Corporate Subsidies: Ontario Outspends Quebec

Viewpoint showing that instead of trying to micromanage the economy, governments should ensure a level playing field and reduce the tax burden for all businesses

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This Viewpoint was prepared by Samantha Dagres, Manager, Communications at the MEI. The MEI’s Taxation Series aims to shine a light on the fiscal policies of governments and to study their effect on economic growth and the standard of living of citizens.

In line with national trends, Ontario’s economic growth has stagnated in recent years. Between 2018 and 2023, the province’s GDP per capita growth, adjusted for inflation, was zero.(1) Real GDP growth was just 1.5% in 2024, and its latest budget projects this will slow to 0.8% in 2025.(2) When combined with headwinds from the U.S. trade war, it’s clear that the government must act, not only to end the stagnation, but also to set Ontario on a course of sustained economic growth.

Yet, instead of creating a more competitive tax environment to encourage investment, the government of Ontario has leaned heavily on corporate subsidies and tax credits—an approach long favoured in Quebec. Once comfortably the king of subsidies, Quebec has been surpassed by Ontario in recent years in terms of total spending on subsidies.

A better way of attracting investment and stimulating economic growth is to reduce the fiscal burden for businesses by phasing out subsidies, lowering corporate taxes, and implementing tax neutrality for all.

Ontario Usurps Quebec

For years, Quebec led the provinces in terms of corporate subsidies. In 2013, the Quebec government distributed $4.3 billion in corporate subsidies, far outpacing Ontario’s $2.9 billion.(3) Up until 2017, in fact, Quebec consistently doled out more.

But in 2017–2018, business support in Ontario shot up by nearly 90%. While Quebec spent $4.8 billion that fiscal year, Ontario spent $6.4 billion. Every year since, Ontario has outspent Quebec by a fair margin (see Figure 1). Since 2017, subsidies have grown by 182% in Ontario, compared to 70% growth in Quebec.

This supercharged industrial policy began under Kathleen Wynne’s Liberal government,(4) which chose to ramp up corporate subsidies even though a 2015 auditor general’s report noted that the government could not provide any clear data on whether such spending retained or created jobs.(5) Despite Progressive Conservative criticism that this was “crony capitalism at its best,”(6) outsized corporate support has persisted under Doug Ford.

A recipient of much of Ontario’s largesse has been the auto sector. In 2019, for instance, the Ford government announced $40 million in subsidies to this sector.(7) In 2022, it announced $259 million for General Motors to help upgrade its facilities.(8) Then in 2023, it announced $5.4 billion in production support to Stellantis-LGES for an electric vehicle battery plant in Windsor.(9) Last year, it pledged $2.5 billion to Honda to support its electric vehicle and battery plants.(10) On top of all this, Ontario provides tax credits and R&D funding to the auto sector.(11)

Another major driver of the Ontario government’s largesse is a sharp increase in electricity subsidies. In 2017, the Fair Hydro Plan was launched, aiming to reduce electricity costs for ratepayers by 25%, including for over 500,000 small businesses and farms.(12) In 2021, the Renewable Cost Shift, a $38.6-billion program, delivered major energy subsidies to large commercial and industrial users for the first time, cutting their bills by an average of 16% and 14% respectively.(13)

A Competitive Tax Jurisdiction

Instead of micromanaging the economy, the Ontario government should ensure a level playing field by reducing the tax burden for all businesses. By eliminating its corporate subsidies, it could reduce the corporate tax rate, allowing firms to keep a greater share of their earnings. These resources could then be reinvested in innovation, business expansion, and job creation. Such an environment would make the province more attractive to investors, spurring growth without affecting government revenues.

Ontario’s provincial corporate tax rate is currently 11.5%.(14) Combined with the federal corporate tax rate of 15%, the total tax rate for large businesses stands at 26.5%. On the other hand, Ontario has been spending an average of $9 billion per year in corporate subsidies of late. By eliminating these subsidies, the province could proceed with across-the-board tax relief, reducing its corporate tax rate by 4.5 percentage points, from 11.5% down to 7%.(15)

Such a move would give Ontario the lowest provincial corporate tax rate, lower than Alberta’s 8% rate, currently the lowest.(16) A 22% combined federal-provincial tax rate would also be just above the U.S. federal minimum of 21%,(17) positioning Ontario as one of the most competitive tax jurisdictions on the continent.

In sum, Ontario should stop stealing moves from Quebec’s subsidy playbook. Instead of attempting to entice business investment and stimulate growth using handouts, tax neutrality and rate reductions could make the province one of the best places in North America to do business.