CANADA: TRANSPORTATION SECTOR HAPPY WITH GOVERNMENT OF CANADA'S MAY 2 BUDGET ANNOUNCEMENT

UNCLAS SECTION 01 OF 03 OTTAWA 001455



SIPDIS



STATE FOR WHA/CAN, EB/TRA



DOT for International Affairs (David Decarme)



DOT for Federal Highway Administration (Roger Petzold)



DHS for International Affairs (Karen Marmaud)



SIPDIS



E.O. 12958: N/A

TAGS: EAIR, ELTN, ETRD, ECON, EINV, CA

SUBJ: CANADA: Transportation Sector Happy with Government of

Canada's May 2 Budget Announcement





1. Summary: Truckers, airports and railways all professed

their pleasure with the new Conservative government budget

of May 2. The railways applauded the federal government's

commitment to invest in infrastructure to increase the

capacity of Canada's west coast ports, commuter rail and

short line railways; Airports welcomed the $25 million

expansion plan of the NEXUS air program. Truckers expressed

satisfaction that corporate tax relief will be coming for

"our customers and for carriers." They lauded the new

highway and borders infrastructure funding, but said the

budget fell short on reducing taxes on inputs, such as

fuel. Truckers hope to see that benefit in future budgets.

End summary.



Budget Offers Billions for Transportation and Border

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2. The May 2 federal budget contained several significant

announcements pertinent to the transportation sector. Over

the next four years Budget 2006 provides more than C$5.5

billion in new federal funding for: the Highways and Border

Infrastructure Fund (C$1.6 billion); Canada's Pacific

Gateway Initiative (C$239 million); the Canada Strategic

Infrastructure Fund (C$1.2 billion); the Municipal Rural

Infrastructure Fund (C$1.5 billion); and the Public Transit

Capital Trust (C$900 million). The budget maintains the

estimated C$3.9 billion in current funding over the next

four years under existing infrastructure agreements. The

budget also offers a grab bag of smaller investments such as

C$133 million over two years to assist the Canadian Air

Transport Security Authority (CATSA) in coping with

increasing passenger flows and related operating pressures,

and C$25 million for expansion planning for the NEXUS air

program. The full array of budget documents are at

www.fin.gc.ca



Truckers Pleased, but not Ecstatic

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3. CEO of the Canadian Trucking Alliance (CTA) David Bradley

noted in his comments on the budget that by offering

corporate tax relief for trucking customers and for carriers

and new highway and borders infrastructure funding, the

government "has definitely tried to cover all the bases with

regard to their priority areas".



4. The budget plan specifically includes an acknowledgement

that two-thirds of Canada's trade with the U.S. moves by

truck. While he welcomed this high profile, and the highway

and border initiatives that come along with it, in his

comments on the budget Bradley indicated some slight

anxiety, noting that "he hopes that it will be enough to

leverage provincial investment and cooperation."



5. Comment: This highway improvement is critical. In

recent decades, the capacity and condition of Canada's

highway infrastructure has deteriorated dramatically. The

1989 National Highway Study conducted by the Transportation

Association of Canada showed that 40% of the national

network was sub-standard. A later study completed in 1998

found that it would cost over C$17 billion to bring the

national highway system up to an acceptable standard. That

study, conducted for the joint federal and provincial

"Council of Ministers Responsible for Transportation and

Highway Safety," identified serious deficiencies in Canada's

25,000 kilometers of national highways: 5,000 km are below

the "minimum geometric design standard"; 5,300 km fail to

Qthe "minimum geometric design standard"; 5,300 km fail to

allow a minimum operating speeds of 90km/h, or require

upgrading to increase capacity; 1,600 km are unable to carry

the national standards for heavy vehicle weight limits; and

6,900 km are below the acceptable standard for pavement

roughness. End comment.



6. The CTA argues that although the forecast price tag of

bringing Canada's highway system up to standard may seem

intimidating, the forecast benefits are enormous. CTA

estimates that improved highway infrastructure would reduce

vehicle operating costs by C$360 million annually for 25

years, and that up to 236 million liters of fuel would be

saved annually. In the context of just-in-time deliveries,

travel time savings are estimated at between C$18 and C$26

billion over 25 years. In terms of highway safety, the CTA



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argues that widening lanes, adding medians, and paving

shoulders would also reduce the number of fatal collisions

by up to 247 per year and personal injuries by up to 16,000

per year.



7. The Highway Fund, part of what Minister of Finance

Flaherty described as "a long-term commitment of

unprecedented new investment," will be used to cost share

improvements to the core national highway system with

provinces and territories.



8. The CTA expressed disappointment that the minister did

not choose to eliminate the federal excise tax on diesel

fuel, a key and increasingly costly trucking business

input. The tax is, in the opinion of the CTA, an "outdated,

regressive form of taxation that is especially harmful in

low margin businesses like trucking." Bradley noted,

somewhat archly, that Minister Flaherty did remove the tax

on jewelry. Nevertheless, the federal budget plan did state

that "complete elimination of provincial retail sales tax on

business inputs by all provinces would significantly improve

Canada's chances in the international competition for

investment, resulting in more jobs and growth." Bradley

said that this recognition of the need to eliminate taxes on

business inputs is something to build upon for future

budgets.





Airport Community Applauds NEXUS Expansion

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9. The 45-member Canadian Airports Council warmly welcomed

the federal government's announced C$25 million expansion

plan of the NEXUS air trusted traveler program. (Comment:

CAC's members encompass more than 150 airports, including

all of the National Airports System (major) airports and

most significant municipal airports in every province and

territory. CAC airports handle virtually all of the

nation's air cargo and international passenger traffic and

95% of domestic passenger traffic. End comment.) CAC

President and CEO Jim Facette noted that the CAC is looking

forward to working with the Canada Border Services Agency

(CBSA) to coordinate an "effective marketing and

communications campaign to promote the NEXUS air program to

Canadian travelers." The CAC has been a booster of NEXUS

expansion, but its positive remarks were tempered by a

warning that the federal government cannot forget other CBSA

budgetary constraints that, the CAC contends, are limiting

air service and economic growth for many Canadian airports

and the communities they serve. The CAC argues that CBSA

must be properly funded so that airports do not have to

continue to pay for CBSA services. Facette said constraints

on CBSA service expansion, and the requirement for some

smaller communities to pay for CBSA services, "put an

inappropriate limit on the ability of Canadian communities

to offer international air service, and accordingly, to take

full advantage of the opportunities in the global economy."



10. The CAC was also pleased to see the budget contained

C$133 million over two years ($45 million in '06-'07 and $87

million in '07-'08) to assist CATSA in coping with

increasing passenger flows and related operating pressures,

and C$26 million over two years for the design and pilot

testing of an air cargo security initiative covering both

security throughout the supply chain as well as the

evaluation of enhanced screening technologies.



11. The CAC also mentioned positively the C$1 billion in the

Q11. The CAC also mentioned positively the C$1 billion in the

budget over five years to further improve Canada's pandemic

preparedness. $600 million is to be allocated to

departments and agencies. $400 million is to be set aside

as a contingency fund (to be used to enhance Canada's

preparedness if an elevated pandemic risk were to occur).

An additional C$12 million was identified for pandemic

business resumption planning.



Railways Focus on Ports Improvements

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12. Cliff Mackay, President and CEO of the Railway

Association of Canada (RAC),expressed the satisfaction of

Canada's freight and passenger railways with the commitment



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to invest more in infrastructure to increase the capacity of

Canada's west coast ports and commuter rail and short-line

railways. (Note: RAC's 59 members represent Canada's

freight, tourist, commuter, and intercity railways. RAC

member railways carry two-thirds of the freight moved in

Canada and 60 million commuter and inter-city passengers

annually. End note.) In addition to praising the Strategic

Infrastructure Fund and Pacific Gateways (which will bolster

especially Vancouver and Prince Rupert ports),the RAC noted

specifically C$95 million for new measures to enhance the

security of passengers on railroads and urban transit

routes. RAC also views favorably the $370 million over the

next two years in tax credit savings for urban transit

users.





WILKINS