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Business

Time to finally privatize Canada Post

Published

2 months ago

5 minute read

From the Fraser Institute

By Vincent Geloso

In the 10 years following privatization, prices for stamps and other postal services fell by 11 per cent in Austria, 15 per cent in the Netherlands and 17 per cent in Germany (adjusted for inflation). All these countries now have lower postal prices than the European average.

Canada Post wants to increase the price of a stamp by 25 cents to $1.24 to keep up with inflation and rising costs. But Canada Post has often relied on this reasoning for previous price increases since it stopped being a government department and became a Crown corporation in 1981. Since then, it’s jacked up prices every time it’s had “financial difficulties.”

The source of these difficulties has changed over time. It used to be the modernization of infrastructure, then the problems of pensions, then the rise of the Internet. The answer is, however, always the same. Prices must increase. Indeed, since 1981 stamp prices have increased 98 per cent (after adjusting for inflation). In other words, the price for stamps have increased far beyond the rate of inflation.

Why does Canada Post keep getting away with this?

Because it has a monopoly over most of the letter market in Canada. And while it competes with private companies (UPS, for example) in the parcel market, Canada Post can borrow money at much lower costs than its rivals because it is a Crown corporation ultimately backed by taxpayers. That’s a huge advantage.

Normally, a company facing losses and declining demand would innovate and reduce costs. Otherwise, it would likely be bought out by competitors or go bankrupt. However, due to its monopoly over most of the letter market, Canada Post lacks this incentive. In can simply pass the burden onto consumers by raising prices, which is exactly what it has done since the 1980s. And as a Crown corporation, it cannot be purchased by another company without express approval from Ottawa.

So, what’s the solution?

In Europe, due to a directive from the European Commission, all letters regardless of weight have been open to competition since 2013. The directive does not mandate the privatization of state-owned postal companies; it simply ends postal monopolies. Combined with local liberalization efforts before 2013, this directive has forced state-owned postal service providers to better control costs because they cannot turn to taxpayers (for subsidies) or consumers (by raising prices) to bail them out.

Some countries such as the Netherlands, Austria and Germany went further and privatized their postal operators. With privatization, the discipline of competition is combined with the discipline imposed by shareholders seeking to maximize profits and increase sales.

In the 10 years following privatization, prices for stamps and other postal services fell by 11 per cent in Austria, 15 per cent in the Netherlands and 17 per cent in Germany (adjusted for inflation). All these countries now have lower postal prices than the European average.

Predictably, postal service providers in these countries found new methods of organizing their activities, tying multiple services together to generate economies of scale, and moved fast in adopting new information and logistical technologies. Due to the incentives of competition, providers focused their efforts on controlling costs—a focus Canada Post will never achieve as long as it’s a Crown corporation with a monopoly.

If approved by federal regulators, Canada Post’s latest price increase would go into effect in January. Policymakers in Ottawa should finally put postal liberalization and privatization on the table. Otherwise, it’s only a matter of time before a new problem emerges, which Canada Post will use to justify another price increase.

Author:

Vincent Geloso
Assistant Professor of Economics, George Mason University
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Alberta fiscal update: second quarter is outstanding, challenges ahead

Published on November 21, 2024

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Alberta maintains a balanced budget while ensuring pressures from population growth are being addressed.

Alberta faces rising risks, including ongoing resource volatility, geopolitical instability and rising pressures at home. With more than 450,000 people moving to Alberta in the last three years, the province has allocated hundreds of millions of dollars to address these pressures and ensure Albertans continue to be supported. Alberta’s government is determined to make every dollar go further with targeted and responsible spending on the priorities of Albertans.

The province is forecasting a $4.6 billion surplus at the end of 2024-25, up from the $2.9 billion first quarter forecast and $355 million from budget, due mainly to higher revenue from personal income taxes and non-renewable resources.

Given the current significant uncertainty in global geopolitics and energy markets, Alberta’s government must continue to make prudent choices to meet its responsibilities, including ongoing bargaining for thousands of public sector workers, fast-tracking school construction, cutting personal income taxes and ensuring Alberta’s surging population has access to high-quality health care, education and other public services.

“These are challenging times, but I believe Alberta is up to the challenge. By being intentional with every dollar, we can boost our prosperity and quality of life now and in the future.”

Nate Horner, President of Treasury Board and Minister of Finance

Midway through 2024-25, the province has stepped up to boost support to Albertans this fiscal year through key investments, including:

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After a 4.4 per cent surge in the 2024 census year, Alberta’s population growth is expected to slow to 2.5 per cent in 2025, lower than the first quarter forecast of 3.2 per cent growth because of reduced immigration and non-permanent residents targets by the federal government.

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Trump’s government efficiency department plans to cut $500 Billion in unauthorized expenditures, including funding for Planned Parenthood

Published on November 21, 2024

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Elon Musk and Vivek Ramaswamy shared their plans to ‘take aim’ at ‘500 billion plus’ in federal expenses, including ‘nearly $300 million’ to ‘progressive groups like Planned Parenthood.’

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Musk and Ramaswamy shared Wednesday that as part of their work at DOGE to downsize government spending, they will be “taking aim at the $500 billion plus in annual federal expenditures that are unauthorized by Congress or being used in ways that Congress never intended,” thereby “delivering cost savings for taxpayers.”

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Musk and Ramaswamy also reportedly will take aim at the “$535 million a year to the Corporation for Public Broadcasting and $1.5 billion for grants to international organizations,” according to Catholic Vote, although they have not shared all of the federal spending they plan to cut or reduce.

“With a decisive electoral mandate and a 6-3 conservative majority on the Supreme Court, DOGE has a historic opportunity for structural reductions in the federal government,” the business duo wrote. “We are prepared for the onslaught from entrenched interests in Washington. We expect to prevail.”

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