The problem with ACOA-style corporate welfare

According to ACOA, three businesses owned by brothers of Charlottetown Liberal MP Shawn Murphy's were awarded a total of $1,825,797 in grants (nearly all in "repayable contributions") during the 10-year period of 1995-2005. Although only $452,679 of this amount was handed out while Shawn was in office, all of it occurred during federal Liberal rule:

Client Name / Project Description	Project Location	Total Government Funding	Public Access Date
K.W. Murphy Inc. Install elevator and ramps to improve accessibility	CHARLOTTETOWN	$96,014	2003-05-16
K.W. MURPHY LTD. Modernization of 73 unit Wandlyn Inn	QUEENS ROYALTY	$497,518	1997-06-16
K.W. Murphy Ltd. Property Management System consultation upgrade & training	CHARLOTTETOWN	$63,137	2004-06-07

Client Name / Project Description	Project Location	Total Government Funding	Public Access Date
Murphy Investments Ltd. Brewery	CHARLOTTETOWN	$98,000	2000-05-01
Murphy Investments Ltd. Gahan House Brewery Expansion	CHARLOTTETOWN	$14,561	2002-07-07

Client Name / Project Description	Project Location	Total Government Funding	Public Access Date
Great George Properties LTD. Upgrade furnishings and decor of inn.	CHARLOTTETOWN	$17,600	1995-04-14
Great George Properties LTD. Convert Gt George Prop to sole use Heritage Inn accommod	CHARLOTTETOWN	$760,000	1996-10-14
Great George Properties Ltd. Upgrade telephone internet voice mail and reservation sys.	CHARLOTTETOWN	$19,756	2003-06-01
Great George Properties Ltd. Upgrade from 3 to 3½ star	CHARLOTTETOWN	$152,001	2004-07-17
Great George Properties Ltd. Upgrade existing rooms for new rating guidelines	CHARLOTTETOWN	$107,210	2005-07-05

Now it can certainly be argued that businesses seeking to optimize their bottom lines, as the Murphy brothers most certainly were, would be foolish to go to a bank for traditional financing when the ACOA office down the street offered nice risk-free grants** instead. However, this misses the larger point of whether or not businesses - especially successful businesses like those owned by the Murphy's - need corporate welfare in the first place. (Not to mention the sticky issue of public perception when recipients are well-connected.) As author and policy analyst Mark Milke has written:

The problem with corporate welfare is that it is largely about winning votes and the redistribution of tax dollars and jobs, not about the creation of new tax revenue or new jobs.

For example, back in 1995, the Auditor-General highlighted a fish-processing plant in Quebec that was awarded a $2.2-million grant to finance construction of the facility; the claim was that 250 jobs were created. But, as the Auditor-General noted, another fish-processing plant soon shut down, with an equivalent number of jobs lost. This pattern repeats itself whether the enterprise in question is down the street or across provincial and national borders: One firm is subsidized at the expense of others.

For those who think such subsidies are smart national policy because an occasional subsidy may prove the exception to the rule of useless redistribution, they should recall that, according to the latest estimates available from the World Trade Organization, more than $300-billion is spent on business subsidies by governments across the world every year. Given that Canada is heavily dependent on trade, it is in our interest to work against subsidies at home and abroad, precisely because other jurisdictions, such as the United States, the European Union or China, can out-subsidize us in any sector.

In addition, rather than pick winners and losers among individual businesses or industries, Canadian governments could end corporate welfare, level the playing field and dramatically reduce corporate taxes with the amount now spent on subsidies.

For example, if the federal government had ended corporate welfare in 2004, calculated to have cost $6.6-billion that year, Ottawa could have reduced the federal corporate tax rate to 14.6% from its then-current rate of 21%. In other words, the elimination of federal corporate subsidies could have resulted in a 30.5% reduction in federal corporate income tax rates. An end to provincial and municipal corporate welfare would produce similar dramatic reductions.

Back in 2004, then opposition leader Stephen Harper said he would only cut corporate taxes to the extent that corporate welfare was reduced. Such a reduction was clearly his preference. It's why he argued that "government should concentrate on creating a favourable tax environment, rather than try and pick winners and losers."

Current corporate-welfare recipients would no doubt fight hard to keep their taxpayer-financed flow of funds [now that's an understatement, as Harper well knows], but the Prime Minister and the business community at large should ignore them. They should instead reach a deal on corporate welfare in the interests of the wider business community: slashed corporate tax rates in exchange for an end to corporate welfare. [source]

Of course, an end to corporate welfare would also mean an end to speculation about the role of family and political connections in getting a place at the trough in the first place.

Related: KPMG's 2008 survey of business tax rates

** Repayable loan programs at ACOA

• Total expenditures on repayable loan programs at the Atlantic Canada Opportunity Agency (ACOA) amounted to $975,282,851 between 1995/96 and 2005/06. ACOA has recouped $356,445,186 or 36.5% of its repayable loan programs. The net amount outstanding is $618,837,665 or 63.5% of its total expenditures.
• A conservative estimate of the opportunity cost of ACOA’s net expenditures is $213.9 million as of March 31, 2006. [Corporate Welfare: A $144 billion addiction]