“If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it.”. This quote describes how a government typically treats businesses in an economy, and the tendency of governments to constantly intervene. It was attributed to former U.S. president Ronald Reagan, who regularly used this quote to illustrate how he believed government interfered far too much in the economy on a regular basis. Looking at Canada today, it appears that Reagan made a good point.
Despite the dismal history of failure with government “winner picking,” current Canadian governments have still not gotten the message that this practice always ends in pain for taxpayers and failure for government. It is hard to find even one example where government subsidies to business had a positive outcome that exceeded or even equalled the cost in taxpayer dollars.
One classic example over the past few years involves the tens of billions of dollars that the federal Liberals, along with the governments of Ontario and Quebec, spent on the electric vehicle (EV) industry. The governments involved would much rather we used the verb “invested,” but any investment with such catastrophic losses surely can’t be seriously considered as other than a massive spending error. Of the total $52.5 billion in taxpayer-funded loans, subsidies and tax credits, it is estimated that at least half of that has been wasted in bankruptcies of subsidized businesses and companies that have put off building the targeted facilities, perhaps indefinitely. These expenditures were driven by government ideology that favoured the adoption of EVs by a large portion of the population, despite the very clear evidence that the majority of consumers did not want EVs.
That illustrates one of the key problems with government subsidies of business – these payments are most often based on ideological whims of the government in power or purely political motivations, not anything connected to sensible market economics. The majority of subsidies paid by any government tend to go to businesses run by their friends or in ridings which consistently vote for the political party in power. And virtually all business subsidies go to large businesses, the so-called crony capitalists that government loves to partner with. When politicians retire, it is interesting how many end up in well-paid board positions with these very same companies. Coincidence? I think not.
Another problem with business subsidies is that the taxes from the small- and medium-sized business sector (SME) ends up funding the subsidies to the crony capitalist large firms. This is an unnecessary burden on the important SME businesses, which are the source of the majority of job creation and which could enjoy lower taxes if subsidies are eliminated. Often subsidies are used as a bail out of an industry in trouble, as has been the case with the auto sector many times in the past. If businesses are so incompetent that they are the recipients of repeated bail outs, perhaps they should be asking themselves why they can’t operate successfully. In such cases, successful businesses are effectively being asked to bail out the losers with their tax dollars. This is not a recipe for a productive economy.
The most recent case of business subsidy by the Carney government involves condo property developers in B.C. As is the case regularly in the condo market, there has been an overbuilding of condo units in Vancouver as well as in other markets such as Toronto. For some perverse reason, the Carney government – with Housing Minister Gregor Robertson, former mayor of Vancouver – made the ridiculous decision to spend $3.2 billion of taxpayer dollars bailing out these developers. In good times, the same developers made out like bandits, making money hand over fist. It makes absolutely zero sense to reward them now for their bad decisions.
This has been rightfully described as an instance of privatizing profits while socializing losses. Prime Minister Mark Carney attempted to justify this by saying they would turn the condo units purchased into affordable housing. Yet if the condo developers did the sensible thing and lowered prices to the point that people did want to buy them, it would permit many Canadians to become homeowners – a very desirable outcome.
Carney tried to justify his bad decision by saying that “developers don’t want to take a loss.” Really? Who does? Is the Liberal government going to now compensate all of us when we make a bad investment decision, or take a risk on a purchase that doesn’t pan out?
Whatever the case, all Canadians should be outraged by this abuse of their tax dollars going to rich developers. Once the market returns to normal, will we look to recoup the money we have given these developers once they are making healthy profits again? Doubtful. For all of Carney’s supposed smarts, this is a disgracefully stupid decision that should be reversed immediately.
History shows that business subsidies are always a disaster and a misuse of scarce taxpayer dollars. This most recent disgrace of bailing our rich B.C. developers is merely an extreme example of the failure of these policies. It’s time any government that wastes our money in this way hears about it – loudly and frequently – from we the voters.
She has published numerous articles in journals, magazines & other media on issues such as free trade, finance, entrepreneurship & women business owners. Ms. Swift is a past President of the Empire Club of Canada, a former Director of the CD Howe Institute, the Canadian Youth Business Foundation, SOS Children’s Villages, past President of the International Small Business Congress and current Director of the Fraser Institute. She was cited in 2003 & 2012 as one of the most powerful women in Canada by the Women’s Executive Network & is a recipient of the Queen’s Silver & Gold Jubilee medals.
