Canada’s $6.4 billion corporate welfare budget
By Mark Milke, The Fraser Institute
If there was a theme in the recent federal budget, it was how chock full it was with new corporate welfare. The underlying refrain was how big government will help big business with your tax dollars.
For example, early on in Budget 2013, it is clear that crony capitalism is scattered throughout the budget.
On page six, Ottawa promises $1-billion to the aerospace sector over five years through the Strategic Aerospace and Defence Initiative; that’s the main government program for disbursing taxpayer cash to the aerospace sector.
In addition, the federal government promises a new program for aerospace companies with an initial cost to taxpayers of $110 million over four years and then $55-million every year after that.
So, over the next five years, Canada’s aerospace sector will receive almost $1.2 billion in new corporate welfare money.
That’s only the start of the corporate welfare list. Ottawa will deposit $920 million into the Federal Economic Development Agency for Southern Ontario, a corporate welfare slush fund, and spend $92 million on forestry businesses (page seven).
Page nine lists $60 million for the Venture Capital Action Plan (in addition to $400-million announced in January), $37-million for granting councils to help business commercialize their products, and $325 million will go to so-called green technologies.
Buried more deeply in the budget, Ottawa announced it will “partner” with the provinces to deliver $3-billion to the agricultural sector (page 92).
It’s not clear how much will come from the federal government and how much from the provinces but all such money originates with taxpayers anyway (or future taxpayers, given Ottawa still runs red ink budgets).
On page 117, the federal Conservatives re-announce earlier plans to give $250 million to the automotive sector through the Automotive Innovation Fund. One page later, another $145-million is promised for the Automotive Partnership Canada fund.
Add it all up and Budget 2013 in conjunction with a few announcements earlier this year provides $6.4 billion in new corporate welfare, courtesy of Canadian families. That number doesn’t include corporate welfare announced in previous budgets.
Bizarrely, in a related example of picking winners and losers, the government announced an extension of the accelerated capital cost allowance to manufacturing companies investing in equipment.
While the ability to write off equipment more swiftly is not corporate welfare per se, the sector-specific picking is curious.
After all, Budget 2013 notes how investment in machinery and equipment in the Canadian manufacturing sector has seen stronger growth than similar investment in that sector in the United States (page 41).
The government also notes how research and development by sector is already strongest in manufacturing, with over $7-billion invested in 2012 (page 97).
That compares to the category of mining, oil and gas extraction, at less than a billion dollars last year.
Favouritism aside—and neither sector should be favoured—such accelerated write-offs are at least not a transfer of tax dollars.
That is unlike crony capitalism where corporate welfare is a political act that promotes the illusion of “doing something” for the economy but at the expense of taxpayers in general.
Budget 2013 makes the usual defences for crony capitalism: jobs are created with the help of a micro-managing federal government.
Thus, in his budget speech, the finance minister asserted the Conservative budget reflects a belief of Canadians that “their government will be a benign and silent partner in their enterprise.”
Three questions for the finance minister: How do you know Canadians want you to use their tax dollars to be a “silent partner” with business?
And why must government be a “partner” in any business enterprise through loans and grants?
Lastly: Why not just let corporations compete without dragging taxpayers into the ring?
Corporate welfare is a politically created illusion with no visible means of support. Economists who study crony capitalism are clear about why it fails: money is taken from taxpayers and productive businesses.
In the case of businesses, such money is sometimes transferred to businesses in the same sector at the expense of the “giving” business.
This is why the “we’re-creating-jobs” argument from the federal Conservatives as it concerns business subsidies is wrong: if that money were left with individuals and businesses, it would have been spent elsewhere or saved and invested.
Instead, the federal Tories are addicted to the political picking of corporate welfare winners and losers.
The official title of Budget 2013 was “Jobs, Growth, and Long-Term Prosperity.” It should have been “Grants, Subsidies and Eternal Business Handouts.”
It should also have had a price tag attached for taxpayers on the front cover: $6.4 billion in new corporate welfare.
Mark Milke is a Senior Fellow with the Fraser Institute and author of several studies on corporate welfare.