Canada corporate welfare gone wild?

by Maj (ret'd) CORNELIU. CHISU, CD, PMSC, FEC, CET, P. Eng. Former Member of Parliament Pickering-Scarborough East 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, taxpayers are footing the bill. Government largesse is evident in the heavily subsidized electric vehicle (EV) battery plant Volkswagen AG plans to build in St. Thomas, Ont. Routinely decried as a $13 billion taxpayer expense, Ottawa and VW actually negotiated a range of $6 billion to $13 billion over 10 years, conditional on rising production volumes at the plant. Queen’s Park is kicking in an additional $500 million. Similar government support will likely be asked for the Windsor, Ont. battery factory planned as 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. Such corporate welfare largesse continues to bloom without any regard for taxpayers’ money. Honda Canada, joined by Prime Minister Justin Trudeau and Ontario Premier Doug Ford announced last week that it will build four new manufacturing plants in Ontario, including an electric vehicle assembly plant and a standalone battery manufacturing plant at its current facilities in Alliston, Ont. The Japanese company already employs 4,200 people in its existing Alliston facility, but statements from Honda and both the federal and provincial governments say the facility's two new plants will produce up to 240,000 vehicles per year and create more than 1,000 "well-paying manufacturing jobs" once fully operational in 2028. The announcement included $5 billion in government assistance, half from the feds through tax credits and half from Ontario in direct and indirect incentives. So why is this corporate welfare directed at Canadian industrial sectors of existing strength, like autos, steel, telecommunications, and building materials? If the thinking is that these choices will substantially reduce the risk of governments picking the wrong “winners”, perhaps they should think again. Although the auto sector employs more than 125,000 Canadians directly, supports almost 700 Canadian parts suppliers, and contributes about $19 billion to GDP, it has long been in decline. It has slipped to about 12th in global rankings. Ottawa and Ontario have high hopes for the battery plants in St. Thomas, Alliston and Windsor. Let us hope that this investment of taxpayers’ money was well researched and thought through with engineering support, to avoid the major financial losses incurred by other recent government subsidized projects, like the Covid vaccine enterprise for example. Even if corporate welfare is not limited, or outright eliminated, we need a mechanism for taxpayers to have input into the government’s adventurous commitment of their money. Let us take a look at how well corporate welfare presently works in Canada. According to a recent study published by the Fraser Institute, between 2007 and 2019, federal, provincial and local governments in Canada spent $352.1 billion (inflation-adjusted) subsidizing firms. This is 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 only reflects unrequited government transfers to businesses. It excludes other forms of government support such as loan guarantees, direct investment and regulatory privileges for particular firms or industries. So if you suspect that the actual level of corporate welfare during this 13-year period was much higher, you’re probably right. For Canadians who filed taxes between 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. Quebec, Alberta and Ontario were big spenders. Here the cost of corporate welfare per tax filer was $18,334, $13,285, and $12,627, respectively. That is a significant amount of taxpayer money unavailable for more acute priorities to benefit the 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. Instead of giving preferential treatment to select firms and industries, government should play a role in funding science, which is the future of any successful economic enterprise. In the marketplace, government should help foster a pro-growth environment that gives all businesses the opportunity to thrive by reducing business income tax rates. The Fraser Institute study also found that government spending on corporate welfare represents a significant share of business income tax revenues. For instance, from 2007 to 2019, Quebec and Manitoba spent roughly the same amount of money on business subsidies as they collected in business income tax revenues. So 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 is fair to say that the recent outpouring of corporate subsidies by Canadian governments is without precedent. Trudeau isn’t the only guilty one, however. Also, look at Ford, who likes to say he’s sticking up for the little guy. So why is he taking your money and giving $2.5 billion to Honda, more than $4 billion to Volkswagen and $5 billion to Stellantis – the company that makes Maserati and Alfa Romeo. Does he really think Honda, Volkswagen and Maserati are the little guys? When Ford first ran for office, he said he would stop “picking winners and losers” and cut taxes for everyone. Does it look like the taxpayer party is over for corporate lobbyists? This needs to be discussed openly and thoroughly. Politicians and administrators need to seek public input on these policies. Is the government subsidy of selected industries a wise use of public money? Your time to reflect.