Today’s Tories look a lot like Liberals

Posted on June 24, 2011 in Policy Context

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Jun 24, 2011.   John Ivison

It’s known as taking out the trash. At the tail-end of any given summer Parliamentary session, the government of the day dumps potentially embarrassing documents and annual reports, in the hope that MPs and reporters are more focused on upgrading their tans than on safeguarding taxpayers’ money.

This week, MPs waved through the Main Estimates, the government’s spending projections for the coming year, just as the Conservatives tabled reports from the Atlantic Canada Opportunities Agency, the Federal Economic Development Agency of Southern Ontario and the Economic Development Agency for the Regions of Quebec.

The Conservatives used to believe that all subsidies to businesses should be cut in favour of reducing business taxes across the board. Since losing the 2004 election, when they campaigned on this ticket, the Tories have been subject to a conversion that even Paul of Tarsus would find dramatic. Proof positive was the creation of a new development agency to dispense federal largesse in southern Ontario, where, by chance, the Conservatives secured their new majority government. The Main Estimates show that these development agencies, and Western Economic Diversification, which covers Western Canada, have all seen their budgets cut, as stimulus spending has come to an end. That’s not the whole story though. While ACOA saw its budget drop $64.2-million, or 16.8%, to $317.9-million, stimulus spending from the previous year accounted for $74-million. This suggests ACOA actually sneaked through a budget increase for continuing programs. The same was true for Quebec’s development agency, which saw $158-million in Economic Action Plan spending come to an end, while the agency experienced a net decrease in planned spending of just $132-million.

In total, across the four agencies, the federal government continues to spend more than $1-billion, mainly in direct grants to businesses.

What do we get for that money? It’s hard to tell. None of them provide the number of jobs created with the money, or the amount sales have increased in the companies supported. All have rather nebulous performance targets. For example, ACOA, which receives up to three times more per person than the other agencies, hopes to increase the value of the Atlantic Canadian economy by $4.50 for every dollar spent. It also has an annual target of ensuring companies assisted have a survival rate 1.3 times higher than comparable firms. Yet, there is no suggestion in any of the reports that this is actually happening.

Not surprisingly, the current system has its supporters within the business community, notably among companies on the receiving end of federal dollars. Dennis Rossetti and his brother run Italian Home Bakery, a producer of frozen baked goods. The company received federal funds to hire more staff and help expand its Etobicoke production facility from the Southern Ontario development agency. In an interview, he lauded the government for helping to keep Canadian firms competitive against U.S. competition at a time when the currency does not provide domestic companies with an advantage. But he admits the company could have borrowed the money commercially — it was just cheaper and easier to do so through FedDev Ontario.

This is what economists call an “infra-marginal investment” — one that would have taken place anyway. The real impact is felt by taxpayers, in the form of higher taxes, and by firms not lucky enough to have been grant recipients, in the form of higher wages and rents. Even when jobs are created, federal studies have shown that they are few in number and that costs per job created are high.

Even more objectionable is the potential for abuse by pork-barrelling politicians — which is all of them. Prior to the election, the Quebec development agency distributed more than $6-million for snowmobile trail grooming machines throughout the province. The Liberals were as bad when they were in power — one C.D. Howe Institute study suggested ACOA spending in government ridings during the Chrétien era was 40% higher than in opposition ridings.

As Mr. Harper sits on the end of his dock at Harrington Lake this summer, he might want to reflect on all the principles he was forced to compromise in pursuit of majority government. One of them was getting out of the grants and subsidies game. He now has a four-year window in which he could, if he so desired, enact a more effective regional development policy centred on broad-based corporate tax cuts or investment tax credits. Let’s hope he puts those lazy days of summer to good use.

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