This article originally appeared in the Globe and Mail.
By Aaron Wudrick, May 24, 2024
Last week, the federal government announced a $1.7-million subsidy for a pasta manufacturer in Brampton, Ont., citing the creation of 10 jobs. This may appear insignificant compared with the tens of billions allocated to industries such as electric vehicles, but it highlights just how normalized corporate welfare has become across our economy.
Under the Trudeau government, federal business subsidies have more than doubled from $17-billion in 2014 to some $40-billion today. Add to this the significant provincial contributions in recent years, such as those from the Ford government in Ontario and the Legault government in Quebec, and it’s clear that the private sector is increasingly infused with taxpayer money.
This trend is problematic for several reasons. There’s the glaring issue of opportunity cost: Every dollar spent on these subsidies is a dollar not spent on public services or left in the pockets of Canadians. There’s also the regional division created by governments playing favourites to shift or preserve jobs and the risk of friction with major trading partners who might plausibly argue we are running afoul of trading rules.
Most concerning, however, is how this deluge of subsidies allows governments at all levels to drown out calls for necessary policy reforms. Our anemic productivity, declining tax competitiveness and plummeting attractiveness as an investment destination are all serious challenges that are being ignored in favour of short-term political benefits.
The history of Canadian corporate welfare wasn’t always this bleak. Until the mid-1970s, business subsidies from all levels of government combined did not exceed $10-billion annually in today’s dollars. But apart from a brief dip in the 1990s, this figure has continued to grow. The justification for these subsidies has also shifted – from being necessary to create jobs to being essential to merely maintain them. The term “funding” has been euphemistically replaced by “investment,” and the notion that such subsidies are exceptional – confined to specific sectors for specific reasons – has been abandoned.
These days, no one blinks an eye at taxpayer money going to a thriving pasta maker. In this case the government insists it is only offering a “repayable loan,” but if so, and if that loan is offered at market rates, the obvious question is why the government needs to be involved at all; surely any thriving company can avail itself of one of the many lending institutions known as “banks.”
The recent backlash to the Trudeau government’s hike in the capital gains inclusion rate underscores the bleaker economic picture: Taxes are rising, and the cost of investing in Canada is increasing. Since the 1980s, our economic productivity has fallen drastically compared with that of the United States, and since 2016 foreign direct investment has declined significantly. Offering billions to foreign automakers might generate a few good, transient headlines, but it implicitly points to a deeper problem: If the only way to attract investment is to literally pay investors to put their money here, our economic policies must be failing.
Positive spending announcements also allow government officials to sidestep difficult questions about their role in creating an unfriendly business environment. Minimum-wage hikes represent a major cost for most employers (some of which hit consumers in the form of higher prices). Development charges imposed by municipal governments for housing not only increase consumer costs but can threaten the very viability of projects in a country already facing a severe housing shortage. Politicians naturally prefer the accolades that come with ribbon-cutting over addressing these policies, which come with uncomfortable trade-offs.
Even if subsidies are reduced or eliminated, there’s an increasing reluctance among the public to let market processes play out. We celebrate market successes but are quick to criticize when any business fails, forgetting that this is a necessary part of a dynamic market economy. We have moved away from expecting the government to support those affected by economic shifts, instead asking it to intervene aggressively to protect the status quo or even act as a venture capitalist – or a gambler at a casino – with taxpayer funds.
Perhaps the absurdity of subsidizing successful spaghetti makers to create a handful of jobs will finally draw attention to how ridiculous our corporate welfare policies have become. If Canada is to regain its economic footing, it must embrace fundamental market principles. Canadians need to accept that economically unviable businesses should fail and that those capable of succeeding on their own should do so without government intervention. Change will only come when Canadians demand accountability for the misuse of their tax dollars, signalling to politicians that it’s time to stop the corporate welfare bonanza and get back to basics
Aaron Wudrick is the domestic policy director at the Macdonald-Laurier Institute.