The Hamilton Spectator
The case for ending corporate tax subsidies
Evidence shows business subsidies do not generate widespread economic growth and jobs
The Ontario government spent $73.4 billion (inflation-adjusted) subsidizing firms from 2007 to 2019.
According to a new study, this corporate welfare, which does little if anything to stimulate widespread economic growth, came with huge costs to government budgets and Ontario taxpayers.
Let’s take a closer look at the numbers.
Ontario government spending on business subsidies (a.k.a. corporate welfare or tax incentives) increased nearly eightfold (after adjusting for inflation) from $1.5 billion in 2007 to $11.8 billion in 2019 (the latest year of available pre-COVID data). Such spending is heavily influenced by electricity subsidies, which have ramped up over the past decade as policies such as the “global adjustment” helped spur a drastic increase in electricity costs.
Importantly, this measure of corporate welfare, includes unrequited government transfers to businesses, but excludes other forms of government support such as loan guarantees, direct investment and regulatory privileges extended to particular firms or industries.
So the actual level of corporate welfare in Ontario during this 13-year period was much higher.
Unfortunately, taxpayers ultimately bear the cost of corporate welfare. The total cost of provincial corporate welfare equalled $7,466 per Ontarian tax filer from 2007 to 2019 — that’s a significant amount of money unavailable for other priorities.
Factor in federal and local subsidies, and the total cost of corporate welfare jumps to $12,627 per Ontario tax filer.
Such spending might be justified if it led to widespread economic benefits. However, there’s little evidence that business subsidies generate widespread economic growth and/ or job creation.
In fact, research suggests corporate welfare may actually hurt the economy as government interference in the market ultimately distorts private decision-making and misallocates resources.
Put differently, government attempts to select the winners and losers in the economy generally make the economy less efficient than if those decisions were left to individuals. Indeed, the better option is to let Ontarians make their own decisions about where to spend their money and subsequently determine what businesses will succeed.
The Ontario government should, however, play a role. But instead of giving preferential treatment to select firms and industries, it should foster a pro-growth environment that gives all businesses the opportunity to thrive by reducing business income tax rates.
Consider that (on average) roughly half of all business income tax revenue collected in Ontario was sent back to select firms and industries from 2007 to 2019.
That money could have been used to broadly reduce business taxes, which would stimulate investment, job creation and economic growth.
Corporate welfare comes with significant costs to Ontario taxpayers, with questionable efficacy. If the Ford 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.