What we can learn from Quebec’s failed EV subsidies
In Quebec, lavish government subsidies have become a way of life, a reflex, a fait accompli if you will. That’s why no one bats an eye when new multibillion-dollar cheques are doled out to favoured companies.
So entrenched is this practice that subsidies to corporations and businesses have earned Quebec the unenviable title of “Champion of subsidies.”
Quebec far out-subsidizes all other provinces in Canada. From 2007 to 2019 – well before the pandemic – Quebec’s total provincial subsidies stood at $87.8-billion. Ontario, by no means shy about subsidies itself, came in second at $80.8-billion, though given its larger population, one might have expected it to be first.
But other provinces pale in comparison. In British Columbia, provincial subsidies over the same period totalled $25.1-billion, while Alberta’s reached $24.5-billion.
It’s clear the Quebec government has convinced itself this is the best way to attract businesses. The thinking seems to be: why not sweeten the pot by signalling to companies that they do not have to go it alone – the taxpayer will share the risk. This mindset is especially apparent in recent announcements in the electric-vehicle sector.
A few years ago, the provincial government set out to make Quebec a leader in electric-vehicle and EV battery manufacturing, and began subsidizing companies.
With the United States taking an aggressive approach to green energy and electric-vehicle manufacturing, then-president Joe Biden pledged billions of dollars in subsidies through the Inflation Reduction Act. But Quebec would not let itself be outdone.
The most high-profile example is Northvolt. This Swedish company, which specialized in developing and manufacturing batteries for electric vehicles, received a pledge of more than $710-million from the Legault government to set up operations in Quebec.
Freeing up the funds currently allocated to subsidies would allow us to reduce the provincial corporate tax rate by 6.75 percentage points, to 4.75 per cent from 11.5 per cent, without affecting government revenues at all.
Recently, however, Northvolt declared bankruptcy and announced it would wind down its operations in Sweden. It remains unclear how these difficulties will impact its Quebec plans, though the company maintains that its Canadian project is still on track.
Another example is Lion Electric Co. LEV-N, a manufacturer of electric buses based in Saint-Jérôme. The company received $200-million of Quebec taxpayer money before filing for creditor protection in December, 2024 – another bad horse our government bet on. Seeing the writing on the wall, Economy Minister Christine Fréchette announced last month that the government would not reinvest more money into the company.
In 2024 alone, Quebec is estimated to have lost more than $515-million subsidizing companies that are now insolvent.
It’s bad enough that these subsidies often fail, leaving taxpayers with nothing to show for their politicians’ profligacy, but sustaining this level of government intervention also of course requires higher taxes – including corporate taxes. Robbing Peter to pay Paul is not a winning economic strategy.
Between 2018 and 2023, subsidies to private companies accounted for the equivalent of 59.8 per cent of corporate tax revenues.
In 2023-24, the government collected $11.4-billion in corporate tax revenue while it paid out $7.8-billion in subsidies in 2023. That means that essentially, more than 70 per cent of corporate tax revenues were redistributed as subsidies in a single year.
We don’t have to continue down this road.
A better strategy would be to attract investment by reducing the corporate tax rate – and there is a painless way to do it. If the Quebec government eliminated corporate subsidies and used the savings generated to lower the provincial corporate tax rate, the result would be sustainable and would put an end to subsidy tourism. Companies would come, and they would stay.
How attractive could we become? We could be among the best places to start a business in North America.
Freeing up the funds currently allocated to subsidies would allow us to reduce the provincial corporate tax rate by 6.75 percentage points, to 4.75 per cent from 11.5 per cent, without affecting government revenues at all.
Combined with the federal rate, Quebec would then offer a corporate tax rate of 19.75 per cent, lower than the minimum U.S. federal rate of 21 per cent.
Such a reform would therefore allow Quebec to go from being the champion of subsidies to one of the most attractive jurisdictions for businesses on the continent.
Emmanuelle B. Faubert is an Economist with the MEI and the author of “Quebec Should Eliminate Subsidies to Reduce Taxes.” The views reflected in this opinion piece are her own.