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January 10, 2007

On the Dole: Businesses, Lobbyists, and Industry Canada’s Subsidy Programs

Corporate Welfare Continues to Fleece Taxpayers

- $18.4-billion in handouts given to businesses in 47,960 payments over 23 years.

- Only $1.25-billion or less than 7% has been repaid to federal government.

- By ending the subsidy game Ottawa could reduce business tax burden.

OTTAWA – The Canadian Taxpayers Federation (CTF) today released a report, entitled On the Dole: Businesses, Lobbyists, and Industry Canada’s Subsidy Programs, that details $18.4-billion in federal government handouts to businesses, associations and foundations for the period covering April 1, 1982, to March 31, 2006. It examines only tax money authorized through the federal industry department. It does not include subsidies from other departments, the three primary federal regional development agencies (Atlantic Canada Opportunities Agency, Canada Economic Development – Quebec, and Western Economic Diversification) or similar programs funded by other levels of government. The information was compiled through freedom of information requests made to Industry Canada.

“Corporate welfare programs are a sinkhole for tax dollars. Handouts serve neither businesses nor taxpayers and should be scrapped. Since 1982, billions have been given away or loaned yet repayments are paltry and many of the top recipients have taken up permanent residence at the trough,” stated CTF federal director John Williamson. “High taxes fund subsidy programs that benefit a minority of companies. If the department of industry was overhauled Ottawa could cut its corporate tax cut rate by 2 or even 3 percentage points. Such a change would benefit all businesses, improve Canada’s international competitiveness and be advantageous to consumers, workers and investors.”

The 30-page report can be viewed at: http://www.taxpayer.com/pdf/2007_corporate_welfare_report.pdf

The 809-page subsidy appendix can be viewed at: http://www.taxpayer.com/pdf/subsidies.pdf

Findings from On the Dole: Businesses, Lobbyists, and Industry Canada’s Subsidy Programs:


- Between fiscal years 1982 and 2005, $18.4-billion of assistance was authorized through 47,960 separate grants, contributions, loans, interest contributions and loan guarantees from 150 different programs. Of the total, $7.1-billion is considered repayable funding yet only $1.25-billion or 17.6% of that amount has been repaid. All said, less than 7% of the total subsidy portfolio has been recouped by Ottawa;

- Technology Partnerships Canada (TPC), which is Ottawa’s flagship corporate welfare program, has authorized $3-billion since its inception in 1996 and recovered only $169-million. This is a repayment record of less than 6%. Taxpayers were originally told every TPC investment dollar would return $1.74 in repayments from businesses;

- The Top 50 subsidy recipients have received a third of all money authorized or $5.9-billion;

- The Top 3 recipients have secured $2.6-billion in federal handouts. They are Pratt & Whitney ($1.5-billion authorized plus another $350-milion announced in Dec. 2006 that is not included in this report), Bombardier ($745-million authorized plus another $350-million announced in Nov. 2006), and General Motors Canada ($360-million); and

- Industry Canada has 2,234 lobbyist registrations and is the most lobbied department in Ottawa.

Rule-Breaking & the Transparency Deficit –

One characteristic of the subsidy game is rule-bending and rule-breaking. Audits have revealed companies routinely paid forbidden “success fees” to lobbyists in exchange for securing subsidy handouts. In addition to paying prohibited fees, audits have found lobbyists have neglected to register, which is another violation of transparency and accountability rules.

Another concern to taxpayers is the lengths politicians and bureaucrats will go to avoid checks and balances when doling out tax dollars. A glaring example of this is the fact that nearly 10% of all authorized monies under TPC are just below the $10-million mark, the level at which Treasury Board approval is not required. “Without as many checks and balances, the money flows quicker, albeit by smaller amounts, and there is less scrutiny,” said Williamson. “This makes it easier for industry officials to funnel tax dollars from government coffers to recipients’ bank accounts.”

Moreover, politicians make multi-million dollar spending announcements without first receiving approval from the Treasury Board. “This is another example of how politicians use corporate welfare as a means to buy votes in advance of an election,” stated Mr. Williamson. “It should be outlawed.”

The Conservative Government & Corporate Welfare –

The Conservative government has sent mixed messages on corporate welfare since coming to office. “While progress has been made regarding releasing TPC repayment data, the government has breathed new life into TPC and continues to make new announcements,” stated Mr. Williamson.

In opposition, Stephen Harper criticized the practice of corporate welfare saying Ottawa should “get out of the grants and subsidies game.” In 2004, he vowed to cut business subsidies and use the savings to lower business taxes. “We will only reduce business and corporate taxes further to the extent that we can reduce corporate welfare over the next term,” he told the Toronto Board of Trade. Williamson noted, “This is the right policy. Business leaders should be forced to choose between lower taxes or subsidy programs.”

A Better Way, Lower Taxes for All –

A 2005 C.D. Howe Institute study ranked Canada a dismal 30th among 36 industrialized countries in terms of combined average federal-provincial corporate income tax rates. The report also found Canada had the second highest marginal tax rate on capital. The only higher-tax jurisdiction was communist China.

“By getting out of the subsidy and regional development business, Ottawa could reduce the corporate tax burden. Savings of $2- to $4-billion could be realized annually if Ottawa recognized that corporate welfare was not a suitable role for the government,” concluded Williamson. “Ottawa’s general corporate income tax burden, which is 21%, could be reduced by 2 or even 3 percentage points. This tax reduction will benefit all companies, our domestic economy, and improve Canada’s international competitiveness.”

John Williamson
Federal Director
Canadian Taxpayers Federation

Posted by John Williamson, Canadian Taxpayers Federation [permalink]

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