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Taxpayers take a bath with Marine Atlantic

November 17, 2017
 Taxpayers take a bath with Marine Atlantic

(This column originally appeared on the Huffington Post blog)

Canada's federal Crown corporations are a motley bunch. A few, like the Bank of Canada, are mostly viewed as indispensable. Most, such as a litany of museums or port authorities, attract little attention because of their benign purpose and relatively small budgets. Some, such as Canada Post, are now seen as increasingly anachronistic in a rapidly changing world. (Photo: Marine Atlantic ferries credit: Martin St-Amant/Wikipedia/CC)

One Crown corporation most Canadians outside Atlantic Canada have likely never even heard of is Marine Atlantic, which operates cargo and passenger ferry services between Newfoundland and Nova Scotia. Yet, Marine Atlantic's very existence is a consequence of a constitutional obligation agreed to by the federal government in 1949 as part of the deal that saw Newfoundland join Confederation. Under the terms of the Newfoundland Act, the federal government is required to "maintain... a freight and passenger steamship service between North Sydney and Port aux Basques."

Short version: if you join Canada, we'll ensure you have a link to the rest of the country. Sounds like a straightforward-enough commitment.

But recently in a St. John's courtroom, a federal court judge heard arguments that may determine just what that commitment means in practice. Does "maintaining" a ferry service mean the government must simply ensure the service is in place? Or does it also mean it must be provided by a Crown corporation owned by the federal government? And at what cost to taxpayers?

The court hearings are the latest step in a request for a judicial review of Marine Atlantic's shipping rates, launched by their only major shipping competitor. Oceanex's basic argument is that the National Transportation Policy (NTP), embedded in legislation, was not considered in setting Marine Atlantic's freight rates. The NTP promotes competition, and in theory should help limit public intervention, like the heavy subsidization of Marine Atlantic's freight rates by Canadian taxpayers. The federal government's reply is that they have a verbal agreement with Marine Atlantic dating back to 2010 which makes the latter responsible for rate setting, and that it's none of Oceanex's business.

How big is the subsidy? To the tune of $338 million in 2015-16, as CBC News quotes Marine Atlantic's annual report, a full three-quarters of its $445-million annual budget, and a big increase over 2010 when it was only $202 million.

A report commissioned by Transport Canada concluded that the taxpayer subsidy for a transport truck making a one-way trip on a Marine Atlantic vessel amounted to $800. It's likely that commercial trucking companies are happy about that — but is it really fair to Canadian taxpayers who are providing the subsidy — especially if it's pursuant to an unwritten agreement that provides no transparency whatsoever?

No wonder Oceanex is crying foul. Unlike Marine Atlantic, they can't set their prices without considering their costs — and how challenging it must be to try to stay competitive when your rival gets a subsidy to cover 75 per cent of its costs? Even worse, as a major private-sector employer in a province with the highest unemployment rate in the country, you would think the federal government would be keen to ensure a company like Oceanex, which traces its origins back more than 100 years, could thrive. Instead, rising subsidies to Marine Atlantic are akin to giving a monopoly to the taxpayer-subsidized Crown corporation.

It's clear the federal government has an obligation to provide ferry service. But it's far from clear that it must or should subsidize it to a level that leaves taxpayers perpetually squeezed — and undermines any private-sector competitors to boot. Taxpayers should cross their fingers and hope that the federal court reaches the same conclusion.

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