The non-transparent reality of Canadian corporate welfare

Posted on in Policy Context

TheGlobeandMail.com – ROB/Commentary
Jan. 22, 2017.   MARK MILKE

Politicians offer many justifications for handing out taxpayer cash to corporations. They include how government grants and loans are akin to “acorns” that will ostensibly grow companies to great heights.

Or the usual canard, on offer recently when the federal and Ontario governments gave $83.6-million in taxpayer cash ($41.8-million each) to Honda of Canada: that extra jobs and tax revenues will result.

The economic literature on such claims is almost uniformly negative. Here’s what Terry Buss, a professor in Australia formerly with the World Bank, and one of the world’s leading experts on subsidies to business, points out: The claims and the flawed supportive studies that accompany them are inevitably “based on poor data, unsound social-science methods [and] faulty economic reasoning.”

As an example, the substitution effect is ignored. That’s where the money used for subsidies to business – corporate welfare in common parlance – comes from other businesses and individual taxpayers. That transfer thus depresses economic activity, jobs and tax revenues elsewhere in the economy.

Arguments over the efficacy of subsidies to business aside, taxpayers at least deserve to know how much of their money is granted, loaned and repaid – including how the loans perform.

The answers are increasingly difficult to obtain.

Last year, I asked the federal Department of Innovation, Science and Economic Development for a current list of loans and grants given to aerospace manufacturer Bombardier, and repayment details. The answer from an industry department media spokesman: Bombardier received $1.3-billion in loans since 1966 and repaid $584.6-million.

I replied that the department’s answer was incomplete. It excluded the additional amounts given to Bombardier in grants and also in interest forgiveness. Also, because the department would not divulge per-year breakdowns, an accurate, apple-to-apple analysis using inflation-adjusted calculations was impossible to calculate. The department told me to file an Access to Information request. I did, for all grants and loans over $5-million for all companies. The request came back with information for Bombardier (and some other companies) blacked out – completely. Bombardier’s information was clearly missing because I possess the results of past Access to Information requests – now five years old, which were more transparent.

Recent practice is to deny such information. That is in part because Bombardier is in Federal Court blocking Access to Information data from being released. It is also because of department and Information Commissioner interpretations of Section 20 of the Access to Information Act. That section requires a department to not release information that might result in material financial loss or gain to a third party, or which might prejudice their competitive position.

This section is sensible on the surface, insofar as it applies to government possession of knowledge developed by companies – scientific and technical, for example. But Section 20 also acts as an oversized “black marker” on transparency when taxpayer-financed money-flows to corporations are in play. It is now used to deny even a “high level” look at how government loan programs are performing.

For instance, the industry department refuses to release repayment totals by program. Providing a total (where dozens or even thousands of companies are involved) would mean repayment details about specific companies cannot be known. Still, even that request came back blacked out with Section 20 cited as the reason.

At least two problems exist with the Access to Information Act as written and interpreted. Unlike decisions until about five years ago, more recent practice is to deny all such information even when it does not identify a specific company, even though this was once standard practice even for specific companies. Also, Section 20 of the Act reveals the problem with corporate welfare for taxpayers and for the marketplace: Some companies, such as Bombardier, which is still seeking another $1-billion from federal taxpayers, use the Access to Information Act to prevent more specific information about government grants, loans and repayments being released. Only general information is available and only via government department spokesmen – as if civil servants worked for Bombardier and not the public. Taxpayers are not “permitted” to know how individual loans to specific companies are performing.

Commercially, the claim that fully informing taxpayers might harm a company’s competitive position underscores the folly of business subsidies: It’s a de facto admission that taxpayer dollars used to prop up one business might harm its competitor.

The Access to Information Act needs revision. Its current version and its interpretation lead to this costly, non-transparent reality: Taxpayers must pay for corporate welfare. They are not permitted to know key details. Some are blocked entirely.

Mark Milke is an author who has written multiple reports on the economics of business subsidies.

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