Subsidies need better oversight

THE SPECTATOR’S VIEW

Guelph-based Linamar Corp. is an outstanding Canadian success story in every way — including as a recipient of lavish government grants.

Born from a single lathe in founder Frank Hasenfratz’s basement in 1964, it has grown in leaps and bounds into a multinational auto-parts giant that employs more than 8,000 Canadians and in 2016 reported $6 billion in sales.

That it is in addition seen as an upstanding corporate citizen will also explain why the federal and Ontario governments last week awarded it $100 million in grants that could reportedly create 1,500 new Canadian jobs.

Before that, in 2015, Queen’s Park gave Linamar $50.25 million while Ottawa helped out with a $50.7 million loan, this time to create 1,200 jobs.

While the public has cause to applaud such government largesse because of its potential for helping individual Canadians as well as the overall economy, there are reasons to question how necessary and effective such taxpayer-funded gifts to businesses big and small really are.

And some of the best reasons come from a new study by John Lester for the University of Calgary’s School of Public Policy.

After playing detective to ferret out numbers that weren’t readily available, the former Department of Finance economist discovered that in 2014-15, the federal government handed out $14 billion in business subsidies, while the four largest provinces combined kicked in another $14.6 billion in similar support.

These are massive payouts, representing almost half of the corporate income tax revenue collected by these five jurisdictions.

To be sure, Lester recognizes the legitimate arguments for government subsidies.

They can boost less affluent regions, create good-paying jobs and stimulate research and development.

But there are less shining motives for the subsidies, he notes. And they are political, aimed at winning votes.

People want to know their economic well-being is in good hands.

When they see governments subsidizing companies to hire more, make more and sell more, they feel they can sleep easily at night.

To read Lester’s report is to conclude voters should keep at least one eye open — and demand greater transparency from governments.

While he argues that government subsidies can only be deemed successful if they raise incomes, his own benefit-cost analyses conclude that only a third of subsidies meant to raise incomes actually do that.

We’re not arguing for an end to subsidies. The fact that other industrial nations with whom Canada competes also bankroll industry makes it hard for our governments to stand aloof.

But what the public truly needs — and Lester recommends this — is better government accountability.

We need comprehensive annual reports on business subsidies that describe the programs, explain their objectives and report funding levels.

We need to know clearly and precisely what a subsidy is supposed to do so we can judge its success or failure.

Committing $100 million to Linamar last week should just be the start of the story.