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Impala models on the line at the General Motors Oshawa assembly plant Aug 28, 2013. (Moe Doiron/The Globe and Mail)
Impala models on the line at the General Motors Oshawa assembly plant Aug 28, 2013. (Moe Doiron/The Globe and Mail)


Ending auto subsidies would be a dream, not a nightmare Add to ...

Mark Milke is a Calgary writer and keynote speaker. He is the author of multiple reports on the economics of government subsidies to business.

When unions gear up for contract talks, they have a habit of signalling their requests for future government subsidies, as if taxpayers are to be dragged into corporation-labour disputes with an open chequebook.

The latest example arrived last week in a study sponsored by the auto workers’ union, Unifor. It posits a nightmare scenario where if the Detroit Three left Canada, the result would be billions in lost tax revenues and 150,000 jobs lost.

That includes not only direct losses at General Motors, Ford, Fiat-Chrysler and their dealerships (which collectively employ 23,000, 23,500 and 11,335 people respectively – or 57,835 jobs) but also estimates of related job losses after using multipliers which some economists like to calculate.

Granted, there are spinoffs from the Detroit Three work, which is how number crunchers can arrive at scarier, higher figures – but that’s true of any sector, from tourism to high tech. It’s unclear why Unifor would cry wolf about the potential exit of three auto makers, except as an excuse to approach governments for another subsidy.

In advance, Unifor president Jerry Dias seems to be trying to blunt potential criticism of any future demand for more public money. Last week, explaining the rationale for the Unifor-financed study, Mr. Dias said it was about “people understanding” and not continually asking “why would the government give them $1-billion.”

Would that taxpayers were only out $1-billion in subsidies to the automotive sector over the decades. Consider the final numbers for just the 2009 bailout of Chrysler and General Motors. The public lost a net $3.7-billion (just under $900-million to Chrysler and $2.8-billion to General Motors).

What did that mean for individual taxpayers? In 2009, 3.4 million Canadians with taxable incomes of less than $25,000 paid $3.2-billion in federal and provincial income tax. All of that, plus another $500-million from everyone else, was needed to pay for that subsidy.

That $3.7-billion hit doesn’t include the continuing subsidies to the automotive sector over a few decades from the federal and Ontario governments.

Between 2003 and 2008 alone, Ontario and federal governments gave $1.5-billion to a variety of auto makers (not just the Detroit Three), some of it theoretically repayable and some of it straight grant money. More recent examples include $142-million to Ford in 2013 and $101-million to Toyota in 2015 from the Ontario and federal governments.

The federal and Ontario governments have mostly run deficits since 2008. That means any corporate welfare for the automotive sector, or any other business pilfering from the public purse, comes from borrowed money on which taxpayers must pay interest.

To someone in Alberta or Saskatchewan, Unifor’s scary numbers are all too familiar, because they’re already reality out West.

Compare the spiking unemployment numbers in Alberta and Saskatchewan over the past two years (July, 2016, versus July, 2014). The number of unemployed in Saskatchewan rose by 19,300 while Alberta’s total soared by 98,300. In just those two provinces, 117,600 more people are now out of work.

One response to this might be that such numbers demonstrate why government “support” for an “industrial strategy,” as some like to call it, is needed.

Actually, no – not for Western energy firms and not for Central Canadian manufacturing.

Other than short-term gaming of location decisions, corporate welfare to any business or sector merely recycles taxpayer cash from profitable businesses and sectors to political favourites. It does not create new jobs or tax revenues.

That conclusion arrives courtesy of the world’s foremost expert on subsidies, Prof. Terry Buss, formerly with the World Bank and now teaching in Australia.

In his most comprehensive analysis, Prof. Buss found that most studies purporting to find positive economic effects from corporate welfare were usually industry-sponsored. That means they were almost never peer-reviewed and thus lacked scientific rigour. He noted how that led to correlation-causation errors, including predictable faulty claims about investment, employment and tax revenues.

But governments could still help Canadian business. For example, Ontario could help its manufacturing sector by not loading up businesses and consumers with skyrocketing power bills courtesy of flawed policy. The federal government could help energy-producing provinces by approving a pipeline or three (Energy East, Northern Gateway, and Trans Mountain).

And worldwide, the greater public good could be served if governments signed tougher free-trade agreements to ban taxpayer-financed business subsidies. They are simply too costly.

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