Corporate welfare for Michelin—another example of wrongheaded policy
The Trudeau and Houston governments recently announced a $105.6 million joint “investment” into Michelin North America’s tire plant in Bridgewater. While the announcement came with much talk of investment and job creation, in reality this is just another example of corporate welfare, funded by taxpayers, which does little if anything to stimulate economic growth.
Unfortunately, the corporate welfare problem goes beyond this one announcement. According to a new study, the Nova Scotia government spent $3.1 billion (inflation-adjusted) subsidizing firms from 2007 to 2019, the last pre-COVID year of available data. Over the 13-year period, annual provincial government spending on corporate welfare ranged from a low of $173 million in 2007 to a high of $310 million in 2017.
And because the study’s measure of corporate welfare includes unrequited government transfers to businesses but excludes other forms of government support such as loan guarantees and regulatory privileges for select firms and industries, the actual level of corporate welfare in Nova Scotia during this 13-year period was much higher.
Of course, taxpayers ultimately bear the cost. During the same time period, the total cost of provincial corporate welfare equalled $4,421 per Nova Scotian tax filer—a significant amount of money unavailable for other priorities. After factoring in federal and local subsidies, the total cost of corporate welfare jumps to $8,511 per Nova Scotia tax filer.
Such spending might be justified if it led to economic benefits. However, there’s little evidence that corporate welfare generates widespread economic growth and/or job creation. In fact, corporate welfare may actually hurt the economy as government interference in the market ultimately distorts private decision-making and misallocates resources. When government attempts to select winners and losers in the economy, it makes the economy less efficient than if those decisions were left to individuals and businesses. The better option is to let Nova Scotians make their own decisions about where to spend their money and subsequently determine what businesses will succeed.
To be sure, government has a role to play in economic growth. For example, Nova Scotia has the third-highest business tax rate in the country. Instead of giving preferential treatment to select firms and industries, the province should reduce business tax rates to foster a pro-growth environment that gives all businesses—including tire manufacturers—the opportunity to thrive. In fact, from 2007 to 2019, (on average) roughly half of all business income tax revenue collected in Nova Scotia was sent back to select firms and industries annually. That’s a lot of money that could have been used to reduce business taxes, which would stimulate investment, job creation and economic growth.
While the Michelin announcement came with much fanfare, it’s unlikely to spur growth and comes at a large cost to taxpayers. If the Houston government wants to truly encourage growth in the economy, it should focus on pro-growth tax reductions that gives all businesses the opportunity to thrive.