Canada spent whopping $352.1 billion on corporate welfare in decade preceding COVID pandemic
From 2007 to 2019, the federal government spent $76.7 billion on business subsidies, while the provinces spent $223.3 billion, and local governments spent $52.1 billion.
According to the Fraser Institute, all levels of government in Canada spent $352.1 billion (inflation-adjusted) subsidizing businesses over 13 years.
"These subsidies for businesses — also known as corporate welfare — come with huge costs to government budgets and taxpayers while doing little if anything to stimulate economic growth," said Tegan Hill, an economist at the Fraser Institute and co-author of The Cost of Business Subsidies in Canada.
In the study, business subsidies include unrequited government transfers to businesses but exclude other forms of government support, such as loan guarantees and direct investment.
From 2007 to 2019, the federal government spent $76.7 billion on business subsidies, while the provinces spent $223.3 billion, and local governments spent $52.1 billion.
Among the provinces during the same period, total provincial business subsidies (excluding federal and local subsidies) were highest in Québec ($79.6 billion), Ontario ($73.4 billion) and British Columbia ($22.9 billion).
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"The Alberta government spent $22.1 billion (inflation-adjusted) subsidizing firms from 2007 to 2019, which does little if anything to stimulate broader economic growth," said Hill, adding it ate considerably into government budgets and Alberta taxpayer income.
More specifically, spending by the Ontario government on business subsidies increased (after adjusting for inflation) from $1.5 billion in 2007 to $11.8 billion in 2019, or, on a per-tax filer basis, from $171 to $1,138 — an increase of $967 over the 13 years.
Québec's government also increased spending on business subsidies (after adjusting for inflation) from $6.3 billion in 2007 to $7.2 billion in 2019.
During the 13 years, on a per-tax filer basis, all federal, provincial and local governments spent more on corporate welfare in Québec ($18,334) than any other province, minus Saskatchewan.
According to Hill, annual Alberta government spending on corporate welfare — which included agricultural subsidies, tax credits for natural gas drilling, and payments to reduce the power bills of industrial users — ranged from a high of $2.5 billion in 2010 to a low of $1.1 billion in 2014.
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"Importantly, this measure of corporate welfare only includes unrequited government transfers to businesses but excludes loan guarantees, direct investment, and regulatory privileges for particular firms or industries. So the actual level of corporate welfare in Alberta during this period was much higher," added Hill.
"Unfortunately, taxpayers ultimately bear the cost of corporate welfare."
The Fraser Institute study uncovered that the total cost of provincial corporate welfare equalled $8,103 per Albertan tax filer from 2007 to 2019. When you include federal and local subsidies, the total cost of corporate welfare jumped to $13,285 per Albertan tax filer.
Provincial subsidies amounted to a significant share of provincial business income tax revenue across the country.
According to the Fraser Institute, provinces such as Prince Edward Island, Quebec and Manitoba could have effectively eliminated provincial business income taxes over the period if they had eliminated provincial business subsidies.
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Between 2007 and 2019, Québec typically spent more on corporate welfare than it received in provincial corporate income tax revenue annually. Its government could also have eliminated its business income taxes if it had ended corporate welfare.
"Rather than give preferential treatment to certain companies and industries, governments could reduce business income taxes and help foster a pro-economic growth environment that gives all businesses the opportunity and incentives to succeed," added Hill.
"Such spending might be justified if it led to widespread economic benefits. However, there's little evidence that corporate welfare generates widespread economic growth or creates jobs."
Hill suggests corporate welfare hurts the economy as "government interference in the market distorts private decision-making and misallocates resources."
"The government's attempt to select winners and losers in the economy generally makes the economy less efficient than if those decisions were left to individuals. Indeed, the better option is to let [taxpayers] decide where to spend their money and determine what businesses will succeed," said Hill.
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