Federal budget ramps up corporate welfare—funded by taxpayers
In its recent budget, the Trudeau government announced $80 billion in tax credits and business subsidies to support the green energy transition over roughly the next decade. While the measures were touted as an important “investment” to support prosperity and jobs, in reality, this is just another example of corporate welfare funded by taxpayers, which will do little if anything to stimulate economic growth.
Corporate welfare was already rampant in Canada. According to a recent study, federal, provincial and local governments spent $352.1 billion (inflation-adjusted) subsidizing firms from 2007 to 2019 (the last pre-COVID year of available data) including $76.7 billion in federal subsidies. The study focused solely on government transfers to businesses but excluded other forms of government support such as loan guarantees, direct investment and regulatory privileges for particular firms or industries. So, the actual level of corporate welfare was much higher.
According to the Trudeau government, Ottawa must increase corporate welfare to compete with the United States, European Union other countries in building a “clean economy.” The budget specifically cites the U. S. Inflation Reduction Act, which includes hundreds of billions in clean energy subsidies.
But there are several problems with trying to outspend other countries in a subsidy war. Perhaps most obviously, it’s very costly to Canadian taxpayers, and every dollar spent on corporate welfare is a dollar unavailable for other important priorities such as health care or education. The cost to taxpayers is exacerbated by the fact that the federal government will run large deficits until at least 2027/28, resulting in a marked accumulation of debt. By 2027/28, the forecasted annual cost of federal debt interest will exceed $50 billion—or more than $1,200 per Canadian.
Not only does corporate welfare come at a huge cost to taxpayers, it’s also unlikely to actually spur economic growth. In fact, a significant body of research indicates that corporate welfare may hurt the economy as government attempts to pick winning industries and/or companies distorts private decisions and misallocates resources.
The better option is to foster a pro-growth business environment and let consumers make their own choices about where to spend and invest their money, and subsequently determine what industries and businesses succeed. If the Trudeau government truly wants to support a strong economy, rather than attempt to lure investment through taxpayer money, it should improve Canada’s overall investment attractiveness through lower business taxes and competitive cost-effective regulations. In contrast to corporate welfare, lower business income tax rates have actually been proven to encourage innovation while driving investment, job creation and economic growth.
New federal subsidies are unlikely to spur economic growth while coming with a significant cost to Canadian taxpayers. To draw investment to Canada, the federal government should instead focus on fostering a pro-growth environment that will increase prosperity across the country.
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