Canadian Taxpayers Federation
The government’s economic strategy under the New Democrats has been a simple one: increase taxes on Albertans and then line the pockets of select businesses.
More than three years ago, the government’s own civil service experts raised serious warnings about spending hundreds of millions of dollars on corporate welfare in a briefing note, obtained by the Canadian Taxpayers Federation.
“Given the current challenging fiscal situation and the lack of economic merit to support the program, there are significant risks and costs associated with this proposal,” states the briefing note written for Finance Minister Joe Ceci, dated Nov. 18, 2015.
“It would be questionable to introduce subsidies to the petrochemical industry at this point.
“There is no guarantee that the incentive program will actually lead to additional investment and could benefit projects that would have gone ahead regardless of the incentives.
“The proposed program could induce other companies or industries to demand tailored support programs from Government in the future.”
From a lack of economic merit, to financial challenges and the risk of encouraging more businesses to seek handouts, the leaked briefing note outlined multiple reasons why the government should not subsidize the petrochemical industry. Nevertheless, the government ignored the advice and has since announced $1.1 billion worth of royalty credits through the Petrochemical Diversification Program.
Another $1 billion has been earmarked for bitumen upgraders.
While it may sound appealing to “refine it where you mine it,” there are economic reasons that explain why businesses have been unwilling to risk their own money building facilities. These reasons include distance to large markets and waterways, the fact that Canadians already export more refined products than we import, current refineries aren’t at full capacity and it can be an expensive but-no-so lucrative undertaking.
This seems destined to became part of a disastrous pattern. If we can take one lesson from history and economics, it’s this: relying on government to pick winners and losers doesn’t work. Alberta has provided too many examples.
Government-supported projects have run into serious problems. The North West Upgrader has placed significant risk on taxpayers. The Lloydminster Bi-Provincial Upgrader cost Albertans hundreds of millions of dollars.
In reference to the Lloydminster debacle, then-premier Ralph Klein remarked, “I guess the one saving grace is that we were probably all stupid together.”
Both projects fit the general rule that taxpayers get burned when governments disguise corporate welfare as economic development.
Long-term experience teaches the same lesson. Between 1973 and 1993, the Lougheed-Getty economic diversification projects cost taxpayers over $2 billion.
And we can’t talk about corporate welfare without mentioning the Alberta government’s recent “historic rail deal” to lease 4,400 cars for $3.7 billion. Even if we didn’t consider the massive price tag and the fiscal mess the province is already in, this is a clear example of government risking taxpayer money on what should be a purely business venture.
“There’s no reason why private sector companies couldn’t have done this on their own — and, in fact, they have been doing it on their own,” said Robert Cooper of Acumen Capital Partners. “What the government has basically done is bolster CN and CP’s oil-by-rail profits for the next three years.”
In what has been a reverse Robin Hood scenario, the provincial government has hammered Albertans with higher taxes along with growing debt and is handing out the proceeds to select businesses.
Here’s the most frustrating part: governments know better. They know previous governments have blown billions in taxpayers’ money on bad business bets. This NDP government knew its tax-and-subsidize strategy was bad because its own economic experts provided detailed warnings more than three years ago. Taxpayers deserve a concrete commitment from politicians that the corporate welfare will end now.