Canada and corporate welfare

by Maj (ret'd) CORNELIU. CHISU, CD, PMSC, FEC, CET, P. Eng. Former Member of Parliament Pickering-Scarborough East It is worth mentioning that in the past few years, Ottawa, Ontario, and Quebec have been using public funds to kick-start the development and commercialization of advanced technologies in practically everything; ranging from clean-energy steelmaking in Ontario to "green cement" in Edmonton. However, the latest flashpoint of that largesse is the recently announced electric vehicle (EV) battery plant, heavily subsidized by governments, that Volkswagen AG plans to build in St. Thomas, Ont. Routinely decried as a $13 billion taxpayer expense, what Ottawa actually negotiated with VW is a range of $6 billion to $13 billion over10 years conditional on rising production volumes at the plant. Queen's Park is kicking in about $500 million. These two levels of government will likely be asked to provide similar support to the Windsor, Ont. battery factory planned by a joint venture of Stellantis N.V., parent of Chrysler and Fiat, and South Korea's LG Energy Solutions. Most of the VW money will only start flowing once the St. Thomas plant is operational, which may take several years. That funding also stops if there is a cancellation of similar subsidies offered by the U.S. Inflation Reduction Act. Ottawa's upfront expense is $700 million to cover about 10 per cent of the cost of building what will be Canada's biggest manufacturing facility. Its footprint equals about 350 football fields, so it will possibly be the biggest EV battery plant in North America when completed. It is interesting to note that this corporate welfare is directed at Canadian industrial sectors of existing strength, like autos, steel, telecommunications, and building materials. Is the thinking that these choices will substantially reduce the risk of governments picking the wrong "winners"? The Canadian auto sector has long been in decline. It has slipped to about 12th in global rankings. The auto sector employs more than 125,000 Canadians directly, supports almost 700 Canadian parts suppliers, and contributes about $19 billion to GDP. Ottawa and Ontario have high hopes for the battery plants in St. Thomas and Windsor. Personally, I hope that this investment of taxpayers' money was well researched and thought through with engineering support, so it will not end as many other recent projects have. Like the Covid vaccine enterprise for example, that ended in a major loss of taxpayers' money. Even if corporate welfare is not limited, or outright eliminated, there should be a mechanism for taxpayers to have input into the government's adventurous commitment of taxpayer money. Let us take a look at how well corporate welfare is presently working in Canada. According to a recent study published by the Fraser Institute, federal, provincial and local governments in Canada spent $352.1 billion (inflation-adjusted) subsidizing firms from 2007 to 2019. This amounts to more than was spent on national defence over the same period. This corporate welfare, which does little to stimulate widespread economic growth, came with huge costs to government budgets and Canadian taxpayers. This total corporate welfare price tag-which included $76.7 billion in federal subsidies, $223.3 billion in provincial subsidies and $52.1 billion in local subsidies-reflects unrequited government transfers to businesses but excludes other forms of government support such as loan guarantees, direct investment and regulatory privileges for particular firms or industries. Therefore, if you suspect that the actual level of corporate welfare during this 13-year period was much higher, you're probably right. Of course, taxpayers ultimately bear the cost of government spending on corporate welfare. For Canadians who filed taxes from 2007 and 2019 (the latest year of available pre-COVID data), the cost per tax filer ranged from a high of $18,785 in Saskatchewan to a low of $6,048 in New Brunswick. The three largest provinces were big spenders, with corporate welfare costing $18,334 per tax filer in Quebec, $13,285 in Alberta and $12,627 in Ontario. That's a significant amount of taxpayer money unavailable for other, more acute priorities for our population. Such spending might be justified if it led to widespread economic benefits. However, there is little evidence that business subsidies generate widespread economic growth and/or job creation. In fact, research suggests that business subsidies may actually hurt the economy as the government's interference in the market ultimately distorts private decision-making and misallocates resources. When the government attempts to select winners and losers in the economy, it often makes the economy less efficient than if those decisions were left to individuals. Indeed, the better option is to let Canadians make their own decisions about where to spend their money and subsequently determine what businesses will succeed. Government should however, play a role in funding science, which is the future of any successful economic enterprise. Instead of giving preferential treatment to select firms and industries, government should help foster a pro-growth environment that gives all businesses the opportunity to thrive by reducing business income tax rates. The same study found that government spending on corporate welfare represents a significant share of business income tax revenues. For instance, Quebec and Manitoba spent roughly the same amount of money on business subsidies as they collected in business income tax revenues from 2007 to 2019. In other words, the provincial government could have effectively eliminated provincial business income taxes if it had ended provincial corporate welfare. Similarly, business subsidies represented roughly half of all business income tax revenue (on average) in Ontario and roughly one-third (on average) in Alberta. Had that money been used to broadly reduce business income taxes, it would have stimulated investment, job creation and economic growth. Clearly, business subsidies (a.k.a. corporate welfare) come with significant costs to Canadian taxpayers and government budgets. Because these subsidies do not produce the broad economic benefits that advocates claim, governments should rein in this spending and focus on pro-growth tax reductions. It's fair to say that the outpouring of corporate subsidies by Canadian governments is without precedent in recent times. We should talk about that. The politicians should talk about it. Is it a wise use of public money? Your time to reflect