Montreal, January 18, 2018 – Quebec pays out twice as much in corporate subsidies as Ontario, proportional to the size of its economy. This policy does not make Quebecers richer, shows a publication released today by the MEI.
While Quebec produces just 19% of the provinces’ total GDP, it grants nearly 29% of the subsidies paid out by them. “This disproportionate use of subsidies does not result in a higher level of wealth; if it did, Quebec would be the richest province in Canada, which is far from being the case,” notes Alexandre Moreau, Public Policy Analyst at the MEI and author of the publication.
Quebec’s GDP per capita was $47,443 in 2016, compared to $74,343 in Alberta and $58,585 for the provinces not including Quebec.
“For each dollar Quebec collects from private companies, at least 41 cents are spent on various forms of subsidies,” points out Alexandre Moreau. Total corporate subsidies granted by the Quebec government come to a minimum of $3.1 billion in 2016-2017, while government receipts from taxing the income and the capital gains of companies amounted to $7.5 billion.
Actually, the total amount of subsidies is likely higher than $3.1 billion. “To evaluate the cost of certain types of subsidies stemming from loan guarantees and portfolio investments, the element of risk has to be factored in, since the government—and therefore the taxpayer—is ultimately responsible if the company is not able to reimburse a loan or if the value of its shares falls,” explains Alexandre Moreau
The publication also shows that trying to support the economy with subsidies entails adverse effects that undermine growth. “Increasing taxes to finance these subsidies creates distortions in the economy and discourages productive activities. Indeed, the government ends up confiscating money from more successful companies to benefit others that have not succeeded in convincing private investors of their profitability,” adds Mr. Moreau.
“The harmful effects of subsidies have been known for a long time. The Quebec economy would be in much better shape if the government reduced corporate subsidies, and in return, reduced the corporate tax burden as well. Such a reform would improve the competitiveness of all companies, all while reducing economic distortions,” concludes Michel Kelly-Gagnon, President and CEO of the MEI.
The Viewpoint entitled “Quebec Is Still a Corporate Subsidy Champion” was prepared by Alexandre Moreau, Public Policy Analyst at the MEI. This publication is available on our website.
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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.
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