Vindication, again

My position that the government should strategically invest in key sectors to stimulate their growth can come under fire by folks posting to this blog and by a larger group of journalist and experts who bristle at the notion of the government doing anything to support economic development.

Check out this Globe & Mail article. It mirrors my position on this. Here’s the relevant part:

But if the Tories, or the Liberals before them, had believed in the theory of comparative advantage, they wouldn’t have thrown money at industries such as the oil sands, in which Canada not only has a comparative advantage, it has an absolute advantage. There is nothing like the oil sands on the planet. The size of the reserves are second only to Saudi Arabia’s.

Suncor, Shell and other major companies are spending tens of billions of dollars to build and expand projects. With high oil prices, insatiable American demand and clever technology, the profits and equity values are soaring. And there’s no danger of the companies shifting oil sands extraction to Mexico.

Yet the oil and gas industry gets huge tax subsidies. The Pembina Institute, which has been highly critical of the ecological degradation caused by oil sands projects, estimates the industry reaps about $1.38 billion in federal tax breaks each year. Two of the biggest subsidies are the Canadian Exploration Exp­ense, which allows companies to write off 100% of allowable exploration costs against income, and the Accelerated Capital Cost Allowance, which essentially allows them to recover all of their capital spending before paying income tax.

If this weren’t enough, the feds have not stopped the proliferation of oil and gas income trusts. Trusts pay no income tax. Most of Alberta’s production is exported to the United States, and if it comes from a trust, it flows across the border with a zero tax hit. The Alberta government is a big subsidizer as well. Oil sands projects pay a 1% royalty rate on production until capital costs are recovered. That’s one of the lowest rates on the planet.

Why does this industry need so much help? If all the subsidies were taken off, and if royalty rates were returned to normal levels (before 1996, companies negotiated rates, and Suncor’s basic rate on its oil sands output was 30%), you can bet the oil sands would still get developed.

This is corporate welfare at its very worst. It’s more astonishing given that both Liberal and Tory governments said “the people” are overtaxed. Tax rates have indeed come down, but eliminating oil and gas subsidies could have returned more than $1 billion to taxpayers.

So, in a nutshell, giving support to industry in Atlantic Canada – the place with the weakest economy in Canada and arguably North America is bad and giving billions in support to the oil industry in Alberta is good.

When it comes to economic development, I despise hypocrisy – even if it is rooted in the need to get votes.

Alberta is a subsidy gravy train. Between the farmers and the oil sector, the pork is getting doled out like nowhere else (with the possible exception of the aerospace sector in Montreal).

So if the Fraser Institute wants to crap on efforts to support economic development in Atl. Canada, it had better start looking it its own backyard.

You know the old biblical saying:

Matthew 7:3
“Why do you look at the speck of sawdust in your brother’s eye and pay no attention to the plank in your own eye?

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0 Responses to Vindication, again

  1. Anonymous says:

    You might also want to mention the over a billion dollars in subsidy that the ‘mad cow’ issue sparked. Much of it went to american processors who were guilty of keeping prices high, while Klein became incensed at the mere mention of an investigation.

    Meanwhile, do some reading on what PEI farmers got when their spuds were refused at the border for a non existent blight.

    You’re only one step from the reality, these decisions have NOTHING to do with economics or politics. Canada has ALWAYS been a business run country and corporations always benefit. Income trusts are now being taxed, but only to distract attention from the lowering of corporate tax and tax havens.

    But again, for the maritimes, the same goes. The forestry sector doesn’t benefit as much federally, but as said, the feds have ponyied up more dough for ‘social costs’, while provincial govenrment money goes to the forestry corporations. The Irvings have no complaints, anything they want they can get.

    The only difference right now is that oil is worth more than trees and is localized. As soon as technology finds a way to make those workers redundant, its back to square one.

    So this really isn’t a regional issue. Irvings benefit much in the same way as those companies in Alberta, and the gas companies in NS and NFLD as well. It is a CANADIAN issue that is the same as in the states, the wealthy simply want all the money.

  2. scott says:

    So, in a nutshell, giving support to industry in Atlantic Canada …[…]

    What industry is that you speak of? The auto industry? Ethonol? Oil exploration? Biotech? Is there something I’m missing here?

    Do we have something to market at the moment? Or better yet, are we marketing it now?

    I agree somewhat with your assertions that government should strategically invest in key sectors, however, the government you voted in has no concrete plan to build the economy and they never did. I guess realistically you gave them a shot because my tories lost their way on the business file…to which I won’t disagree totally as the marketing side of things was an utter disaster.

    As well, you know where I stand on government being the saviour of all, including economic development. For the record, as we found out this week, the pharmaceutical industry did just fine in Moncton without government assistance or subsidies.

    You can say what you want about Lord’s lack of a marketing plan in New Brunswick, but one thing is for certain, he created an extremely competitive tax structure for business in the province wherein he reduced red tape for business and lowered both the corporate tax rates and set the lowest small business tax rate in Canada.

    Why did his administration fail?

    Well, for starters, he had two business ministers who thought too small in a global environment. They had absolutely no direction and, in turn, it showed as they had limited success with talks to businesses outside the province and country. And secondly, Lord was too preoccupied with others useless distractions to pitch the province (that should have been his lead priority). Something that McKenna proved had to be a daily passion and he was only succesful in relocating a few call centres.

    Business development for a NB premier should be a full time job, where realistically, he should be doing nothing else. (it’s sounds silly, but I truely believe that) However, I just don’t think ppl understand how important it is.