“Firms take the subsidy and then leave when it runs out” Really? No.

For many of you this will sound like a broken record but I feel compelled to respond when after a job announcement someone rolls out the tired “these firms take the big government subsidies and then leave town when the subsidy runs out”.

Sigh.

We should have a vigorous debate about whether or not government should be assisting firms with grants, loans or these payroll rebates (the firm announced today will receive payroll rebates worth $350,000).   But we shouldn’t resort to the tired old mantra of “when the subsidy runs out….”.  It’s just not true.  ExxonMobil, UPS, RBC and the vast majority of the national and international firms that landed here in the early to mid 1990s are still here and still employing thousands of New Brunswickers.  A few have closed – mostly because of changes in their business model and not because of anything in their NB operations.

So here we go again.

Company x agrees to hire 27 staff at an average salary of – let’s say because we weren’t told – $75,000/year.  Over a five year period (we could say 10 but let’s be conservative), the firm will have a payroll in New Brunswick of $12.2 million (including 20% for payroll taxes, benefits, etc.).  Now, labour costs are typically only about 50% or so of an operation such as this but let’s be conservative and say 60%.  So the annual operating costs of the firm in New Brunswick will be about $20.3 million over five years.

And that doesn’t include any upfront costs to recruit and train staff and any other start up costs.  Let’s leave those aside.

Oh, and don’t forget the indirect and induced economic benefits which would add another $10-$15 million over five years.  But let’s leave those aside.

So, over five years, the government gives the firm $350k which represents 1.7 percent of the total amount the firm will pay in New Brunswick.  Let’s again be conservative and roll that up to 2 percent.

That qualifies as the big subsidy the firm will take and then run away when the subsidy runs out?  2%?

Don’t be silly.  No firm would make a multi-million investment decision solely on 2%.

I’m sure these funds will likely be used to cover some recruitment and training costs and possibly some other initial costs associated with setting up in New Brunswick but this is no grand subsidy.

Again, that doesn’t mean we can’t debate the issue but we should avoid hyperbole.  It is intellectually lazy to whip out these little zingers which have no basis in fact.

You want a subsidy?  Try the 40%-50% labour cost rebate on movie and digital media production in places like BC and PEI.  Now that is a subsidy that might fall under your heuristic – “Firms take the subsidy and then leave when it runs out”.

This entry was posted in Uncategorized. Bookmark the permalink.

2 Responses to “Firms take the subsidy and then leave when it runs out” Really? No.

  1. mikel says:

    I call this the ‘charles leblanc disease’-you have a good point, but present it badly. First, 350 grand is NOTHING. For jobs it should be a no brainer. Call then ‘handouts’ if you want, but the fact is, with ANY business venture you need to add up what is paid out vs what comes in. Government ponies up SOME money, private industry puts up more, and those taxes then pay it back. So whats the problem?

    However, stating some examples about corporations who are ‘still there’ doesn’t actually prove your point. We’ve seen TONS of examples of companies where it DOES occur, so when you say “Really? N0″ what you mean is “Really? Occasionally” Plus, just because they ANNOUNCE a certain rebate doesn’t mean that that is ALL they end up getting? Do you know any accountants in the NB Government? Have you checked to ensure that they only receive what they say they receive?

    But this is such a low amount that it makes me ask the obvious-IF what you say is true, then WHY in gods name would they set up in New Brunswick? Alward talks about mathematician jobs and ‘science jobs’, when NB has one of the lowest science outputs in the country. THIS sounds like a great place to set up shop for a measly $350 grand? Thats sort of like the old example about politicians, where if they are talking about social policy, check your wallet because its about to be emptied.

    I would suspect that this has something to do with the casino in Moncton, but there are other casino’s. So, not to be indelicate, but somebody needs to ask this company why they are setting up in NB when I’m sure other provinces would be more than happy to offer a similar rebate. The arguments by Cardy and the Taxpayers Association are just stupid, why people SHOULD be distrustful is because of the government angle-IF that is all they are getting, why are they in NB?

  2. mikel says:

    This has a bearing on payroll cuts AND the old Radian 6 ‘good news’.

    http://www.cbc.ca/news/canada/new-brunswick/story/2013/08/30/nb-salesforce-cuts-reaction-137.html

    Given that “An Invest NB official said on Thursday that Salesforce has created 115 “incremental positions” in the first two years of the agreement. The official said the corporation expects Salesforce to create 300 jobs by the end of the agreement.”

    and that “Those job cuts came four months after the social media monitoring company announced plans to create 300 new full-time jobs in Fredericton and Saint John with the help of a $3.8-million payroll rebate from the provincial government.”

    Makes you really wonder what EXACTLY is going on there. A company is laying off people but planning on creating new jobs??

Comments are closed.