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Canadians make up for drop in foreign tourism

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Written by editor

OTTAWA – Tourism generated nearly $20 billion in revenue for federal, provincial and local governments in Canada last year, up 4.3 per cent from a year earlier despite a drop in visits and spending by

OTTAWA – Tourism generated nearly $20 billion in revenue for federal, provincial and local governments in Canada last year, up 4.3 per cent from a year earlier despite a drop in visits and spending by foreign tourists and the first half-point cut in the GST which cut into federal tourism revenues.

A Statistics Canada report released Wednesday suggests that Canadians are picking up the slack resulting from the drop off in visits by foreign tourists, especially Americans, which have been curtailed by the strength of the Canadian dollar which rose above parity last year, soaring gasoline prices and increased security at the Canada-U.S. border.

“The gain was driven by higher revenues from domestic tourism spending, as the revenue related to spending by international visitors was down,” the federal agency said.

Revenue attributable to domestic tourism rose 6.1 per cent to just over $14.5 billion, while the revenue due to spending by international visitors was down 0.6 per cent to $5.1 billion, it said.

The drop in foreign tourism revenues has been a long-term trend, the report noted.

“The share of governments’ revenue attributable to international visitors declined from just over one-third in 2000 to about one-quarter in 2007,” it said, noting that decline reflects the shrinkage in the international share of tourism spending in Canada over the same period.

Taxes on products, such as the GST and provincial retail sales taxes, were the single largest source of tourism revenue for governments, it said, noting they accounted for $4.7 billion for the federal government in 2007, or 50 per cent of its revenue from tourism, and $5.5 billion for the provinces and territories, or 60 per cent of their tourism revenue.

Those tax revenues rose 2.7 per cent in 2007, the second consecutive year of weak gains, reflecting the first one-percentage point reduction in the GST that took effect on July 1, 2006. The second point cut in the GST to five per cent only began at the start of this year.

Last year, taxes on employment income and business profits were the second most important source of tourism revenue for the federal and provincial governments, while other taxes such as property and capital taxes, levies, license fees and permits, were the chief source of tourism revenue for municipalities.

While Canadians appear to have helped make up for the drop-off in foreign tourists, the report noted that international visitors generate more revenue for governments, for every $100 of spending.

Governments took in $31.58 for every $100 of tourism spending by non-residents in Canada last year, compared with $26.61 for every $100 of spending by resident tourists, it said.

The difference in part reflects the fact that Canadian businesses receive tax credits for the GST and in some instances provincial sales taxes on business travel expenses, which effectively lowers the tax paid by domestic tourists, who include Canadian business travellers.

It also reflects differences in spending patterns between Canadian and international visitors, with foreigner spending more on more highly taxed items, most notably recreation and entertainment which includes casinos.

“Taxes on products accounted for about 40 per cent of the difference, with international visitors paying $15.82 in these taxes for every $100 of their spending in 2007, almost two dollars more than residents,” it said.

While the report doesn’t say so, the recent sharp drop in the value of the dollar and in fuel prices should ease some of the barriers to foreign tourist travel here, especially by Americans, although the expected global recession would raise a new barrier to tourism spending.