Social Policy in Ontario

Left and right can unite to end corporate welfare

Posted on May 11, 2011 in Debates

Source: Toronto Star — Authors: Mark Milke

TheStar.com – opinion/editorialopinion
Published On Tue May 10 2011.    Mark Milke

“While they publicly denounce increased government expenditure, particularly in the form of social welfare, these champions of free enterprise actively lobby the government for incentive grants, research grants and tax concessions, and all manner of assistance at the individual taxpayer’s expense.”

— Then federal NDP leader David Lewis, on corporations and corporate welfare, in his 1972 book, Louder Voices: The Corporate Welfare Bums

Over the last three years, federal Conservatives have run up $102 billion in new debt, with the forecast for the next four years at another $59 billion. In total, that’s $161 billion in new red ink over seven years.

Given the rancour likely to occur over various attempts to balance the books with a Tory majority government and an NDP opposition in Parliament, here’s a modest proposal they should jointly act on: end corporate welfare.

By corporate welfare, think of direct cash payments to business — not for goods or services, but simply because a government wishes to retain or attract a particular business or industry. Sometimes the money is a grant, or a “repayable” loan (often never repaid), but it’s the same strategy: Governments pick winners and losers in the marketplace. Grants and loans to the aerospace and automotive sector are prime examples.

There are plenty of reasons to stop the practice, starting with the cost to taxpayers. Between 1994 and 2007, Ottawa, the provinces and municipalities spent $203 billion on corporate welfare, or $15,216 over that 13-year period for every tax filer who paid tax. (At just the federal level alone, Ottawa doled out $67 billion during that time.)

Beyond the cost, consider other reasons. Corporate welfare creates an uneven playing field between businesses and industries that do not receive taxpayer support and those that do. The result is an artificial, politically created advantage. When Chrysler and GM received a bailout in 2009, it came at the expense of additional sales that would have gone to a more prudent and better-run Ford or Toyota. Money is thus taxed away from all of us and given to a specific company — and diverted from more productive uses.

Problematically, as governments grant such subsidies, more government “clients” are created at the expense of a more efficient tax system with fewer subsidies and lower overall tax rates.

Sure, one might find some local example where corporate welfare has supposedly “worked.” But business subsidies only create the illusion of new jobs and new tax revenues. In fact, what occurs is a shell game where jobs and tax receipts are merely shifted from one city, province or country to another, according to the latest government bribe.

It’s akin to throwing money from the top of the CN Tower to a crowd below: There will be beneficiaries, money spent, jobs “created” and tax revenues eventually due to the free cash, but not on a net basis. After all, that money had to come from somewhere.

Besides the economic facts, backed up by peer-reviewed literature on the matter, there are useful political and practical reasons to end corporate welfare: because Ottawa has already dramatically reduced federal business taxes.

The NDP may not like lower corporate tax rates, but they’re here to stay under a majority Conservative government. So they might as well imitate a past NDP leader on the matter of business subsidies and oppose the same. It was, after all, former federal NDP leader David Lewis, who popularized the term “corporate welfare bums” in his 1972 book.

On the other side of the aisle, Prime Minister Stephen Harper was once critical of handouts to business. During the 2004 election campaign, he gave a speech entitled “Ending Corporate Welfare and Reducing Business Taxes.” In it, Harper was publicly critical of Canada Steamship Lines and Bombardier for their taxpayer largesse, as well as Industry Canada programs that disbursed money to corporate Canada.

In that Toronto Board of Trade speech, Harper said he would only cut business taxes to the extent that corporate welfare was reduced. “Government should concentrate on creating a favourable tax environment rather than try and pick winners and losers” said Harper.

That was then; once in office, post-2006, Harper cut corporate taxes but without the quid pro quo of slashing corporate welfare. To be sure, the business tax cuts are defensible and have been enacted by governments of all stripes; a past NDP government in Saskatchewan cut business taxes; so too Ontario’s Liberal government. But it’s overdue for the other part of Harper’s explicit bargain to come to fruition.

To wit: Even if they agree on nothing else in the next four years, the Prime Minister and Jack Layton should ban business subsidies.

Mark Milke is the Alberta director of the Fraser Institute and author of its studies on corporate welfare. Mark.milke@fraserinstitute.org.

< http://www.thestar.com/opinion/editorialopinion/article/989091–left-and-right-can-unite-to-end-corporate-welfare >

Tags: economy, globalization, ideology, tax

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