Ontario is the new corporate welfare king

For decades, Quebec wore the dubious crown of Canada’s “corporate welfare” king. La belle province poured billions of dollars into corporate handouts, all while maintaining one of the highest corporate tax rates in North America.

The results have been predictable: Mediocre growth and favoured businesses dependent on, and feeling increasingly entitled to, taxpayers’ forced generosity.

But a lesser-known fact is that, in 2017-18, Ontario actually surpassed Quebec in terms of total spending on corporate welfare, and has hung on to the lead ever since. Just last year, it doled out $9.5  billion compared to Quebec’s $7.8 billion.

Back in 2013, Quebec’s corporate subsidy spending outpaced Ontario’s by a wide margin: $4.3 billion versus $2.9 billion. Over the years, though, Canada’s most populous province started increasing how much it handed out in subsidies, slowly but surely catching up to Quebec.

Then in 2017-18, Ontario nearly doubled its corporate subsidy spending in a single year, reaching $6.4  billion, compared to Quebec’s $4.8 billion. Since 2017, Ontario’s subsidies have grown by a staggering 182%, while Quebec’s grew by 70%.

Blame for such policies cannot be neatly placed in one camp or another since, as in Quebec, subsidizing businesses is a bipartisan pastime. Successive Ontario governments, first Kathleen Wynne’s Liberals and now Doug Ford’s Progressive Conservatives, have showered billions of hard-earned taxpayer dollars on politically attractive industries.

In recent years, the automobile industry has been the fortunate beneficiary of much of Ontario’s industrial policy.

Instead of being known as the new corporate welfare champ, Ontario could become one of the most attractive jurisdictions in North America for investment. Eliminating corporate subsidies would free up enough resources to reduce the provincial corporate tax rate by 4.5 percentage points.

In 2022, for instance, Ontario pledged $259 million to General Motors to upgrade facilities. In 2023, it announced $5.4 billion for Stellantis-LGES to build an electric vehicle battery plant in Windsor. Last year, it offered Honda $2.5 billion in support for its EV and battery plants.

Despite a 2015 auditor general’s report warning that there is no clear evidence that subsidies either create or retain jobs, the spigot has remained wide open.

Ontario ramped up corporate welfare while maintaining its own high corporate tax rate, and what ensued is anemic economic growth that elicits no envy: between 2018 and 2023, the province’s GDP per capita growth, adjusted for inflation, was not just slow — it was zero.

This means that Ontarians in 2023 were no better off than they were five years before. When output stagnates, so do living standards, since in order for the latter to improve, workers and the economy in general need to become more productive.

This much is clear: Government largesse in doling out business subsidies is not working in Ontario, just as it hasn’t worked in Quebec. So, why not try something new?

Ontario’s combined corporate tax rate sits at 26.5% when federal and provincial rates are added up — among the highest rates on the continent. That makes the province a less attractive place to invest. This is policy incoherence, punishing most businesses to bankroll a few.

Let’s flip the script: Eliminating corporate subsidies altogether would free up enough resources to reduce Ontario’s provincial corporate tax rate by 4.5 percentage points, from 11.5% down to 7%. Combined with the federal rate, Ontario’s total corporate tax burden would fall to 22%, lower than any other Canadian province and nearly equivalent to the United States minimum of 21%.

Instead of being known as the new corporate welfare champ, Ontario could become one of the most attractive jurisdictions in North America for investment. This low-tax, pro-business environment would be welcoming to productive firms, while chasing away subsidy junkies and their lobbyists constantly currying favour from whoever controls Queen’s Park.

Samantha Dagres is Manager, Communications at the MEI and the author of “Corporate Subsidies: Ontario Outspends Quebec.” The views reflected in this opinion piece are her own.