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Transportation tax changes to help Pacific Gateway goods flow

Port Metro Vancouver claims tax cap has stopped municipalities from increasing port taxes and killing investment

The province's recent moves to eliminate a fuel tax on international flights and establish a permanent cap on port property tax rates are being heralded as key boosts to the Pacific Gateway.

The two measures were announced as part of the release of B.C.'s 2012 budget; however, former premier Gordon Campbell committed to the jet fuel measure in September 2010.

Tony Gugliotta, senior vice-president of marketing and business development for Vancouver Airport Authority (VAA), said the fuel tax has hurt Vancouver International Airport's competitiveness.

"I can't speak specifically to 'has it deterred business?' but I can tell you that we are in a competitive business environment," he said. "When we're trying to attract airlines to use Vancouver as a gateway, and they're looking at Vancouver versus Seattle or San Francisco or Los Angeles – those jurisdictions don't have a fuel tax on international flights. Alberta doesn't have a fuel tax. Alaska doesn't."

Eliminating the fuel tax, he said, "levels the playing field."

Gugliotta added that the tax is a significant expense for airlines: approximately $1 million annually for a daily long-haul flight to Hong Kong.

He said VAA estimates the elimination of the tax will cut up to $17 million in costs for VAA's airlines annually.

China Eastern, Air China and China Southern Airlines each recently issued statements welcoming the tax's removal.

Gugliotta said the promised elimination of the tax was one of the factors that encouraged 22 airlines to sign onto Gateway Incentive Program agreements with the VAA last year, committing to business growth in return for airport fees frozen at 2010 levels. In all, he said, those commitments represent a 30% increase in YVR's traffic volumes over five years.

On the port tax front, Robin Silvester, president and CEO of Port Metro Vancouver, called the permanent rate cap "very good news."

He said that prior to 2004's temporary cap on port tax rates, some Lower Mainland municipalities were hiking industrial tax rates.

"Businesses were becoming very concerned and unwilling to make further investments in the Gateway in the Lower Mainland."

But he said that, since the 2004 cap, the private sector alone has invested more than $1 billion in port capacity.

"That's completely excluding federal and provincial money – this is private companies choosing to invest their capital in this gateway to expand capacity."

Silvester added that the permanent cap will position the port to meet capacity needs that exceed what government can fund.

"Having a stable investment climate that gives private companies the confidence to grow their operations and invest capital to grow their operations in the Gateway is very positive news," he said, "not just for the Gateway, but for the whole of the Lower Mainland in terms of employment."

However, while the province claims it's compensating municipalities for the revenue losses they face as a result of the caps, the City of Vancouver tax reports show an ongoing gap in that compensation.

According to a 2009 report, the city lost $7.5 million between 2004 and 2009 because of the port tax rate cap. That shortfall was shouldered by taxpayer.

A 2011 report states that the city lost $0.8 million in revenue last year because of the port measure.

In a recent interview, Anthony Perl, director of the Urban Studies Program at Simon Fraser University, said capping port tax rates would offload new costs onto municipalities as ports expand and move away from a user-pay approach.

"We have to understand that there's no free lunch here," he said. •