A few days ago, I was interviewed for Andrew Chang’s CBC feature “About That,” regarding the Carney Government’s new initiative to privatize operations at the country’s four major airports: Pearson, Trudeau, Calgary, and Vancouver. I tried to present the big picture of why the Carney Government would undertake this initiative and what its impacts would likely be. And my judgment was that on balance, I favour privatization.

While my comments about the complexity of a privatization contract were reflected in Chang’s conclusion, he didn’t show a clip of my interview. He did show several other talking heads, who were either strong advocates or strong opponents. This omission was no bruise to my ego. I would like to explain in more than a soundbite my perspective on the Carney Government’s rationale for airport privatization, its likely impact, and the rationale for my judgment.

Desperate Times

The Carney Government has a fiscal challenge: it has an ambitious agenda of nation-building and sovereignty protection while it is running large deficits. It has ruled out tax increases as a source of funding. Airport privatization represents an attempt by the government to monetize one of its major assets. Our four largest airports now provide a total of $525 million annually for the federal government’s Consolidated Revenue Fund. Privatization is expected to increase this revenue stream and convert its net present value into a fund that could be used to support other priorities, such as critical infrastructure. One observer estimates that privatization of the big four could produce a fund of $40 billion. Discounting at 5 percent, the concessionaires would need to earn total annual revenues of $2 billion to be willing to pay the government a total of $40 billion. This is four times the Government’s current revenue stream from these airports.

To quadruple the revenue stream the airports produce would require some new services (better restaurants, accommodations for transferring passengers) as well as increases in the price of existing services. The concessionaires could also adjust some prices to improve efficiency, for example changing landing fees from the current formula based on aircraft weight to one based on time-of-day, with a goal of smoothing peaks and improving utilization.

The Carney Government’s privatization proposal appears similar to the Mike Harris (Ontario) Government’s privatization of Highway 407. Co-author Chandran Mylvaganam and I, in our book about Highway 407, observed that the Harris Government auctioned off a 99-year concession for $3.1 billion, which was a lot of money back in 1999. This was double the cost of building the highway. The privatization transaction, finalized a month before the 1999 election, provided funds to reduce the deficit, increase healthcare spending, and send a “tax rebate” (less politely, a bribe) of $200 to every taxpayer.

“Without O’Hare It’s Sheer Despair”

In Saul Bellow’s 1975 novel Humboldt’s Gift, an avaricious and wealthy female character voices her dissatisfaction with Chicago by referring to the airport that allows her to frequently escape it. But this slogan also prompts me to consider the role of air travel in personal budgeting. Food, housing, clothing, health care, education, and urban transportation are all necessities that take precedence over air travel. By using the mechanism of privatization to raise additional revenue from air travel, the Carney Government is taxing a luxury good, not basic necessities. A second advantage of taxing air travel to and from Canada is that a very high percentage of those who will pay the tax – let’s assume half – are foreign nationals.

These are desperate times. Auctioning off concessions to manage Canada’s four major airports, however it is spun, is a desperate measure. Because it represents progressive taxation, I favour it.