The last thing Alberta needs is even more corporate welfare

Billions have been spent with little in the way of desired results, writes Colin Craig.

Politicians from across the political spectrum have spent decades handing out billions of tax dollars to businesses in Canada with the hope of “diversifying the economy,” “value add” and “creating jobs.”

Overall, the results have been pretty abysmal.

With that in mind, taxpayers should be very concerned about Premier Rachel Notley’s recent announcement to spend $1 billion on loan guarantees and grants for select businesses.

There’s no reason to believe Notley and her cabinet are the chosen ones who will break with corporate welfare tradition and take us to the promised land of job creation and a more diversified economy. The government’s new program appears to be more of the same — hand over a large cheque to a business, organize a press conference with the business and provincial politicians, smile for the camera and then hope that the jobs materialize and remain in place for more than a few months.

To understand why handouts to businesses are not a wise policy, recall the North West Redwater Partnership’s Sturgeon Refinery. In short, the former Ed Stelmach government hired an unbuilt refinery to turn the government’s bitumen into diesel.

The full arrangement is a much more complicated affair, but what should be noted is that the provincial auditor recently reported that the government is on the hook for “$26 billion of Albertans’ resources over the next 30 years in pursuit of a favourable return.”

Since the project began in 2011, construction costs have increased twice, rising from $5.7 billion to $9.4 billion. As costs have increased, Alberta’s auditor has calculated the expected value of the deal for the government has decreased from a range of “$200 million to $700 million” to “under $200 million.” Considering recent volatility in Canada’s energy sector, one has to wonder how long it will be before the valuation turns negative.

While this project inches closer to being fully operational, some corporate welfare projects aren’t so lucky.

For instance, back in 2012, the federal government gave $5 million for a hemp processing plant in rural Manitoba. The small plant was eventually built, but the business never opened its doors. Just like that, millions of tax dollars went up in smoke.

According to the Winnipeg Free Press, the grant did, however, manage to “annoy companies already involved in hemp processing who had succeeded more or less on their own.”

One can imagine how frustrating it must be for a business to pay its tax bill, only to watch some of those dollars then be used to help start up a competitor.

A 2009 report by the Canadian Taxpayers Federation found several problems with corporate welfare handed out by the federal government’s Western Economic Diversification department. Of the $801 million in loans handed out between 1987 and 2008, only 52 per cent had been repaid. Perhaps the low repayment rate is why banks stayed away from loaning those companies money.

Most notably, the department also failed to measure how many jobs had actually been created and sustained — it seems it was more focused on handing out money, rather than making sure the funds helped achieve the government’s stated objectives.

So how could the Alberta government support job creation and economic diversification in a more taxpayer-friendly manner?

Note that many of the government’s own decisions have actually hurt the province’s ability to create jobs and diversify the economy — the new carbon tax, the 20-per-cent hike to business taxes and personal income tax increases all stripped entrepreneurs of resources they could have used to start up a business or expand an existing one.

Throw in the province’s changes to labour legislation — widely panned by business groups — and one can see how the government took a difficult economic situation and made things worse by passing damaging economic policies.

Instead of spending time, money and energy on handing out corporate welfare to businesses, what the government should do is look at how it could begin to unravel some of the more destructive policies it has already passed.