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Canadian tab for corporate welfare exceeds $180 billion; no evidence that subsidies provide net benefits

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Release Date: December 10, 2008

VANCOUVER, BC-While politicians in Ottawa argue over how much additional money the government should give business in the name of economic stimulation, a new report from independent research organization the Fraser Institute shows that Canadians already provided more than $182 billion in corporate welfare to businesses between 1994 and 2006.

That works out to $13,639 per tax payer over that twelve-year period or $1,291 per tax payer in 2006 alone.

"While corporate begging has become even more blatant this year, the fundamental truth has not changed. Business subsidies, bailouts, or loans are all forms of corporate welfare that transfer tax dollars and employment from healthy businesses to risky businesses," said Mark Milke, author of the report, Corporate Welfare: Now a $182 Billion Addiction.

"Government intervention only delays the day of reckoning and often at the expense of other businesses and a healthy industry and economy."

Milke last wrote on corporate welfare for the Fraser Institute in 2007. This latest report contains two years of additional data and a reflection on the current demands for more corporate welfare underway in both Ottawa and Washington.

Peer-reviewed research on business subsidies concludes that corporate welfare may not have a demonstrable positive impact upon the economy, employment, and tax revenues because of the substitution effect. The substitution effect occurs when employment and tax revenues are shifted to business at a significant cost, and 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 Quebec may simply shift intended investment from Ontario or British Columbia. A subsidy offered to an automotive company in Michigan will tend to shift jobs from Ontario or Kentucky.

With much attention recently focussing on the auto industry, Milke points out that since 2004 alone, the federal and Ontario governments together promised $752 million to the automotive industry, including $200 million for Ford, $200 million for GM, and $125 million for Toyota. And now the automotive industry is asking for additional billions in corporate welfare payments.

"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 businesses, politicians can tell voters they are saving jobs, or they can appeal to voters with interests in specific industries."

Milke's findings include:

  • Between 1994 and 2006, the last year for which statistics are available, Canada's federal, provincial, and local governments spent $182.4 billion on subsidies to business.
  • In 2006 alone, Canada's federal, provincial, and local governments spent $19.3 billion on corporate welfare, almost double the 1995 figure of $10.3 billion.
  • The total corporate welfare bill (federal, provincial, and municipal) has ranged from a low of $9.9 billion in 1996 to a high of almost $20 billion in 2005. In 2006, it amounted to $19.3 billion.
  • The cost to each taxpayer who paid income tax in 2006 was $1,291, which was 38% higher than the 1995 figure of $934.
  • Over 12 years, the total cost per tax filer who paid tax amounted to $13,639 per person (all figures adjusted for inflation to 2008 dollars).
  • Between 1994 and 2006, provincial governments spent $98.5 billion on corporate welfare, while the federal government spent $61.4 billion and municipal governments spent $22.5 billion.
  • Among provincial governments, the province which disburses the most amount of public money to corporations is Quebec, with over $5.4 billion in corporate welfare in 2006. Quebec was followed by Ontario at $2.4 billion and Alberta at almost $1.5 billion, with British Columbia fourth at just under $950 million.

"The old cliché that what is good for certain large corporations is good for the country has never been less true than it is today. With multiple companies lining up around the world for government-financed grants, loans and loan guarantees, bailouts for one company in trouble will merely make it more difficult for other healthy competitors in a tough economic environment," Milke said.



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