The blockbuster deal

Canadian Press is reporting today that the Newfoundland government will invest $10 million a year for at least the next three years to keep Abitibi Consolidated from closing its paper mill in Stephenville. In addition, the story states that the deal can be renewed for up to 12 years after the initial deal expires in 2008.

Now frequent readers of this blog will know that I am in favour of targeted government incentives to stimulate new jobs but this deal is unbelievable. $10 million to sustain 400 jobs – that $25,000 per job per year and the company, as I read the press release, has the ability to keep the deal 12 more years after 2008. That would end up being $150 million to sustain 400 jobs.

Makes Premier Lord’s Molson deal seem like peanuts, doesn’t it?

I just hope the folks in Nackawic aren’t reading the newspaper tomorrow when the news of this deal breaks.

Do you think Premier Lord would spend $150 million to keep the mill in Nackawic open? :-)

It’s deals like this that frig things up. Government incentives should be designed to stimulate the creation of new jobs that are sustained by a profitable and long term underlying business plan (i.e. the new Toyota plant in Ontario) not as a pure subsidy to keep people off EI. But even if you prefer subsidies to EI (and there is some benefit to this thinking) the subsidies shouldn’t be double or triple what the EI would have been.

We need to stop subsidizing bad business models and start stimulating good ones.

This entry was posted in Uncategorized. Bookmark the permalink.

0 Responses to The blockbuster deal

  1. scott says:

    Ronald Reagan once said, “that if it moves tax it. If it moves to quickly regulate it. And if it doesn’t move at all subsidize it.”

    I am in agreement with Reagan wholeheartedly regarding this quote. As well, I am in agreement with you in accordance with your philosophy regarding the implementation of government incentives to stimulate new job growth, but this example is way off base.

    The government, federally or provincially, should not be in the business of picking winners and losers. It should be in the business of creating a healthy business environment that can be competitive in a strong market economy. (i.e. lowering taxes, decreasing regulation, maintaining low inflation, and providing a stable fiscal environment)

    In my opinion, the government is doing the province a disservice with this short-term solution. Prolonging the inevitable by keeping these 400 jobs afloat will do nothing for the long-term competitiveness and growth of Stephenville, Newfoundland or the province in general.

    I just don’t see the relevance here.