A broken vow, and wasteful excess, on business subsidies

Posted on August 1, 2011 in Governance Debates

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TheGlobeandMail.com – report-on-business/commentary/barrie-mckenna
Published Sunday, Jul. 31, 2011. Last updated Monday, Aug. 01, 2011.    Barrie Mckenna

Ah, summer.

It’s the season of lakes, loons, lazy days and, of course, federal ministers doling out pork across the land.

There are almost too many announcements to keep track of these days.

Here’s a sampling of just one day’s work by the Harper cabinet last week:

Transport Minister Denis Lebel hands $225,000 to the Gatineau, Que., hot-air balloon festival as part of an effort to “raise the visibility of Canada’s attractions on the international stage.”

Treasury Board President Tony Clement drops into the Thornloe Cheese Factory near New Liskeard, Ont., to hand out $1.2-million to a smattering of local small businesses.

Revenue Minister Gail Shea attends the opening of a new tourist attraction in Cap-Egmont, PEI, called the Bottle Houses – a clutch of small structures built entirely of empties – to check in on last year’s $49,000 federal grant. A sum of $49,000 apparently buys a lot of empties.

Earlier this month, Ottawa gave a total of $2-million to a New Brunswick doughnut maker and a Quebec coffee roaster – in both cases, so the businesses could buy new equipment.

The summer spending smorgasbord is a time-honoured tradition, gleefully practised by successive Conservative and Liberal governments.

What’s different is that Stephen Harper once vowed to end the practice. He even ran an election on it, promising to get out of the business of business subsidies.

Campaigning in Toronto in 2004, Mr. Harper challenged the business community to stop receiving government subsidies, making it a condition of lowering business taxes.

“I won’t lower one without lowering the other,” Mr. Harper assured members of the Toronto Board of Trade. “That is what I mean by low-tax solutions rather than high-spending solutions.”

It hasn’t quite worked out that way. Once in government, the Conservatives cut the corporate tax rate from 22.5 per cent to 16.5 per cent, with a further reduction to 15 per cent slated for next year.

Business subsidies weren’t cut. Instead, they soared, partly as a result of the government’s Economic Action Plan, designed to offset the impact of the recession.

Even the regional development agencies – the Atlantic Canada Opportunities Agency, the Federal Economic Development Agency for Southern Ontario, the Economic Development Agency for Quebec Regions and Western Economic Diversification Canada – are still in the subsidies business in a big way. The agencies will hand out more than $1-billion this year, with a chunk of that money going to businesses that could, and probably should, be getting the money from their local banker.

Governments insist repeatedly that these kinds of subsidies are good economics.

“Our government continues to support Quebec producers, driving the economy and helping them access new markets,” Industry Minister Christian Paradis said as he gave Montreal coffee roaster and retailer Van Houtte Inc. $1.8-million to buy equipment. The “repayable contribution” comes from a special fund to help agrifood processors modernize.

Ottawa’s inability to kick the subsidies’ habit is more about politics, and demonstrating that Ottawa has a direct role to play in the economy.

If these businesses are viable, they should be getting the money privately. The government’s involvement merely crowds out private lenders and transfers risk to Canadian taxpayers.

Governments need to be far more strategic about how they spend money, particularly as they work to eliminate swollen budget deficits incurred during the recession.

In his recent budget, Finance Minister Jim Flaherty vowed to “improve the efficiency and effectiveness of government operations” and get “value for taxpayers” as he pursued spending cuts.

The summer pork parade suggests otherwise.

If Canada had a budget surplus and there weren’t other more crying needs, maybe the spending wouldn’t seem so glaringly wasteful.

But that’s not the case. Access to family doctors and specialists remains inadequate in much of the country. Common shared infrastructure, such as roads, bridges and sewers, is crumbling and requires every dollar Canadian taxpayers can afford. And businesses aren’t investing enough in productive R&D.

It’s about choices.

Surely, Canada’s economy of the future isn’t about balloons, cheese, bottles, coffee and doughnuts.

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