It's The Economy, Stupid

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”.