How Grinch-like governments make our holiday travel costly
Mark Milke, The Fraser Institute
Question: Have you ever felt annoyed at a restaurant when your bill arrived with a mandated tip, thus removing your (monetary) ability to comment on the service? If so, that’s about how governments act vis-à-vis travel costs for Canadians, this when governments prevent full competition which would reduce prices.
For example, consider a trip the average Canadian family might take this holiday season.
After getting your kids out of bed early one morning, the taxi that your family takes to the airport is pricey. That’s because cities across Canada limit the number of cabs that can operate. Over two decades, many cities barely increased the number of taxi licences.
As a result, that’s great for taxi companies which have a licence to print money. But it’s not good for travellers who must pay inflated cab fares. Nor, for that matter, is it positive for workers who see only a small chunk of the fare, in part because their employment and entrepreneurial options are held hostage to the quasi-monopolistic companies that exist courtesy of city governments.
The Canadian approach is in contrast to the trend noted in a 2007 OECD report whereby increasing numbers of OECD countries have removed or loosened supply restrictions on taxis. The OECD noted such reforms have been strongly positive with observed benefits including “reduced waiting times, increased consumer satisfaction and, in many cases, falling prices.”
That is only one example of how consumers face higher travel costs due to government policy. It hardly ends there.
Once a family arrives at the airport, the plane tickets they will use were costly to buy courtesy of how the federal government favours so-called domestic airlines, a policy which restricts competition and boosts the cost of air travel.
In Canada, due to government policy, “foreign” airlines cannot pick up and drop off passengers solely within Canada. (Only domestic airlines can do that.)
For example, some French carrier can pick up passengers in Vancouver and Toronto and fly them on to Paris. What that carrier cannot do is pick up a passenger in Vancouver and drop her off in Toronto, this to fill an empty seat on that leg of the trip. If the French airline could, that would add extra competition on that route and also lower prices.
The Canadian restriction is in distinct contrast to the practice in Europe. There, the European Union first opened up its air travel market to competition in 1992, with full liberalization as of 1997. Ever since, carriers can pick up and drop off passengers anywhere, regardless of the airline’s home country. French carriers are not restricted to just France nor German carriers to just Germany and so forth.
The result is that “Prices have fallen dramatically, in particular on the most popular routes,” notes the European Commission-Mobility and Transport, the agency tasked with overseeing transportation in the European Union.
Lower prices are only part of the benefit. In Europe, even less popular routes, the ones between smaller cities, benefit from the EU’s open skies policy. Between 1992 and 2009, the number of cities served with more than two competitors increased by 310 per cent.
“European policy has profoundly transformed the air transport industry” brags the European Commission: “Consumers, airlines, airports and employees have all benefited as this policy has led to more activity, new routes and airports, greater choice, low prices and an increased overall quality of service.”
Beyond the taxi and airline markets, consider one last restrictive government policy in Canada that will affect your vacation: restrictions on the value of goods that you can bring back into Canada before you must pay taxes and duties.
Back in June, the federal government increased the value of goods Canadians can bring back into Canada. The upper limit is now $800 worth of goods after seven days outside the country.
That was positive for consumers. However, that exemption still doesn’t apply to beer, wine and spirits. There, Ottawa and the provinces still want their pound of duty and tax “flesh.”
Returning travellers can only bring back two bottles of wine, or 24 cans of beer, or one bottle of the hard stuff. Depending on your tastes and budget, that means you might import perhaps $10 or $50 worth of such beverages. Bring back more than the allowed volume and you’ll be dinged at the border with some Grinch-like provincial and federal taxes (and some more minor duties).
That restriction, no doubt, is to protect government liquor stores in many provinces and provincial government revenues in general. But along with municipal restrictions on the number of taxis, and federal anti-competition policy on airlines, it is just another way Canadian governments make our holidays more expensive.
Mark Milke is a Senior Fellow with the Fraser Institute.