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By Jake Fuss and Tegan Hill
In recent weeks, both General Motors and automaker Stellantis announced they will shutdown production for certain vehicles at plants in Ontario and layoff workers despite billions in corporate welfare from the provincial and federal governments, proving yet again that corporate welfare, which comes at a significant cost to taxpayers, does not work.
In mid-October, Stellantis announced it will move production of its Jeep Compass model from a Brampton, Ontario plant to Illinois. The Carney government responded swiftly by threatening legal action as it, along with the Ford government, had agreed to spend up to $15 billion for Stellantis’s NextStar electric vehicle (EV) battery plant and related facilities, contingent on vehicle production occurring in Canada.
Meanwhile, General Motors announced it will stop producing the BrightDrop electric delivery van at its plant in Ingersoll, Ontario, in part due to slower-than-expected demand for EVs. Between the federal government and Ontario government, GM received about $500 million in taxpayer-funded subsidies to help fund its EV transition.
The federal and Ontario governments have also signed corporate welfare deals with Honda and Volkswagen for EV battery plants at an estimated cost of $5.0 billion and $13.2 billion, respectively. And the federal government and the Quebec government also agreed to send $2.7 billionto Northvolt to produce EV batteries before the company went bankrupt. Again, through our taxes, Canadians bear the costs of these ill-conceived handouts.
Of course, corporate welfare is nothing new in Canada. Governments from coast to coast, of all political stripes, have a long history of giving preferential treatment to select businesses and industries through subsidies and other incentives. Indeed, the federal government alone spent an estimated $84.6 billion (inflation-adjusted) on business subsidies between 2007 and 2019. Provincial and local governments spent an additional $302.9 billion during this period. And these huge numbers don’t include loan guarantees, direct investments and regulatory privileges, so the actual cost of corporate welfare during this period was even higher.
When governments dish out corporate welfare, they always sing the same tune—business subsidies help create jobs. But this claim does not stand up to scrutiny. In fact, there’s little to no empirical evidence that subsidizing select businesses creates jobs (on net) or produces widespread economic benefits.
In reality, if a project or business was economically viable, it wouldn’t need the government to fund it. Corporate welfare is simply a way for the government to pick winners and losers, and shift jobs and investment away from other companies and industries, thus circumventing the preferences of consumers and investors. If Honda, Volkswagen, Stellantis, Northvolt and General Motors are unwilling to build EV battery plants or produce vehicles in Canada without government assistance, then policymakers should understand that these projects make little economic sense.
Obviously, politicians and bureaucrats do not understand the market better than investors and entrepreneurs. Using taxpayer money to subsidize their favoured firms and industries—often for political purposes—robs Peter to pay Paul.
Canada’s corporate welfare gravy train for auto giants has fallen off the rails. To help foster true economic prosperity and lasting job creation, governments should create an attractive tax and regulatory environment for all businesses to succeed. When the government picks winners and losers, most of us lose.
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