The Sunday Magazine

Government subsidies for business are greater than Canada's entire defence budget

From Bombardier to General Motors to the oil and gas industry, Canadian businesses benefit handsomely from government grants and tax breaks, even though politicians on both the left and the right have opposed so-called corporate welfare for decades. Peter Armstrong's guests are John Lester, executive fellow at the University of Calgary's School of Public Policy, and Roberta Lexier, a professor at Mount Royal University in Calgary who specialises in the history of the NDP.
From Bombardier to General Motors to the oil and gas industry, Canadian businesses benefit handsomely from government grants and tax breaks, even though politicians on both the left and the right have opposed so-called 'corporate welfare' for decades (Mario Tama/Getty Images)

For many Canadians, this country's social programs — like universal healthcare — are a source of collective pride.

But while we take great comfort in the idea that our social safety net is strong and generous, the facts don't bear out that rosy image.

Among the countries in the Organization for Economic Co-operation and Development (OECD), Canada ranks 25th out of 37 when it comes to public spending on social services as a share of GDP. That's below that of the United States.

At the same time, Canadian government support for corporate welfare is alive and well.

For Roberta Lexier, professor and historian at Mount Royal University, this amounts to a double standard.

"Austerity-minded governments have been insisting that we can't afford the rising costs of social programs without more deficits or higher tax burdens on ordinary Canadians. But the argument does not apply, apparently, to tax breaks or subsidies or grants for corporations," she told The Sunday Edition's guest host Peter Armstrong.

"I think the general public probably doesn't even know how much money corporations are receiving from the public purse. And I think it's in the interest of many people to keep that conversation very quiet."

Business subsidies in numbers

There is no shortage of high-profile examples of business subsidies in the recent past, from Bombardier, to General Motors, the oil and gas industry and the federal purchase of the Trans Mountain oil pipeline.

This, despite the fact that parties on both the left and the right of the political spectrum have opposed corporate welfare for decades.

In 1972, then-NDP leader David Lewis railed against what he famously dubbed "corporate welfare bums." In 2004 — this time from the right — then-prime minister Stephen Harper spoke out against corporate welfare, and Conservative Leader Andrew Scheer is now following his lead.

But just how much public money is being spent on business subsidies? It's not always easy to find out — and that's part of the problem.

Some of the most recent figures come from a study done by John Lester, an executive fellow at the University of Calgary's School of Public Policy.

According to his report, the federal government and the four largest provinces in Canada collectively spend about $29 billion a year on business subsidies — delivered through the tax system, spending programs and government businesses enterprises.

Alberta leads the charge among the other provinces, Lester told The Sunday Edition. In the 2014-15 fiscal year, per-person subsidies in Alberta were $640 — about $100 ahead of the next most generous jurisdiction, Quebec.

Lester said that accessing these figures was one of the hardest projects he's ever undertaken.

While there have been significant improvements in the data provided by the federal government and in some of the provinces, Alberta remains an outlier, he said.

"I had to resort to Access to Information requests to find out which [spending] programs were in operation and how much money was allocated to each."

The the net loss on the government's 2009 GM bailout package is estimated to be between $4 billion and $5 billion. The company recently announced that it's shuttering its Oshawa plant. (Nathan Denette/Canadian Press)

Beyond the dollar amounts, Roberta Lexier said Canadians also need transparency about the conditions attached to the subsidies.

"There's almost zero strings attached," Lexier said. "This became clear with General Motors, for instance, when a decade ago they received a massive bailout which ended up costing the taxpayers about $4-5 billion, and then not long ago they just announced they're closing a plant in Oshawa."

"What was that money for?" she asked.

Lexier also argued that much of corporate welfare is made possible outside subsidies — through tax evasion and offshore tax havens, for example.

She said the oil and gas industry is estimated to be sitting on $260 billion of environmental liabilities — something the public may very well end up paying for.

"So much of this is hidden costs, or subsidies that aren't framed as subsidies," Lexier said.

'Corporate welfare bums'

Lexier believes these handouts reflect lopsided government priorities.

"[Finance Minister] Bill Morneau, in his 2018 economic report, announced that corporations would receive $14 billion in new tax breaks," she said.

"That would be about the cost of a nationwide daycare program … and that's just one example of where money could be spent on social programs."

While it's become accepted wisdom that the market can and should balance itself out, the same argument doesn't seem to apply when it comes to corporations asking for help, Lexier added.

Finance Minister Bill Morneau announced in his 2018 economic report that corporations would receive $14 billion in new tax breaks. That's the cost of a nationwide daycare program, says historian Roberta Lexier (Sean Kilpatrick/The Canadian Press)

"So much of this argument is contradictory and self-serving," she said. "We're told all the time that the market is supreme and functions best without government interference. That's basically the premise of neo-liberal economics … But when government largesse flows the way of corporations, then that's fine."

And this is happening at a time when corporations are raking in record profits, she added.

"Where are those subsidies actually going?" she asked. "Are they going to creating good jobs or are they going to shareholders and CEOs?"

Lexier, who is a historian of the NDP, has been researching David Lewis's famous campaign against "corporate welfare bums." In fiery speeches on the 1972 federal election campaign trail, Lewis would call out individual multinational corporations that received large subsidies while deferring their taxes.

"The NDP elected 31 MPs in 1972 during that campaign, which was their biggest caucus to that point," Lexier said. "It seemed Canadians were really receptive to calls to rebalance this tax burden and direct government spending to something other than corporate welfare."

Lexier believes the fight against corporate welfare calls for another champion today.

"I think in our current context, a similar campaign would work incredibly well," she said. "It's in the interests of corporations, and in some cases in the interests of governments to keep some of this quiet… It's going to take a lot of guts and it's going to take somebody stepping up."

'Well-intentioned but poorly-informed'

For Lester, the issue is less about corporate welfare and more about flawed policies.

"While I think that only a small portion of these subsidies that governments offer actually work in the sense that they raise real income, I would be a little bit reluctant to endorse the idea that we're indulging in corporate welfare on a massive scale," he said.

Lester found that while around 70 per cent of all government subsidies are intended to improve economic performance and create jobs, most of them are not in fact meeting that objective.

"The idea behind that would have to be that you don't think the market is working properly and that the income of Canadians — not just the people who are being subsidized but the income of all Canadians — would on average be higher as a result of these subsidies.

"It's really tricky to do that right. You've got to be able to identify the sector, set up a subsidy that's appropriate in the circumstances, and then you have to figure out who's going to pay for it. If you're not careful, you're going to get the average Canadian subsidizing people who earn higher incomes."

At best, only a third of subsidies intended to raise real income actually achieve that objective, Lester said.

That's because, in order to finance these subsidies, governments have to either raise taxes or cut other kinds of spending, he said.

"The net creation of jobs that we're getting from that is pretty much zero," he said.

The battle for Lester, then, is for the public to convince governments to evaluate these programs in a more critical way.

"I think we should probably give politicians the benefit of the doubt and seeing that in most cases … they are offering subsidies to business because they think it makes the economy perform better. And I think it's our job to tell them that no they're not doing that," Lester said.

"I think it's better to think of them as being well-intentioned but poorly-informed, rather than being in bed with corporations."

Click 'listen' near the top of this page to hear the full conversation.