Corporate ‘welfare’ costs Ontario $3-billion a year: report

Posted on December 9, 2011 in Policy Context

Source: — Authors: – news
Dec 8, 2011.   Tristin Hopper

Ontario’s massive “corporate welfare” spending is unfair, inefficient and costs more than $3-billion per year, according to a new report by the Fraser Institute.

Between 1991 and 2008, Ontario spent $27.7-billion on “direct subsidies to corporations,” for an annual average of $424 per taxpayer. The figure does not include heavily subsidized Crown corporations such as Ontario Place and the Agricultural Research Institute of Ontario — or even Ontario’s many green energy programs, which are financed through higher power rates. “This report is about cheques cut to businesses,” said Mark Milke, the report’s author.

And since the report only includes data until early 2009, it also excludes the $13.7-billion loaned to Chrysler and GM.

All these corporate subsidies come at a steep “opportunity cost,” notes the report. By getting corporate welfare off the books, Ontario could have an extra $3.1-billion per year to virtually eliminate the province’s health premium, bring down the deficit or — Mr. Milke’s preference — reduce the corporate tax rate to 8%.

“By lowering taxes rates for all and offering subsidies to none, Ontario’s government could concentrate its spending and tax policy where it would do the most good,” the report reads.

Lower taxes would also erase the “inherent unfairness” of subsidies, Mr. Milke said. “You’re knee-capping competitors who don’t have the same subsidy,” he said.

“I don’t know, and you don’t know, and the Ontario government doesn’t know, which business sector is going to be the next Microsoft or Apple,” Mr. Milke said. “There’s a case for neutrality.”

Ontario’s Minister of Economic Development and Innovation, Brad Duguid, said such spending is a necessity when Ontario is bidding against the United States and Europe for industry. “We’re in a fierce fight for jobs and economic development, and we can’t go into that fight completely unarmed,” Mr. Duguid said.

Mr. Duguid also points to innovation funding, such as providing $1-million to Markham, Ont.-based Novo Plastics Inc. to develop a plastic muffler, among other things. “There’s gaps in the private sector when it comes to things like venture capital funding — there’s a need for startups to get a little bit of help,” Mr. Duguid said.

Mr. Milke’s report places blame for corporate welfare equally on Ontario’s Liberal, NDP and Progressive Conservative governments. “All parties are guilty of this right across the country,” he said.

Similarly, calls to end corporate welfare are also shared across the political spectrum. The phrase “corporate welfare” was first coined by NDP leader David Lewis in the 1972 federal election. During Progressive Conservative leader Mike Harris’ successful 1995 run for Ontario premier, he declared that “corporate welfare dependency, like welfare dependency generally, is a cycle that can and must be broken.”

Tax cuts have little flair, Mr. Milke said. With direct subsidies, ministers can hand out giant cheques to fledgling factories and stage photo-ops at tech startups — something that is not possible with across-the-board tax cuts.

“It’s not economically smart, but it comes across as politically smart,” Mr. Milke said. As opposition leader in 2004, Stephen Harper implored the Liberals to “get out of the grants and subsidies game.” As Prime Minister, Mr. Harper can now be seen behind podiums handing out his own fair share of incentives and subsidies.

But it is “naive” to think that Ontario could abolish direct subsidies and emerge economically unscathed, Mr. Duguid said. “Companies will move in a second if their bottom lines can be improved; we’ve got to be competitive.”

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