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Honda deal latest episode of corporate welfare in Ontario

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4 minute read

From the Fraser Institute

By Jake Fuss and Tegan Hill

If Honda, Volkswagen and Stellantis are unwilling to build their EV battery plants in Ontario without corporate welfare, that sends a strong signal that those projects make little economic sense.

On Thursday, the Trudeau and Ford governments announced they will dole out an estimated $5 billion in corporate welfare to Honda so the auto giant can build an electric vehicle (EV) battery plant and manufacture EVs in Ontario. This is the third such deal in Ontario, following similar corporate welfare handouts to Volkswagen ($13.2 billion) and Stellantis ($15.0 billion). Like the previous two deals, the Honda deal comes at a significant cost to taxpayers and will almost certainly fail to create widespread economic benefits for Ontarians.

The Trudeau and Ford governments finalized the Honda deal after more than a year of negotiations, with both governments promising direct incentives and tax credits. Of course, this isn’t free money. Taxpayers in Ontario and the rest of Canada will pay for this corporate welfare through their taxes.

Unfortunately, corporate welfare is nothing new. Governments in Canada have a long history of picking their favoured firms or industries and using a wide range of subsidies and other incentives to benefit those firms or industries selected for preferential treatment.

According to a recent study, the federal government spent $84.6 billion (adjusted for inflation) on business subsidies from 2007 to 2019 (the last pre-COVID year). Over the same period, provincial and local governments spent another $302.9 billion on business subsidies for their favoured firms and industries. (Notably, the study excludes other forms of government support such as loan guarantees, direct investments and regulatory privileges, so the total cost of corporate welfare during this period is actually much higher.)

Of course, when announcing the Honda deal, the Trudeau and Ford governments attempted to sell this latest example of corporate welfare as a way to create jobs. In reality, however, there’s little to no empirical evidence that corporate welfare creates jobs (on net) or produces widespread economic benefits.

Instead, these governments are simply picking winners and losers, shifting jobs and investment away from other firms and industries and circumventing the preferences of consumers and investors. If Honda, Volkswagen and Stellantis are unwilling to build their EV battery plants in Ontario without corporate welfare, that sends a strong signal that those projects make little economic sense.

Unfortunately, the Trudeau and Ford governments believe they know better than investors and entrepreneurs, so they’re using taxpayer money to allocate scarce resources—including labour—to their favoured projects and industries. Again, corporate welfare actually hinders economic growth, which Ontario and Canada desperately need, and often fails to produce jobs that would not otherwise have been created, while also requiring financial support from taxpayers.

It’s only a matter of time before other automakers ask for similar handouts from Ontario and the federal government. Indeed, after Volkswagen secured billions in federal subsidies, Stellantis stopped construction of an EV battery plant in Windsor until it received similar subsidies from the Trudeau government. Call it copycat corporate welfare.

Government handouts to corporations do not pave the path to economic success in Canada. To help foster widespread prosperity, governments should help create an environment where all businesses can succeed, rather than picking winners and losers on the backs of taxpayers.

Automotive

Government subsidies cost more than EV capital investments

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From the Canadian Taxpayers Federation

Author: Franco Terrazzano

The Canadian Taxpayers Federation is calling for an end to corporate welfare following today’s Parliamentary Budget Officer report showing government subsidies are 14 per cent more than the capital investments corporations are making in the electric-vehicle supply chain.

“Putting taxpayers on the hook for more money than these corporations are spending to build their own factories is an awful deal for ordinary Canadians,” said Franco Terrazzano, CTF Federal Director. “Taxpayers are being taken to the cleaners with this EV corporate welfare.”

The PBO released a report regarding recent government subsidies for EV factories.

“For the $46.1 billion in investments (capital expenses) across the EV supply chain, PBO estimates total corresponding government support (for capital and operating expenses) to be up to $52.5 billion, which is $6.3 billion (14 per cent) higher than announced investments,” according to the PBO report.

Of the $52.5 billion in taxpayer subsidies, the PBO estimates $31.4 billion is coming from the federal government and $21.1 billion is coming from provincial governments.

“These lopsided numbers show that these corporate handouts are nothing more than a vanity project for politicians,” said Jay Goldberg, CTF Ontario Director. “If these politicians want to grow the economy, they should cut taxes and red tape rather than make bad bets with taxpayers’ money.”

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Alberta

Alberta gets credit boost because of budget discipline

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News release from the Canadian Taxpayers Federation

Author: Kris Sim

“bringing net adjusted debt to an estimated CAD 57.5 billion in fiscal 2024 (ended on March 31) from CAD 74.6 billion in fiscal 2022”

The Canadian Taxpayers Federation is applauding the Alberta government for its fiscal discipline which earned the province a boost in its credit rating.

“Alberta is one of the only provinces in Canada with a balanced budget, and it shows with this credit upgrade,” said Kris Sims, CTF Alberta Director. “Paying down the debt, restraining spending and saving for the future were very good moves by this government.”

In its most recent budget, Alberta reported a $367-million surplus. That stands in contrast to neighbouring Saskatchewan’s $273-million deficit and British Columbia’s record-breaking $7.9-billion deficit.

The rating agency, Fitch, upgraded Alberta’s credit from AA- to AA this week, highlighting its debt repayment as a key reason for the improvement.

“Alberta used its recent economic rebound to accelerate fiscal improvements and lower its debt, bringing net adjusted debt to an estimated CAD 57.5 billion in fiscal 2024 (ended on March 31) from CAD 74.6 billion in fiscal 2022,” the Fitch report reads.

The agency also cited Alberta’s spending restraint as a reason for the positive outlook.

“The rapid decline in debt and adherence to spending restraint in recent budgets have been complement with last year’s introduction of a fiscal framework requiring balanced budgets, annual contingencies and using surpluses for debt repayment, savings or one-time investment, is likely to bolster future resilience,” the Fitch report reads.

Interest charges on the province’s debt are estimated to cost taxpayers $3.3 billion this year.

“Credit ratings matter because Albertans pay billions of dollars on interest payments on the debt every year, better credit ratings make it less expensive to pay for that debt, and the less money we waste to pay debt interest charges the better,” said Sims.

 

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