The great auto industry salvage
Canadian Exports: NAICS 33611 – Automobile and Light-Duty Motor Vehicle Manufacturing ($Millions)
Source: Industry Canada
It’s kind of fun to watch the Ontario and federal governments continuing to salvage the auto manufacturing industry will hundreds of millions of dollars in corporate welfare. It’s distributed under the euphemism of ‘innovation’ but it is old fashioned cash transfers to an important industry that is threatening to move more jobs out of southern Ontario. As the chart above shows, the entire auto manufacturing industry is located in Ontario.
The latest is Chrysler’s demand for $700 million or it will downsize or close its operations in Brampton and/or Windsor. I guess the billions in loans provided a few years ago wasn’t enough.
But this is what governments have done for decades. The federal government has been a huge supporter of the oil sands development in Alberta both in terms of incentives and its international lobbying efforts. Let’s not get started on the aerospace sector in Quebec.
The Premier of Ontario is demanding to be made whole about her belief she is getting shafted by hundreds of millions of dollars in lower equalization payments (who would have thought this would be the argument 10 years ago). Maybe the $500 million auto ‘innovation’ fund announced yesterday will assuage her concerns. Think of it as a back door equalization payment.
Anyway, the truth is quite sobering. Ontario’s economy has been hammered and is still quite fragile (although compared to New Brunswick it looks like a bastion of economic growth).
Those Chrysler jobs probably boost the taxes paid to provincial and federal governments by $300-$400 million per year (based on my back of the napkin calculation). So a one time $700 million to secure a stream of $350 million for the next 20 years might sound like a good payback.
But they keep coming back to the trough. Not every 20 years. Chrysler got $2.9 billion in loans and grants after the great recession of 2008.
But the feds and province will say there is even more at stake than just the $350 million in taxes from Chrysler. They worry that a pull out of Chrysler could presage a broader pull back of the auto industry in Ontario and threaten the $48 billion worth of automobile exports (chart above). That puts an annual $10 billion tax generator at risk.
All I can say is that it would be nice if the feds were as concerned with poor old NB as they are with Ontario but 13.5 million residents (read voters) provide a far more compelling case than 750k.