The Fraser Institute

The Fraser Institute

November 27, 2009 06:30 ET

The Fraser Institute: Quebec Leads the Country in Corporate Welfare, Handing Out More Than $6 Billion to Businesses in 2007

MONTREAL, QUEBEC--(Marketwire - Nov. 27, 2009) - When it comes to providing subsidies, loans, and bailouts to business, Quebec leads all Canadian provinces, handing out more than $6 billion in corporate welfare in 2007 alone, according to a new report released today by the Fraser Institute, one of Canada's leading economic think tanks.

That works out to more than $1,600 for each Quebecker who filed a tax return in 2007.

Quebec's corporate welfare tab in 2007 was almost three times the $2.1 billion in corporate welfare Ontario provided in 2007, the most recent year for which data is available. Alberta provided businesses with almost $1.2 billion in 2007 while British Columbia gave just over $1 billion.

Out of a total corporate welfare bill of $19.4 billion nationwide in 2007, provincial governments spent $11.2 billion on corporate welfare, while the federal government spent almost $5.6 billion and municipal governments spent $2.6 billion.

"Quebeckers should be asking themselves if giving businesses more than $6 billion is truly the best use of taxpayers' money," said Filip Palda, Fraser Institute senior fellow and professor at the Ecole nationale d'administration publique.

The information on government handouts to business is contained in an updated Fraser Institute study, Corporate Welfare Breaks the $200 Billion Mark: An Update on 13 years of Business Subsidies in Canada, by author Mark Milke.

Overall, the study found that Canadian governments provided businesses with more than $202 billion in bailouts, loans, and subsidies between 1994 and 2007. Provincial governments spent $110.3 billion in total on corporate welfare while the federal government spent $66.6 billion and municipal governments spent $25.8 billion. That works out to $15,126 per Canadian taxpayer over that 13-year period or $1,244 per taxpayer in 2007 alone.

Peer-reviewed research on business subsidies overwhelmingly concludes that corporate welfare may not have a demonstrable positive impact upon the economy, employment, and tax revenues because of the substitution effect. The substitution effect occurs when employment and tax revenues are shifted to business at a significant cost, and no new investment or employment is created, on a net basis, when the national or international economy is considered. For example, a subsidy meant to "create" manufacturing jobs in Quebec may simply shift intended investment from Ontario or British Columbia. A subsidy offered to an automotive company in Michigan will tend to shift jobs from Ontario or Kentucky.

The updated study also looks at bailouts for the auto industry, where corporate welfare has increased substantially as Canadian governments poured money into General Motors and Chrysler to help the companies stave off bankruptcy.

Based on new data, Milke now estimates the federal and Ontario governments committed $16.5 billion to the automotive sector between 2003 and 2009, with $15.3 billion of that amount authorized in a two-month period between April 7, 2009 and early June 2009.

"Bailouts for the automotive industry over this six-month period will cost every Canadian taxpayer over $950," Palda said.

"Government intervention only delays the day of reckoning for teetering businesses and often at the expense of other businesses and a healthy industry and economy. To truly build a sound economy and vibrant business sector, governments must move away from corporate handouts and provide Quebec taxpayers with broad-based tax relief. Not only will this put more money in Quebecker's pockets, but tax reductions have also been proven to encourage investment and economic growth."

The Fraser Institute is an independent research and educational organization with locations across North America and partnerships in more than 70 countries. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.

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