According to a recent study published by the Fraser Institute, federal, provincial and local governments in Canada spent $352.1 billion (inflation-adjusted) subsidizing firms from 2007 to 2019—more than was spent on national defence over the same period. This corporate welfare, which does little if anything to stimulate widespread economic growth, came with huge costs to government budgets and Canadian taxpayers.
This total corporate welfare price tag—which included $76.7 billion in federal subsidies, $223.3 billion in provincial subsidies and $52.1 billion in local subsidies—reflects unrequited government transfers to businesses but excludes other forms of government support such as loan guarantees, direct investment and regulatory privileges for particular firms or industries. So the actual level of corporate welfare during this 13-year period was much higher.
Of course, taxpayers ultimately bear the cost of government spending on corporate welfare. For Canadians who filed taxes from 2007 and 2019 (the latest year of available pre-COVID data), the cost per tax filer ranged from a high of $18,785 in Saskatchewan to a low of $6,048 in New Brunswick. The three largest provinces were big spenders, with corporate welfare costing $18,334 per tax filer in Quebec, $13,285 in Alberta and $12,627 in Ontario. That’s a significant amount of taxpayer money unavailable for other priorities.
Such spending might be justified if it led to widespread economic benefits. However, there’s little evidence that business subsidies generate widespread economic growth and/or job creation.
In fact, research suggests that business subsidies may actually hurt the economy as the government’s interference in the market ultimately distorts private decision-making and misallocates resources. When the government attempts to select winners and losers in the economy, it often makes the economy less efficient than if those decisions were left to individuals. Indeed, the better option is to let Canadians make their own decisions about where to spend their money and subsequently determine what businesses will succeed.
Government should, however, play a role. But instead of giving preferential treatment to select firms and industries, it should help foster a pro-growth environment that gives all businesses the opportunity to thrive by reducing business income tax rates.
The same study found that government spending on corporate welfare represents a significant share of business income tax revenues. For instance, Quebec and Manitoba spent roughly the same amount of money on business subsidies as they collected in business income tax revenues from 2007 to 2019. In other words, the provincial government could have effectively eliminated provincial business income taxes if it had ended provincial corporate welfare.
Similarly, business subsidies represented roughly half of all business income tax revenue (on average) in Ontario and roughly one-third (on average) in Alberta. That’s money could have been used to broadly reduce business income taxes, which would stimulate investment, job creation and economic growth.
Clearly, business subsidies (a.k.a. corporate welfare) come with significant costs to Canadian taxpayers and government budgets. Because these subsidies do not produce the broad economic benefits that advocates claim, governments should rein in this spending and focus on pro-growth tax reductions.
Tegan Hill and Joel Emes are economists with the Fraser Institute.