TORONTO, ON—Ontario governments are addicted to dispensing corporate welfare.
Between 1991 and 2009, Ontario governments of all political stripes spent more than $27.7 billion on direct subsidies to corporations, says a new report released today by the Fraser Institute, Canada’s leading public policy think-tank.
“Subsidies to businesses, whether bailouts, loans that may not be repaid, or straight grants are all forms of corporate welfare and do nothing to benefit Ontario families,” said Mark Milke, Fraser Institute senior fellow and author of Ontario’s Corporate Welfare Bill: $27.7 billion
“In the most recent year for which data is available, the cost of Ontario corporate welfare was the equivalent of $424 from each person who paid income tax in Ontario, or $848 per working couple.”
Milke points out that the multi-billion-dollar handouts to business have an opportunity cost: other more desirable policies are ignored or not enacted because the money is spent on business subsidies. For example, he calculates that money spent on corporate welfare could have been used to almost eliminate the Ontario Health Premium, estimated to have cost taxpayers $3.1 billion in 2011/12. Other options include reducing personal income taxes, reducing business taxes, or reducing Ontario’s annual deficit by $2.7 billion.
“In light of the Occupy protests that sprang up this fall and the concerns over perceived favours to individual corporations, Ontario politicians should rethink their propensity to spend millions of tax dollars on corporate bailouts and risky business ventures,” Milke said.
“With an Ontario government that faces multi-billion-dollar deficits as far as the eye can see, one easy target for spending reductions should be corporate welfare. Besides, Ontario’s existing policy of lowered business tax rates makes much more sense, as that policy is neutral towards any one business.”
The report points out that virtually all peer-reviewed research on business subsidies concludes that corporate welfare does not have a demonstrable positive impact upon the economy, employment, or tax revenues because of the substitution effect: when employment and tax revenues are merely shifted, no new investment or employment is created on a net basis when the national or international economy is considered. For example, a subsidy meant to “create” manufacturing jobs in Ontario may simply shift intended investment away from Quebec or British Columbia.
“Even though research does not support claims that corporate welfare contributes to widespread economic growth, governments continue to pursue these policies because they want to be seen to be doing something,” Milke said.
“By subsidizing or bailing out failing or risky business ventures, politicians can tell voters they are saving jobs, or they can appeal to voters with interests in specific industries.”
The report tracks corporate welfare spending in Ontario from fiscal years 1991/92 to 2008/09, the most recent year for which data is available. Because data after 2009/10 is not yet available, Ontario’s multi-million-dollar loans to General Motors and Chrysler are not included in the overall $27.7 billion total.
The report found that all three political parties that have formed government in Ontario since 1991 – NDP, Progressive Conservative, and Liberal – have all spent substantial amounts on corporate welfare.
“Ontario’s current corporate welfare policy, which it justifies based on job creation, is backwards. Low corporate tax rates – not high corporate welfare payments – will lead to employment growth and job creation in Ontario,” Milke said.