Someone asked me to comment on the VW/Tennessee auto deal:

Tennessee, for instance, has just disclosed that it agreed to give German carmaker Volkswagen $577m in incentives for its $1bn plant in Chattanooga. A senior executive at Fiat, the Italian industrial conglomerate, said: “With the amount of money US states are willing to throw at you, you would be stupid to turn them down at the moment. It is one of the low-cost locations to be in at the moment.”

First of all, the bidding for auto plants is getting crazy. However, the cash out of pocket to attract VW was actually limited. The subsidy to Volkswagen included free land worth $81-million, plus cheap electricity rates. In addition, there were a pile of tax incentives worth 10s of millions if not several hundred million or 20 or 25 years. Remember, all of that doesn’t cost the taxpayers a dime. However, I still think these are crazy sized deals.

The real point I want to keep making, however; is the use of these large projects as economic anchors in the community. According to this article:

Nearly 15 years after opening a $500 million BMW assembly plant with nearly 2,000 employees in Spartanburg County, the German automaker has more than doubled its staff and boosted its plant investment nearly tenfold. A new study estimates BMW now generates 23,050 direct and indirect jobs for the Greenville-Spartanburg area.

Now, ask yourselves on simple question. That $200 million that the Transportation Minister just announced to expand a highway around the Acadian Peninsula (for ‘economic development’ benefits we were told), would it be better served trying to attract a BMW plant or putting down asphalt?

Before you answer, let me give you a couple more numbers.

$2 billion. That is roughly the amount of EI paid out in the Peninsula in the last 15 years. $200 million for an auto plant doesn’t seem as much in that context.

10,000. That is roughly the amount of population lost in the Acadian Peninsula in the last 15 years. If 5,000 of those were working and producing an average amount of tax revenue in New Brunswick – it would add over $80 million per year in tax revenue to the provincial coffers.

This entry was posted in Uncategorized. Bookmark the permalink.

0 Responses to

  1. Anonymous says:

    Your comments are accurate but bear in mind who pays EI – the Feds and
    not the province so the province, which is supposed to lead economic development, is
    just fine with this situation- again. If this were coming out of the
    province’s coffers there would be a whole different attitude (I hope)
    Desperate times would cll for “desperate measures” like offering
    competitive incentive packages for a change! In my opinion if
    equalization is changed and improved to incent real e.d. this province
    might go after something like this but until then why change?
    Equalization would only be reduced and it would cost the province (while
    it’s likely not a “one for one” situation, why spend your own dollar
    just to loose an additional Federal dollar – it makes those jobs twice
    as expensive than they appear!)

  2. mikel says:

    Keep in mind that’s a little short sighted. A look here in southern ontario is good proof of that. Automakers may ‘sound’ like good investments, but as they say, life is long.

    And again, you should learn how to learn from ‘mistakes’. UPM in Miramichi has taught a grim lesson. And as I mentioned before, the real payoffs don’t begin well, at the beginning. When they kick in is when the industry is governing a locations economy and essentially has the government by the short hairs.

    Those are the problems with the theory-in practise it really doesn’t matter, ontario could barely get Toyota, so the odds of any new manufacturer setting up in the maritimes is pretty nil. Unfortunately or not, people are wary of these deals for good reason, and in New Brunswick the population has quite a bit of experience with BOTH the ‘good times’ and unfortunately the bad. Car manufacturers are about the LAST industry people will get excited about..there must be some wind turbine manufacturers that you can find.

  3. richard says:

    “Keep in mind that’s a little short sighted. A look here in southern ontario is good proof of that. “

    The auto industry has provided plenty of good jobs in ON for decades. No industry lasts forever; there always needs to be some creative destruction to keep ideas/industries developing.

    The ON auto industry might disappear, but that doesn’t mean that all the investments made by govts have been in vain. They’ve gotten good payback in job creation and tax revenue.

    Attracting some major industrial players may or may not lead to unending jobs, but it can provide good jobs for a few decades. That is prbably the best that one can expect, and if it pays back the initial investment, it was a good strategy even if the plant eventually closes.

  4. mike h says:

    I’m no expert in economic development but subsidies or handouts to specific industries for “job creation” has long seemed to me to be foolish. Would broad-based corporate income tax cuts not be a better use of this money? The downfall is of course that the politicians don’t get to cut a ribbon, or take credit for a large new project but the province should be better off.