Social Policy in Ontario

The Chopping Block: End corporate subsidies, save billions

Posted on February 23, 2010 in Governance Debates

Source: National Post — Authors: Terence Corcoran

Is there any economic activity in Canada that doesn’t get a handout from government? Doesn’t seem like it. No project is too big or too small that it cannot be rolled onto the backs of taxpayers. Loblaw, for example, announced recently that Ottawa would help bail the food giant out of a Toronto superstore miscalculation. In a 2004 bidding war against Home Depot and Wal-Mart, Loblaw took control of Maple Leaf Gardens, the former home of Toronto’s NHL franchise. Turning the hockey palace into a food store proved to be uneconomic, so the company hooked up with nearby Ryerson University to land a $10-million federal subsidy.

On a still smaller scale, the Diamond Bourse of Canada recently opened in Toronto as a market for trading some of the $2.8-billion in diamonds produced in Canada. To help it open, the bourse received a $140,000 government grant.  Not a large subsidy, but good evidence that Canadian business has yet to come across an objectionable government handout.

There are hundreds of corporate welfare items in Ottawa, too many to list or even count. Programs are buried within programs, with grants and loans vying with tax credits and direct subsidies to relieve Canada’s capitalists of risk and transfer it over to taxpayers.

Many of these could be cut without the least disturbance to Canada’s economic performance. More likely, Canadians would benefit if the distortions caused by these tax and spending programs were removed from the market.

The Chopping Block, in its quest to trim $20-billion from federal spending by 2013 and eliminate the federal spending deficit, will identify other prime cuts in the corporate welfare portfolio over the next few days, but let’s carve off a $1-billion or more worth of annual spending and tax expenditures just to get the hang of it.

On The Chopping Block:Labour-Sponsored Venture Capital Corporations ($120-million), flow through shares ($100-million), Canadian Film or Video Production Tax Credit ($200-million), the Film and Video Production Services Tax Credit ($100), the Atlantic Investment Tax Credit ($250-million), the Atlantic Canada Opportunities Agency ($350-million), the Western Economic Diversification (250-million).

Cumulative Budget saving to 2013-14: Approximately $6-billion; in 2013-14 fiscal year: $1.35-billion.

This is, admittedly, a hodge-podge of tax credits and actual cash-dispensing operations, but they’re all part of the federal government’s vast array of political handouts that take money from once set of taxpayers and give it to others.

The last two items (the Atlantic and Western development agencies), are straight money-out-the-door schemes that give MPs and cabinet ministers a reason to visit ridings and deliver cheques while posing for local media photo opportunities. Another such agency, the Southern Ontario Development Agency, was recommended for The Chopping Block earlier in our series. Sometimes described as regional development vehicles, they have also long been recognized among economists as sources of economic distortion and dependency.

There is no end to the demand for subsidy, and no end to the rationale for more from Canada’s regional development specialists. The Atlantic agency, for example, is very effective in simultaneously claiming great achievement while warning that “significant challenges remain.”  In any economy, no matter how successful, there will always be significant challenges. Subsidies do not fix challenges, they entrench them at taxpayer expense.

The Labour Sponsored Venture Capital Corp. funds receive investment money from Canadians who receive a tax credit from Ottawa. Numerous studies have shown the LSVCC create problems in the venture capital industry and for investors. As the C.D. Howe noted in its shadow budget plan last week, the fact that these LSVCC’s “would likely not survive in the absence of the tax credits is evidence that these resources are likely not routed to their best uses.”

The same could be said for just about everything government does to stimulate and artificially shape the economy. The federal flow-through share program, which benefits resource companies, is vigorously defended by industry. As are the various government incentives to “cultural” industries, especially the film and video makers who are notoriously aggressive in defending their vital contribution to Canadian culture.  Such tax credits may make film makers richer by $350-million a year, but how much greater is their value to Canada than the work of, say, newspaper columnists.

One big cultural item is the $1-billion annual CBC subsidy, a popular target among The Chopping Block’s contributors.  To get at least some of that off Ottawa’s annual spending, Andrew Coyne has recommended collecting $500-million or half the subsidy directly from television viewers. A good idea in some ways, but essentially a tax increase on TV viewers. Increasing taxes to cut the CBC portion of the deficit would not be a first choice. There are plenty of other options around.

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