3 Overview of results

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Government revenue from tourism activities in Canada reached $19.7 billion in 2007, up 4.3% from one year earlier. The increase was driven by higher revenues from domestic tourism spending, as the revenue directly related to tourism exports fell for the third straight year. Tourism spending by residents accounted for three-fourths ($14.5 billion) of the total while the balance ($5.1 billion) stemmed from spending by non-resident visitors to Canada.

Total tourism spending amounted to $70.8 billion in 2007, implying that every $100 spent by tourists generated $27.75 on average for all three levels of government combined. This was down from the $28.23 recorded in the previous year, the second consecutive decline. The drop came as a result of the first full year's effect of the one percentage point reduction of the GST in mid-2006, a decline in the share attributable to tourism exports and the higher price of vehicle fuel in 2007.⁷

The new estimates of the government revenue stemming from tourism spending by residents (i.e., tourism domestic demand) and spending by non-resident visitors to Canada (i.e., tourism exports) reveal some interesting features. The study finds that tourism exports make up a larger share of the government revenue due to tourism (26%) than their share of total tourism spending (23%). Moreover, and in tandem with the export share of total tourism spending, the share of government revenue attributable to tourism exports has declined over the period under study, going from 36% in 2000 to 26% in 2007.

Table 3
Summary tourism indicators, 2000 to 2007

The study also finds that tourism generated 3.7% of the government revenue from all sources in-scope in 2007 (i.e., 85% of total government revenue was in-scope for the study), somewhat more than tourism's 2.0% share of gross domestic product (GDP). This difference is due mainly to the relatively high taxes on many of the goods and services purchased by tourists (i.e. vehicle fuel, alcohol and casino entertainment).

Chart 2
Tourism's share of government revenue, GDP and jobs

The federal and provincial/territorial governments collected the lion's share of the revenues due to tourism in 2007 while municipalities accounted for a much smaller share. This was the case throughout the period under study (see Table 4 and Chart 3). In 2007, tourism accounted for 3.8% of the federal government's revenue (inscope for the study), 4.1% of provincial/territorial governments' revenue, and 1.9% of the revenue collected by municipalities. These shares have also been quite stable over the period 2000 to 2007.

Table 4
Government revenue attributable to tourism, by level of government

Tourism generated $9.4 billion for the federal government in 2007, up 4.1% from the previous year. The increase was driven by revenue attributable to domestic tourism spending, which was up 5.3%, while that due to tourism exports was up only 0.4%. The export share of federal government revenue from tourism slipped for the third year in a row.

The federal government took in $13.96 for every $100 of tourism spending by non-residents in 2007 compared to $12.98 for every $100 spent by residents. Overall, $13.20 was collected at the federal level on every $100 of tourism spending, down about 80 cents from its level in 2005, mainly as a result of the reduction in GST and the higher price of vehicle fuel.

Chart 3
Government revenue attributable to tourism, by level of government

Tourism brought in $9.1 billion for the provincial/territorial governments in 2007, up 4.4% from one year earlier. As at the federal level, the increase was driven by revenue generated through tourism domestic demand. The export share of tourism revenue for provincial/territorial governments continued to decline, reaching 27% in 2007. This share stood at 39% in 2000.

On average, every $100 spent by non-resident visitors generated $15.46 for provincial/territorial governments in 2007, compared to $12.15 for every $100 spent by residents. It is noteworthy that for every $100 of spending, international visitors generated more revenue for provincial/territorial governments than the federal government ($15.46 versus $13.96). This stems from their relatively high spending on recreation and entertainment (including casinos) which generates significantly more revenues for provincial/territorial governments.

Municipal governments raised $1.2 billion from tourism in 2007 which is equivalent to $1.63 for every $100 of tourism spending. Most of this revenue was generated through other taxes on production, specifically property taxes.⁸

Table 5
Government revenue attributable to tourism, by source of revenue

As mentioned earlier, taxes on incomes are the biggest source of revenue for government (see Table 1). In contrast, when considering only the revenue from tourism, taxes on products (final sales) are the main source. These taxes (mainly GST and PST) brought in $10.2 billion, over half of the revenue attributable to tourism in 2007. One-quarter of governments' revenue from tourism, or $4.8 billion, was generated through income taxes. Another $2.3 billion was raised through other taxes on production and intermediate inputs, while contributions to social insurance plans amounted to $1.9 billion and government sales of goods and services to tourists added another $471 million to government coffers.

Despite robust advances in tourism spending, taxes on products were up only 2.7% in 2007 following an even weaker gain in 2006. The weakness stemmed from the reduction in GST in mid-2006. Taxes on incomes directly related to tourism were up more strongly owing to gains in both personal and corporate incomes and associated taxes. Over half of the increase in government revenue from tourism in 2007 came from this source.

The overall composition of governments' revenue from tourism has remained relatively stable over the period under study (see Chart 4). In contrast, the export share of each of the various sources of tourism revenue has declined markedly, reflecting the declining share of non-resident spending in overall tourism spending.

Chart 4
Government revenue attributable to tourism, by source of revenue

With tourism exports falling 1.7% in 2007, the revenue they generated, not surprisingly, was down across most sources. The declines ranged from -0.7% (taxes on products) to -4.9% (sales of government goods and services). Income taxes due to tourism exports were the only exception, advancing 2.0%, shored up by growth in incomes and associated taxes. Still this was well below the gain in income taxes directly attributable to domestic tourism spending, which were up 12% in 2007.

Although tourism exports and the government revenue directly related to them have been in decline, international visitors to Canada continue to generate more revenue for governments, on a per $100 of spending basis. Non-residents paid $31.58 for every $100 of their tourism spending in Canada in 2007, while residents paid $26.61 (see Chart 5). The gap between what resident and non-resident tourists generate on a per $100 of spending basis narrowed from 2000 to 2004, but has increased since then.

The difference reflects the fact that Canadian businesses receive input tax credits for GST and in some instances PST on business travel expenses, which lowers the effective tax paid by resident tourists (which includes Canadian business travellers). It also reflects differences in spending patterns between resident and non-resident visitors, with the latter spending more on more highly taxed items, most notably recreation and entertainment (including casinos). Taxes on products (final sales) accounted for about 40% of the difference, with international visitors paying $15.82 in product taxes for every $100 of their spending in 2007, almost two dollars more than residents. The following section examines some of these differences at the industry and commodity level.

Chart 5
Government revenue per $100 of tourism spending by residents and non-residents, by source, 2007

 

7. The price of gasoline plays an important role in determining the tax revenue per $100 of tourism spending because tourists spend a significant share of their budgets on this item (10% in 2007) and because a significant portion of the taxes on gasoline are specific excise taxes per litre. To give a hypothetical example, assuming a price at the pump of $0.98 per litre, and assuming 24 cents of excise tax per litre, $100 spent on gasoline yields $24.49 excise tax. With a relatively small increase in the price to $1.03 per litre, $100 spent on gasoline would generate only $23.30 of excise tax, a reduction of $1.19. In this example, and assuming tourists spend 10% of their budget on vehicle fuel, every 5 cent increase in the price of a litre of gasoline results in 11.9 cents less tax for every $100 of tourism spending, and an increase of $0.30 in the price at the pump would yield 71.3 cents less.

8. Hotel room taxes are another important "source" of revenues for municipalities, however, in most jurisdictions, these taxes are collected by provincial/territorial governments and then transferred to municipalities. In this study, they are recorded as revenues of provincial/territorial governments.