Ottawa should eliminate agents of corporate welfare
Despite record-high levels of federal government spending and large ongoing budget deficits, Prime Minister Trudeau recently ruled out “austerity and cuts.” But as budget season approaches, it’s clear that the Trudeau government should reduce spending. One obvious place to start is Canada’s regional development agencies (RDAs).
These organizations are not well-known to most Canadians but consume a sizeable amount of government spending each year. Seven RDAs exist across the country—in the North, the Prairies, Quebec, British Columbia, Atlantic Canada and Ontario (which has two). The seven organizations combined will spend more than $2 billion in fiscal year 2023-24 while employing nearly 2,000 civil servants.
Again, when looking to reduce spending, the federal government should look at RDAs. Here’s why.
First, consider the purpose of these organizations. While the stated purpose varies slightly from agency to agency, the RDAs generally seek some type of government intervention to spur growth in the economy. The phrases “diversifying regional economies,” “helping businesses become more competitive, innovative, and productive,” “supporting innovation” and “economic growth” all appear in the Trudeau government’s description of RDAs.
Indeed, economic growth should be a serious concern in Canada. According to OECD projections, Canada will be the worst-performing advanced economy in the world between 2020 and 2030 (as measured by per-person economic growth). As a result, our living standards will fall behind living standards in peer countries.
But there’s no reason to believe the federal government can cause “economic growth” through RDAs, which spend much of their budgets on grants, loans and other forms of payments to businesses—in other words, corporate welfare. In fact, an extensive body of economic research suggests that corporate welfare does not result in widespread or sustainable economic growth or job creation. And additional research finds that RDAs have a poor record of collecting on loans and other “repayable” contributions handed out to businesses.
However, it isn’t merely that these organizations waste our money. When the government attempts to pick winners and losers by funnelling corporate welfare through RDAs, it can also harm the private-sector economy by interfering in the market, causing a misallocation of resources and distorting private decision-making by businesses, investors and consumers.
Finally, while the level of spending and employment in these agencies represents a relatively small share of overall federal spending, to improve Canada’s deteriorating fiscal situation, the government must find savings anywhere it can. And when government is relatively large compared to the size of the economy, reducing the government’s footprint can help encourage economic growth by leaving more space for private-sector activity and consuming less of society’s scarce resources.
This budget season, to clean up Canada’s fiscal affairs, the Trudeau government has a lot of work to do and choices to make. But the elimination of Canada’s regional development agencies should be a no-brainer. The government should abandon the misguided notion that it can cause economic growth through corporate welfare.
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