What is a subsidy?

The debate rages on about government subsidizing business. The media decries government for subsidizing business while at the same time closing hospital beds and cutting social programs. I think people have misconstrued the definition of a subsidy and now believe that it represents throwing scarce government money at companies who don’t need it (i.e. a waste of government money).

As usual, I would like to proffer a slightly different understanding.

According to the Merriam-Webster dictionary a subsidy is defined as “a grant by a government to a private person or company to assist an enterprise deemed advantageous to the public“.

When applied in an appropriate fashion, a government subsidy to industry will result in public ‘advantages’ in a similar manner to other government expenditures. It does not involve throwing money at bad projects or giving taxpayer dollars to the friends of the government.

For example, if the government invests $10 million in a high tech business park that provides the impetus for the creation of 500 new jobs – that subsidy results in an advantage to the public. 500 new jobs will generates somewhere between $5 million and $15 million per year in new government revenue (sales tax, property tax, income tax, etc.). In addition, it will generate millions in new retail sales, new home construction, etc.

In our current way of understanding things it is ‘okay’ in the minds of the media and other critics of government to spend hundreds of millions on welfare (Employment Insurance, social assistance, etc.) but heaven forbid we spend ten bucks to create real jobs, new taxes and increased economic activity.

Sounds fairly straight forward, doesn’t it? Apparently not as governments continue to cut programs and funding designed to encourage job creation and new economic activity. At least in places like New Brunswick. The $1 billion subsidy announcement for the aerospace sector (primarily in Quebec) and the $500 million for the auto sector (in Ontario) would indicate that ‘subsidy’ thinking is alive and well in the most successful Canadian economies.

But on the plus side, we did receive millions in new Employment Insurance top ups….

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