Don Drummond’s call for Ontario to kill off its hodgepodge of business support programs and design a new system from scratch is triggering a backlash from industries likely to lose out, and setting the stage for a battle over government handouts.
While much of Mr. Drummond’s report focused on big-ticket areas of spending such as education and health care, he also made strong recommendations for wholesale changes to the province’s business programs, saying they are fragmented and lack clear and coherent objectives.
The best way to deal with them is to start over, he said, ending all existing direct subsidies by the end of next March and phasing out all refundable tax credits at the same time. These should be replaced with a new, co-ordinated approach that focuses on innovation, productivity and training. All supports should end after four years, then be renewed only if they are working, the report recommended.
Last year, the provincial government spent about $1.3-billion in direct help to business through 44 programs, the report said. Another $2.3-billion went to companies indirectly, mainly through the tax system. Most of these tax programs were launched before overall corporate tax rates were cut significantly.
The prospect of a swift end to government supports has galvanized some industries.
In the mining sector, tax credits were designed to encourage investment when corporate tax rates were high, but that is no longer the case, Mr. Drummond’s report said, so the resource tax credit should be eliminated. But Greg Rieveley, chief financial officer of exploration firm Noront Resources Ltd., said tax credits are key to keeping the industry healthy and getting new investments. “As a commodity-driven economy, [Ontario is]always competing with other countries for exploration dollars,” he said.
Another of the direct supports singled out in the Drummond report is the Risk Management Program, which is essentially a shared-cost insurance system for farmers, to ensure they have stable incomes. The program, which cost about $145-million in 2010-11, provides farmers with “no incentive to increase efficiency or expand markets,” the report says.
Ontario Federation of Agriculture president Mark Wales, however, says Mr. Drummond clearly doesn’t understand the program because it “does work and does help drive innovation.” If farmers have stable prices, they have the confidence to plan ahead, make investments and become more innovative, he said.
And the suggestion that Ontario cut its tax support for horse racing and eliminate the sharing of slot machine revenue drew howls of outrage from the racing industry.
The Ontario Harness Horse Association said tens of thousands of jobs could be at risk, and the Ontario Horse Racing Industry Association urged participants to lobby the government to keep the status quo.
Some of the supports Mr. Drummond included in his hit list clearly have a political component that the government itself would be loath to drop. The largest direct support is the $300-million business portion of the “clean-energy benefit” that goes to consumers and companies to offset higher power costs caused by investments in renewable electricity. It is designed to ensure the province retains support for its overall green energy policy.
Still, some executives in knowledge-based industries agree with Mr. Drummond’s view that a wholesale revamp of business programs is needed. David MacDonald, CEO of technology services firm Softchoice Corp., said there has been a bias in past government support programs toward traditional manufacturing, and said that needs to end. “We’ve got to get more productive and innovative, and that is not going to come from the old industries,” he said, endorsing the Drummond approach.
Ian Howcroft, Ontario vice-president of Canadian Manufacturers & Exporters, said the overall themes in Mr. Drummond’s report make sense, even if the idea of starting from scratch may be a bit too extreme.
“We have probably not got full value from many of the subsidies that we had,” he said. “I wouldn’t say that we should get rid of all of them [but]we should do an analysis and see where we can get more value. Where we are not getting value, we should do things differently.”
Mr. Howcroft said he also agrees with Mr. Drummond that the province should look at its supports “through a lens of productivity.” Rather than designing a program to create jobs, he said, “you should make it to enhance and build productivity, and the result of that can be to create jobs.”