Economy
10 year high Inflation rate can’t be blamed on covid. Printing money for government spending the real culprit: Poilievre
Alberta
Alberta government should eliminate corporate welfare to generate benefits for Albertans
From the Fraser Institute
By Spencer Gudewill and Tegan Hill
Last November, Premier Danielle Smith announced that her government will give up to $1.8 billion in subsidies to Dow Chemicals, which plans to expand a petrochemical project northeast of Edmonton. In other words, $1.8 billion in corporate welfare.
And this is just one example of corporate welfare paid for by Albertans.
According to a recent study published by the Fraser Institute, from 2007 to 2021, the latest year of available data, the Alberta government spent $31.0 billion (inflation-adjusted) on subsidies (a.k.a. corporate welfare) to select firms and businesses, purportedly to help Albertans. And this number excludes other forms of government handouts such as loan guarantees, direct investment and regulatory or tax privileges for particular firms and industries. So the total cost of corporate welfare in Alberta is likely much higher.
Why should Albertans care?
First off, there’s little evidence that corporate welfare generates widespread economic growth or jobs. In fact, evidence suggests the contrary—that subsidies result in a net loss to the economy by shifting resources to less productive sectors or locations (what economists call the “substitution effect”) and/or by keeping businesses alive that are otherwise economically unviable (i.e. “zombie companies”). This misallocation of resources leads to a less efficient, less productive and less prosperous Alberta.
And there are other costs to corporate welfare.
For example, between 2007 and 2019 (the latest year of pre-COVID data), every year on average the Alberta government spent 35 cents (out of every dollar of business income tax revenue it collected) on corporate welfare. Given that workers bear the burden of more than half of any business income tax indirectly through lower wages, if the government reduced business income taxes rather than spend money on corporate welfare, workers could benefit.
Moreover, Premier Smith failed in last month’s provincial budget to provide promised personal income tax relief and create a lower tax bracket for incomes below $60,000 to provide $760 in annual savings for Albertans (on average). But in 2019, after adjusting for inflation, the Alberta government spent $2.4 billion on corporate welfare—equivalent to $1,034 per tax filer. Clearly, instead of subsidizing select businesses, the Smith government could have kept its promise to lower personal income taxes.
Finally, there’s the Heritage Fund, which the Alberta government created almost 50 years ago to save a share of the province’s resource wealth for the future.
In her 2024 budget, Premier Smith earmarked $2.0 billion for the Heritage Fund this fiscal year—almost the exact amount spent on corporate welfare each year (on average) between 2007 and 2019. Put another way, the Alberta government could save twice as much in the Heritage Fund in 2024/25 if it ended corporate welfare, which would help Premier Smith keep her promise to build up the Heritage Fund to between $250 billion and $400 billion by 2050.
By eliminating corporate welfare, the Smith government can create fiscal room to reduce personal and business income taxes, or save more in the Heritage Fund. Any of these options will benefit Albertans far more than wasteful billion-dollar subsidies to favoured firms.
Authors:
Economy
Ottawa’s homebuilding plans might discourage much-needed business investment
From the Fraser Institute
In the minds of most Canadians, there’s little connection between housing affordability and productivity growth, a somewhat wonky term used mainly by economists. But in fact, the connection is very real.
To improve affordability, the Trudeau government recently announced various financing programs to encourage more investment in residential housing including $6 billion for the Canada Housing Infrastructure Fund and $15 billion for an apartment construction loan program.
Meanwhile, Carolyn Rogers, senior deputy governor of the Bank of Canada, recently said weak business investment is contributing to Canada’s weak growth in productivity (essentially the value of economic output per hour of work). Therefore, business investment to promote productivity growth and income growth for workers is also an economic priority.
But here’s the problem. There’s only so much financial capital at reasonable interest rates to go around.
Because Canada is a small open economy, it might seem that Canadian investors have unlimited access to offshore financial capital, but this is not true. Foreign lenders and investors incur foreign exchange risk when investing in Canadian-dollar denominated assets, and the risk that Canadian asset values will decline in real value. Suppliers of financial capital expect to receive higher yields on their investments for taking on more risk. Hence, investment in residential housing (which the Trudeau government wants to promote) and investment in business assets (which the Bank of Canada warns is weak) compete against each other for scarce financial capital supplied by both domestic and foreign savers.
For perspective, investment in residential housing as a share of total investment increased from 22.4 per cent in 2000 to 41.3 per cent in 2021. Over the same period, investment in two asset categories critical to improving productivity—information and communications equipment and intellectual property products including computer software—decreased from 30.3 per cent of total domestic investment in 2000 to 22.7 per cent in 2021.
What are the potential solutions?
Of course, more financial capital might be available at existing interest rates for domestic investment in residential housing and productivity-enhancing business assets if investment growth declines in other asset categories such as transportation, roads and hospitals. But these assets also contribute to improved productivity and living standards.
Regulatory and legal pressures on Canadian pension funds to invest more in Canada and less abroad would also free up domestic savings for increased investments in residential housing, machinery and equipment and intellectual property products. But this amounts to an implicit tax on Canadians with domestic pension fund holdings to subsidize other investors.
Alternatively, to increase domestic savings, governments in Canada could increase consumption taxes (e.g. sales taxes) while reducing or even eliminating capital gains taxes, which reduce the after-tax expected returns to investing in businesses, particularly riskier new and emerging domestic companies. (Although according to the recent federal budget, the Trudeau government plans to increase capital gains taxes.)
Or governments could reduce the regulatory burden on private-sector businesses, especially small and medium-sized enterprises, so financial capital and other inputs used to comply with often duplicative or excessive regulation can be used to invest in productivity-enhancing assets. And governments could eliminate restrictions on foreign investment in large parts of the Canadian economy including telecommunications, banking and transportation. By increasing competition, governments can improve productivity.
Eliminating such restrictions would also arguably increase the supply of foreign financial capital flowing into Canada to the extent that large foreign investors would prefer to manage their Canadian assets rather than take portfolio investment positions in Canadian-owned companies.
Canadians would undoubtedly benefit from increases in housing construction (and subsequently, increased affordability) and improved productivity from increased business investment. However, government subsidies to home builders, including the billions recently announced by the Trudeau government, simply move available domestic savings from one set of investments to another. The policy goal should be to increase the availability of risk-taking financial capital so the costs of capital decrease for Canadian investors.
Author:
-
Addictions1 day ago
City of Toronto asks Trudeau gov’t to decriminalize hard drugs despite policy’s failure in BC
-
Great Reset2 days ago
Middle school girls who refused to compete against male banned from next track meet
-
COVID-192 days ago
Canada’s COVID vaccine injury program has paid out just 6% of claims so far
-
Business1 day ago
When politicians gamble, taxpayers lose
-
Automotive1 day ago
Vehicle monitoring software could soon use ‘kill switch’ under the guise of ‘safety’
-
Alberta19 hours ago
Alberta government should eliminate corporate welfare to generate benefits for Albertans
-
International2 days ago
U.S. birth rate hit record low last year, signaling surge in childlessness
-
Environment2 days ago
Climate Alarmists Want To Fight The Sun. What Could Possibly Go Wrong?