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A worker checks the product at a pasta factory on March 28. AHMET OGUZ CAPAN/Reuters
Aaron Woodrick is domestic policy director at the Macdonald-Laurier Institute.
Last week, the federal government announced a $1.7 million grant to a Brampton, Ontario, pasta manufacturer that will create 10 jobs. This may seem insignificant compared to the tens of billions of dollars allocated to industries like electric vehicles, but it highlights how commonplace corporate welfare has become across the economy.
Under the Trudeau government, federal subsidies to business have more than doubled, from $17 billion in 2014 to about $40 billion today. Add to this the large subsidies given by provincial governments in recent years, such as those of Ontario's Ford government and Quebec's Legault government, and it's clear that the private sector is increasingly being infused with taxpayer money.
This trend is problematic for a number of reasons. There's the obvious issue of opportunity cost – every dollar spent on these subsidies is a dollar not spent on public services and not in the pockets of Canadians. There's also the risk of regional division as governments play favorites to relocate or retain jobs, and friction with major trading partners who may claim trade rules are being violated.
But perhaps most worryingly, these subsidies allow governments at all levels to drown out calls for necessary policy reforms: stagnant productivity, declining tax competitiveness, and a plummeting investment attractiveness – all serious problems that are being ignored in favor of short-term political gain.
Canada's history of corporate welfare wasn't always so dire. Until the mid-1970s, corporate subsidies from all levels of government never exceeded $10 billion a year 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 changed, from being necessary for job creation to being essential for job preservation. The term “funds” has been euphemistically replaced by “investment,” and the idea that such subsidies were exceptional (restricted to certain sectors for certain reasons) has been abandoned.
These days, nobody cares if taxpayer money goes to a thriving pasta manufacturing company. In this case, the government claims to only provide “repayable loans,” but if that's the case, and if the loans are provided at market rates, the question naturally arises: why should the government get involved? Surely a thriving company could have access to one of the many lending institutions known as “banks.”
The recent backlash against the Trudeau government's increase in capital gains tax rates highlights the worsening economic situation. Taxes are rising and the cost of investing in Canada is rising. Canada's economic productivity has fallen significantly compared to the United States since the 1980s, and foreign direct investment has declined significantly since 2016. Offering billions of dollars to foreign automakers may be good news in the short term, but it hints at deeper problems. If the only way to attract investment is to literally pay investors to invest in Canada, then Canada's economic policies must be failing.
Aggressive spending announcements also allow government officials to avoid difficult questions about their role in creating a hostile business environment. Minimum wage increases represent a significant cost to most employers (some of which will hit consumers in the form of higher prices). Development fees levied by local governments on housing not only increase costs for consumers, 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 opening ceremonies to dealing with these policies, which come with unpleasant trade-offs.
Even when subsidies are reduced or eliminated, the public is increasingly resistant to letting market processes take their course. We celebrate market successes but are quick to criticize when businesses fail, forgetting that it is an essential part of a dynamic market economy. We have stopped expecting governments to support those affected by economic change and instead look to them to intervene aggressively to maintain the status quo or to act as venture capitalists or casino gamblers using taxpayer funds.
Perhaps the absurdity of subsidizing a successful spaghetti manufacturer to create a handful of jobs will finally draw attention to just how absurd our corporate welfare policies have become. For Canada to get back on its economic footing, we must embrace basic market principles. Canadians need to accept that unviable businesses should go bankrupt, and that businesses that can succeed on their own should do so without government interference. Change will only come when Canadians demand accountability for the misuse of our tax dollars and let our politicians know it's time to end corporate welfare and get back to basics.
