Business Subsidies in Canada Comprehensive Estimates for the Government of Canada  and the Four Largest Provinces
Creators: name: Lester, John
Publisher: name: The School of Public Policy Publications
Year: 2018

description: Governments provide support to business through spending programs, through the tax system, through direct investment and through the activities of government business enterprises. This paper presents the first comprehensive estimates of business subsidies for the federal government and the four largest provinces – British Columbia (BC), Alberta, Ontario and Québec. The paper provides a snap-shot of overall business subsidies in 2014-15, the latest year for which data are available for all five jurisdictions. A ten-year perspective is provided for all jurisdictions except Alberta, which began publishing tax expenditure estimates in 2013.

Federal government business subsidies amounted to $15.5 billion in 2014-15, or $915 per person. Business subsidies amounted to $14.6 billion in the four provinces. Per capita subsidies were largest in Alberta at $640 and lowest in BC at $390. The tax system is by far the preferred delivery vehicle in all jurisdictions except Québec, accounting for about half to two-thirds of overall subsidies. Subsidies are highly concentrated by sector in all jurisdictions except Québec. Outside of Québec, small business accounts for about 40 to 60% of business subsidies. Recent announcements suggest that the level of business subsidies will remain relatively stable in the near term in BC and Québec. Small increases are likely in Ontario and at the federal level. Announced increases in Alberta are more substantial, particularly when measured on an accrual basis.

Over the ten-year period ending in 2014-15, federal real per capita subsidies rose substantially during the economic downturn but were trimmed sharply thereafter. The net change over the period was an increase of six per cent. Subsidies in Québec had a similar profile, but the increase was more substantial and the reduction more subdued. The net increase over the period was 25 per cent. Real per capita subsidies in Ontario were on an upward trend until 2012-13; small reductions in the following two years resulted in a net increase of 43% over the ten-year period. In BC, there was a sharp downward correction to business subsidies in 2006-07, but this was almost completely offset by increases over the three years ending in 2014-15.

Governments provide business subsidies for a number of reasons, including to address market failures, to promote high-wage, high-productivity industries and to transfer income. Measures in the first two categories have the potential to improve economic performance, with the impact depending on the relative size of the benefits and the costs of providing assistance. About 70% of business subsidies fall in these two categories. Benefit-cost analyses of key programs suggest that, at best, only 30% of spending in these categories, or about 20% of overall subsidies, succeeds in raising real income.

A general issue is that governments should be more transparent in reporting business subsidies. Québec and the federal government provide the most useful information on subsidies. Both of these governments classify program spending subsidies by recipient class: businesses, individuals, non-profits and other levels of government. Québec takes the additional step of identifying subsidies received by business both directly and indirectly through other levels of government and non-profit organizations. This approach should be adopted by other jurisdictions. On the other hand, Québec makes extensive use of special funds, most of which provide only minimal detail on revenues and expenditures. It is therefore difficult to identify the beneficiaries of their spending. The federal government and Québec both publish comprehensive documentation of tax expenditures. Québec presents estimates for all tax bases while the federal estimates do not include excise taxes, a deficiency that should be remedied. The federal estimates are available in digital format for an extended historical period, which is an example for other jurisdictions to follow.

Subsidies delivered through spending programs are reasonably well documented in BC and Ontario, but the amount received by business, either directly or indirectly, is not identified. Alberta reports subsidies by Ministry but the data are not presented by program. As a result, the only way to determine business subsidies delivered through program spending in Alberta is to file access to information requests. Ontario, Alberta and BC provide comprehensive estimates of tax expenditures. However, documentation is less detailed in the Ontario accounts than for Québec or the federal government and is sparse for Alberta and BC. All three jurisdictions present estimates for a single year in their annual publications.
description: The School of Public Policy Publications, Vol 11 (2018)