollars).
Moreover, Canadians pay between $9.46 and $34.42 per ticket in “security” fees, more than Americans (C$7.65) and Australians (C$4.80). Canada’s “landing” fees—charged by the airports based on the weight of the plane—are among the highest in the world and 35 to 75 per cent higher than at U.S. airports.
Our high fees originate in part due to Canada’s flawed airport ownership structure. The federal government owns the land where Canada’s major airports are built, and leases it back to not-for-profit airport authorities that pay rent—up to 12 per cent of airport revenue—to Ottawa. The airports impose fees on passengers to recoup this revenue.
But while fees help increase costs for airfare in Canada, another culprit is the lack of competition among airlines. Crucially, the federal government prevents foreign airlines from operating domestic routes within Canada’s borders, which severely limits choice and competition. While the government allows a foreign airline such as Lufthansa to fly from Frankfurt to Toronto, it prevents Lufthansa from flying passengers from Toronto to another Canadian city. As a result, there’s little competitive pressure for Canadian airlines to lower their prices for air travel within Canada’s borders.
The European Union, in contrast, removed such restrictions for member-states. The result? More competition including from new low-cost carriers such as Ryanair, a 34 per cent decline in ticket prices, more cross-border routes, and greater flight frequencies. The entry of new low-cost carriers alone helped lower airfares by 20 per cent.
Given the sorry state of air travel in Canada, our new study identifies four ways the federal government can improve competitiveness and lower airfare.
First, the government should reduce taxes and fees to be more in line with other countries. Second, the government should negotiate deals with other countries including the United States to allow foreign airlines to operate within Canada in exchange for Canadian airlines operating in those countries, which would help both Canadian consumers and Canadian airlines. Indeed, according to a 2016 report from the federal government, restrictions on foreign airlines increase air travel costs for Canadians and have outlived their usefulness. The report recommended Canada work towards an “open common market for air services” with peer countries. The key is reciprocity—if U.S. airlines, for example, are allowed access to the Canadian domestic air travel market, Canadian airlines must also have access to the U.S. market.
Third, the federal government should follow in the footsteps of Europe, Australia and New Zealand, and sell its remaining interests in airport leases and allow for-profit organizations to own and operate airports in Canada.
Lastly, the government should reduce the regulatory burden on the airline industry while maintaining strong safety standards. On this front, Canada can emulate the successful deregulation effort undertaken in the United States in the late 1970s and 1980s when widespread reform helped produce more competition, more consumer choice, lower fares and safety improvements.
Canadians will likely head to polls sometime this spring. If the next federal government wants to help improve air travel service quality, increase consumer choice and lower airfares, it should reform Canada’s antiquated airline policies.
Business
Federal government’s accounting change reduces transparency and accountability

From the Fraser Institute
By Jake Fuss and Grady Munro
Carney’s deficit-spending plan over the next four years dwarfs the plan from Justin Trudeau, the biggest spender (per-person, inflation-adjusted) in Canadian history, and will add many more billions to Canada’s mountain of federal debt. Yet Prime Minister Carney has tried to sell his plan as more responsible than his predecessor’s.
All Canadians should care about government transparency. In Ottawa, the federal government must provide timely and comprehensible reporting on federal finances so Canadians know whether the government is staying true to its promises. And yet, the Carney government’s new spending framework—which increases complexity and ambiguity in the federal budget—will actually reduce transparency and make it harder for Canadians to hold the government accountable.
The government plans to separate federal spending into two budgets: the operating budget and the capital budget. Spending on government salaries, cash transfers to the provinces (for health care, for example) and to people (e.g. Old Age Security) will fall within the operating budget, while spending on “anything that builds an asset” will fall within the capital budget. Prime Minister Carney plans to balance the operating budget by 2028/29 while increasing spending within the capital budget (which will be funded by more borrowing).
According to the Liberal Party platform, this accounting change will “create a more transparent categorization of the expenditure that contributes to capital formation in Canada.” But in reality, it will muddy the waters and make it harder to evaluate the state of federal finances.
First off, the change will make it more difficult to recognize the actual size of the deficit. While the Carney government plans to balance the operating budget by 2028/29, this does not mean it plans to stop borrowing money. In fact, it will continue to borrow to finance increased capital spending, and as a result, after accounting for both operating and capital spending, will increase planned deficits over the next four years by a projected $93.4 billion compared to the Trudeau government’s last spending plan. You read that right—Carney’s deficit-spending plan over the next four years dwarfs the plan from Justin Trudeau, the biggest spender (per-person, inflation-adjusted) in Canadian history, and will add many more billions to Canada’s mountain of federal debt. Yet Prime Minister Carney has tried to sell his plan as more responsible than his predecessor’s.
In addition to obscuring the amount of borrowing, splitting the budget allows the government to get creative with its accounting. Certain types of spending clearly fall into one category or another. For example, salaries for bureaucrats clearly represent day-to-day operations while funding for long-term infrastructure projects are clearly capital investments. But Carney’s definition of “capital spending” remains vague. Instead of limiting this spending category to direct investments in long-term assets such as roads, ports or military equipment, the government will also include in the capital budget new “incentives” that “support the formation of private sector capital (e.g. patents, plants, and technology) or which meaningfully raise private sector productivity.” In other words, corporate welfare.
Indeed, based on the government’s definition of capital spending, government subsidies to corporations—as long as they somehow relate to creating an asset—could potentially land in the same spending category as new infrastructure spending. Not only would this be inaccurate, but this broad definition means the government could potentially balance the operating budget simply by shifting spending over to the capital budget, as opposed to reducing spending. This would add to the debt but allow the government to maneuver under the guise of “responsible” budgeting.
Finally, rather than split federal spending into two budgets, to increase transparency the Carney government could give Canadians a better idea of how their tax dollars are spent by providing additional breakdowns of line items about operating and capital spending within the existing budget framework.
Clearly, Carney’s new spending framework, as laid out in the Liberal election platform, will only further complicate government finances and make it harder for Canadians to hold their government accountable.
Business
Carney poised to dethrone Trudeau as biggest spender in Canadian history

From the Fraser Institute
By Jake Fuss
The Liberals won the federal election partly due to the perception that Prime Minister Mark Carney will move his government back to the political centre and be more responsible with taxpayer dollars. But in fact, according to Carney’s fiscal plan, he doesn’t think Justin Trudeau was spending and borrowing enough.
To recap, the Trudeau government recorded 10 consecutive budget deficits, racked up $1.1 trillion in debt, recorded the six highest spending years (per person, adjusted for inflation) in Canadian history from 2018 to 2023, and last fall projected large deficits (and $400 billion in additional debt) over the next four years including a $42.2 billion deficit this fiscal year.
By contrast, under Carney’s plan, this year’s deficit will increase to a projected $62.4 billion while the combined deficits over the subsequent three years will be $67.7 billion higher than under Trudeau’s plan.
Consequently, the federal debt, and debt interest costs, will rise sharply. Under Trudeau’s plan, federal debt interest would have reached a projected $66.3 billion in 2028/29 compared to $68.7 billion under the new Carney plan. That’s roughly equivalent to what the government will spend on employment insurance (EI), the Canada Child Benefit and $10-a-day daycare combined. More taxpayer dollars will be diverted away from programs and services and towards servicing the debt.
Clearly, Carney plans to be a bigger spender than Justin Trudeau—who was the biggest spender in Canadian history.
On the campaign trail, Carney was creative in attempting to sell this as a responsible fiscal plan. For example, he split operating and capital spending into two separate budgets. According to his plan’s projections, the Carney government will balance the operating budget—which includes bureaucrat salaries, cash transfers (e.g. health-care funding) and benefits (e.g. Old Age Security)—by 2028/29, while borrowing huge sums to substantially increase capital spending, defined by Carney as anything that builds an asset. This is sleight-of-hand budgeting. Tell the audience to look somewhere—in this case, the operating budget—so it ignores what’s happening in the capital budget.
It’s also far from certain Carney will actually balance the operating budget. He’s banking on finding a mysterious $28.0 billion in savings from “increased government productivity.” His plan to use artificial intelligence and amalgamate service delivery will not magically deliver these savings. He’s already said no to cutting the bureaucracy or reducing any cash transfers to the provinces or individuals. With such a large chunk of spending exempt from review, it’s very difficult to see how meaningful cost savings will materialize.
And there’s no plan to pay for Carney’s spending explosion. Due to rising deficits and debt, the bill will come due later and younger generations of Canadians will bear this burden through higher taxes and/or fewer services.
Finally, there’s an obvious parallel between Carney and Trudeau on the inventive language used to justify more spending. According to Carney, his plan is not increasing spending but rather “investing” in the economy. Thus his campaign slogan “Spend less, invest more.” This wording is eerily similar to the 2015 and 2019 Trudeau election platforms, which claimed all new spending measures were merely “investments” that would increase economic growth. Regardless of the phrasing, Carney’s spending increases will produce the same results as under Trudeau—federal finances will continue to deteriorate without any improvement in economic growth. Canadian living standards (measured by per-person GDP) are lower today than they were seven years ago despite a massive increase in federal “investment” during the Trudeau years. Yet Carney, not content to double down on this failed approach, plans to accelerate it.
The numbers don’t lie; Carney’s fiscal plan includes more spending and borrowing than Trudeau’s plan. This will be a fiscal and economic disaster with Canadians paying the price.
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