One of the biggest risks to taxpayers with Crown corporations is their dependence on government subsidy; and how vulnerable they are if such subsidies were ever to be reduced. Marine Atlantic Inc. monopolizes the market for passenger water transportation on the east coast. Private investors simply cannot compete with Marine Atlantic’s rates as it uses federal tax dollars to provide shipping at less than half of its true cost.
Marine Atlantic truly occupies an important role in connecting Newfoundland and Labrador with mainland Canada. However, due to the federal subsidies it receives, there is no room for any competition. In fact, in 2017, Marine Atlantic was in court with another ferry service provider, Oceanex, regarding their unfair pricing and subsidies.
It is possible for managers of Marine Atlantic to increase revenue while lowering costs. This could be done by adding more automated functions, more hospitality and merchandising on the ferries, or even use better peak-time and low-demand time pricing and scheduling. But this is often better done with a private investor.
Last week the Frontier Centre for Public Policy released a research paper in the Public Choice Alternatives series on the valuation of Marine Atlantic. According to the valuation, Marine Atlantic’s estimated fully taxed value could range from $99 million to $765 million, with a median value of $334 million and a mean value of $370 million. These values were reached after comparing Marine Atlantic to thirteen Canadian publicly listed transportation companies and twenty-two US water-based corporations. Government-owned corporations may compete unfairly against private sector rivals in that it has access to lower-cost government-sourced and guaranteed capital. Currently, this is the case with Marine Atlantic.
If the capital spending aspect of the company could be removed and allowed to be put into a separate government infrastructure category and off of Marine Atlantic’s books, the company has a chance of being a truly independent and self-sustaining corporation that would be extremely attractive to private investors. Making room for more private investors and competition can only produce better outcomes and prices for consumers.
While it is up to the citizens of Canada through their elected representatives to decide whether or not they want Marine Atlantic to be privatized, it is clear that Marine Atlantic could provide better service with a private investor. Any operation that is dependent on government subsidy is vulnerable to the subsidies being reduced, postponed, or ended entirely. In addition, continual reliance on subsidization provides little incentive to improve cost efficiency nor progression towards a state of independence or self-reliance that is present with private entities.
