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:
“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?