Is it still relevant, necessary or even effective to grant subsidies to companies so that they carry out investment projects? According to the Fraser Institute, of libertarian allegiance, it would have been more advantageous for the Government of Quebec to eliminate corporate income tax rather than to continue to grant them subsidies as it did during the period from 2007 to 2019.
In a study released on Tuesday, the Fraser Institute, a Vancouver-based public policy research institute with offices in Calgary, Toronto and Montreal, revisits a topic quite popular with advocates of laissez-faire economics: business subsidies, their cost and their impact on economic activity.
The study, which covers all subsidies provided to businesses in Canada by all levels of government – federal, provincial and local – for the period from 2007 to 2019, just before the widespread financial assistance that was provided during the pandemic, tells us that government spending totaled $352 billion. A sum adjusted for inflation.
During this 13-year period, federal grants amounted to $76.7 billion, provincial government grants $223.3 billion and local government grants $52.1 billion.
To properly assess the relevance of these subsidies and measure their relative weight in relation to the revenues that governments obtained from corporate income tax, researchers at the Fraser Institute established the comparison by province.
Prince Edward Island has the highest level of provincial grants relative to the province’s corporate income tax revenue, at a ratio of 162.9%, c That is, for every tax dollar collected, Prince Edward Island spent $1.60 on grants.
As you would expect, Quebec ranks second among the Canadian provinces with the highest spending on subsidies in relation to revenues collected from corporate income tax.
From 2007 to 2019, the Quebec government made $79.6 billion in business subsidy expenditures, which means that subsidies represented 100.9% of annual corporate income tax revenues, just above Manitoba, which has a score of 97.6%.
“In Quebec and Manitoba, the provincial government could have effectively eliminated all provincial corporate income taxes over the period if it had also ended provincial business subsidies,” the Fraser Institute points out in its study. .
Business social assistance
The Fraser Institute, which refers to government subsidies to businesses as “corporate welfare,” concludes that taxpayers ultimately bear the fiscal cost of business subsidies.
It should be noted here that subsidy expenditures do not take into account other support provided by governments, be it tax credits, loan guarantees, direct investments as Quebec has done, for example, by taking a equity stake in the Airbus A220 program or when it buys shares in a mining company like Stornoway.
Adding together grants from all levels of government, the Fraser Institute calculates that Saskatchewan had the highest cost of total grants per taxpayer who paid tax, reaching $18,785 over the period. 13 years old.
Here again, Quebec ranks second in Canada when a tax filer paid $18,344 for business subsidies granted by all levels of government in Quebec, which includes federal and municipal subsidies.
It is well understood that subsidy programs are not at zero cost and that governments must finance them from the revenues at their disposal.
But when we look at the cost of business subsidy expenditures in Quebec, we see that they have remained more or less stable, hovering around $6 billion per year since 2007 before suddenly reaching a peak of $7.2 billion. billion in 2019.
It is not by abolishing the corporate income tax that companies in difficulty, starting up or in transformation – whether digital, energy, ecological – will start investing more.
Help from the state is often the trigger that will allow a project to be carried out, and the government must also have levers to be able to ensure the best possible balance of economic development for all regions.
And it’s only natural for a company that makes billions in annual revenue to pay its fair share of taxes, despite the many tax advantages it may enjoy.
Removing business subsidies to allow successful businesses to stop paying taxes is a simplistic, if not reductive, way of looking at the economy. Especially at a time when all efforts must be mobilized to achieve the ecological transition.