Between 1980 and 2009, Canadian governments spent a staggering amount of money on private sector subsidies—over $600 billion. The federal government kicked out $343 billion and provincial governments spent $287 billion.
Much of this massive expenditure is what’s called corporate welfare. That’s when governments levy taxes against waitresses, burger cooks, farmhands, teachers, homecare workers, and others, then flip that cash to private and shareholder-owned companies.
The most ardent advocates of corporate welfare are private companies that won’t survive in a genuine marketplace, and corporate executives who know they can extract favours from politicians too naïve or inexperienced to fully appreciate the implications and actual cost of government handouts.
Some governments are attracted to corporate welfare because they think spreading cash around makes it look like they’re doing important work. They claim it’s how jobs get created. In fact, it doesn’t work that way at all—because every time politicians dole out corporate welfare, something called a “crossover consequence” applies. Here’s how it works:
Governments get their money from taxpayers. When a government gives away $100 million, it must first take $100 million. Alternatively, it can borrow, putting future taxpayers on the hook for payback and interest. Either way, the people giving up the $100 million are left with that much less to save, spend, or invest.
Politicians passing out the $100 million claim they’re creating jobs, yet ignore the costs borne by the taxpayers who forked over the money in the first place. These taxpayers surrendered their own badly needed capital—resulting in fewer jobs, lower investment, and diminished wealth for them, their families, businesses, and communities. This is the “crossover consequence.”
When governments engage in corporate welfare, the part of the economy from which they take money is the part that’s efficient and productive. It has to be, otherwise it wouldn’t be paying tax.
Macleans Magazine reported that Bombardier Corporation in Quebec has received more than four billion (inflation adjusted) dollars from taxpayers. Recently, Justin Trudeau and his colleagues handed the company $372-million in interest free money, which some say may or may not be repaid. Shortly thereafter, Bombardier’s executives awarded themselves $40 million in compensation—a near-50% increase.
In response to criticism on the Bombardier cheque, Trudeau said that “investing in Bombardier is a way of ensuring good long-term jobs.” But is it? What about the crossover consequence?
Honda is another recent recipient of corporate welfare. Ottawa gave the automaker $42 million to spend on vehicle-assembly technology and to construct a new paint shop at its Ontario factory.
In Alberta, Ralph Klein frowned on corporate welfare, yet business thrived. Klein rightly determined that what business really wanted was a stable, attractive, investment climate—plus low taxes. Klein gave that to them. Investment and jobs thus poured into Alberta. Since Klein, Alberta governments have been back in the thick of things when it comes to handing cash to corporations. According to the Canadian Taxpayers Federation, between 2011 and 2017, the province spent or committed nearly $7 billion to corporate welfare—almost $6,500 for every Alberta family of four.
The bottom line on this issue is that taxpayers are not responsible for the finances of privately-owned corporations. And that politicians who want investment and jobs better facilitate that outcome by lowering taxes and creating a trusted environment for investment.