Canadians pay hefty $684B bill in business subsidies over 20 years, study shows

NationalPost.com – FinancialPost/News/Economy
May 13, 2014.   Gordon Isfeld

Doling out hundreds of billions of taxpayers’ money to help protect and nurture the private sector has been a costly practice — some would call it fiscal folly — for Canadian governments.

Over a period of nearly 20-years, federal, provincial and local authorities together spent almost $684-billion on subsidies, mainly to private corporations.

Even though some of that relief was passed onto consumers in the form of reduced rates for electricity and heating bills, the impact was marginal at best.

In a study released Tuesday, the Fraser Institute found that federal subsidies totalled $342.6-billion between 1981 and 2009.

The tally for provincial governments came in at $287-billion, while local officials authorized $54.2-billion in spending.

Annual subsidies overall topped out at $34.8-billion in 1984. The total declined to $11.6-billion in 1998, and finished at $24.4-billion in 2009, the study found.

Despite the high cost of subsidies, many politicians see them as urgent and necessary transfusions for anemic industries suffering from regional shifts in the economy and competitive threats from beyond our borders. For others, as crystalized by David Lewis in the NDP’s 1972 election slogan, subsidies pander to “corporate welfare bums” who could do just as well without any handouts.

“Nobody wants to see an industry go bye-bye,” Mark Milke, a senior fellow at the Fraser Institute and the author of Tuesday’s report, said in an interview.

“But the fact is, it doesn’t make sense to subsidize one business over another. You pick winners or losers, and you often end up with losers.”

Over the course of the 18-year period of the Fraser Institute study, the annual cost of subsidies per taxpayer was as much as $3,268, in 1986, and as low as $797, in 1998, the Vancouver-based think-tank said.

“That is a significant chunk of money. People suspect that government is subsidizing business, but we don’t know the breakdown of where it’s going,” he said.

“Governments should be clear about how much goes to private corporations, how much to Crown corporations and how much to consumers.”

There can be political costs, as well.

For example, in 2012 — three years after the Fraser Institute’s scope of study — Nova Scotia’s then NDP government awarded a $304-million loan, most of it forgivable, to local giant Irving Shipyards. In 2013, the party lost the election to the Liberals, who opposed the so-called loan.

The solution to such economic and political challenges? End all business assistance programs within government departments and Crown corporations, the Fraser Institute argues. There should also be greater transparency for current subsidies, along with an international push to end these program altogether, it adds.

That challenge, however, would require stronger measures in bilateral and multilateral free-trade agreements “to more clearly prohibit such subsidies,” the report recommended.

“It is in Canada’s interest to reduce rules against our imports and to be able to compete with non-subsidized companies from other jurisdictions.”

The study is based on 18-year data from Statistics Canada — ending in 2009, the latest figures available from the federal agency.

Among the provinces, the study found that Quebec overall had the highest level of subsidies during that period, at $115.5-billion, followed by Alberta at $49.9-billion, Ontario at$46.7-billion and British Columbia at $34.5-billion.

They were followed by Saskatchewan at $18.3-billion and Manitoba at $10.5-billion. Nova Scotia spent $4.6-billion, Newfoundland and Labrador provided $3.1-billion, New Brunswick totalled $2.4-billion, and Prince Edward Island was at the bottom with $1.5-billion.

“In Quebec, over the decades, subsidies have increased in almost every year with few exceptions,” the study said.

The Fraser Institute looked at other sources of data for its study, including Industry Canada, which showed subsidies to private businesses amounted to $22.4-billion between 1961 and 2013. The top 10 recipients received almost $8.5-billion, or 38% of the total.

Eight of those companies are still in business, with healthy profits and plenty of cash on hand.

“In short, many corporations, or their parent companies that received corporate welfare, are anything but start-ups,” the study said. “This calls into question at least one justification for policy that allots subsidies to business: that taxpayer assistance is required to fill in for market failure and a lack of capital.”

Mr. Milke, the author of the study, told the Financial Post “the problem is that governments often take a scatter-shot approach to subsidies.”

“So you end up with not only subsidies for low-income consumers, you end up with subsidies to Pratt & Whitney of $3.3-billion, which has competitors in the aerospace industry in Canada and around the world,” he said.

“You end up with subsidies to VIA Rail for $4.5-billion, even though VIA Rail has competitors. It has bus lines it competes with, it has airline companies it competes with,” he said.

“These businesses have competitors. We are stealing from one to subsidize another. We are redistributing and not actually creating new jobs or tax growth as is sometimes claimed.”

With files from Jennifer Hough

< http://business.financialpost.com/2014/05/13/canadians-pay-hefty-684b-bill-in-business-subsidies-over-20-years-study-shows/ >

Leave a Reply

Your email address will not be published. Required fields are marked *