August 2006 Archives

Corporate Welfare Rears its Ugly Head Again!

For 10 years Technology Partnerships Canada (TPC) was Ottawa's flagship business subsidy program and a public policy failure.

In September, 2005, the old Liberal government finally tired of defending TPC from critics and announced the program would be shut down. Abysmal financial returns, damning internal audits, and scandals over illegal commissions paid to lobbyists meant government ministers could no longer declare TPC a success and still be taken seriously.

Rather than admit defeat and forgo corporate welfare altogether, the Liberals followed their predictable script. They promised to fix the problems and get it right, this time with another subsidy fund called the Transformative Technologies Program. The "new" program was to be launched on April 1, 2006. For taxpayers it was more of the same empty political promises and throwing good money after bad.

But before the program saw the light of day, Liberals were replaced in office by Conservatives. In opposition, the Conservative Party was highly critical of TPC, calling it a Liberal boondoggle."This Liberal government is simply trying to sweep the chronic mismanagement of TPC under the carpet," Industry critic James Rajotte said when the TPC facelift was announced a year ago. Rather than account for the billions of dollars granted under this program, the Liberals are going to change the name and hope everyone forgets.

Following the winter election, the new Conservative Industry Minister Maxime Bernier quietly cut off Pratt & Whitney "the biggest TPC deadbeat" from the subsidy trough. Furthermore, he helped to discredit the program by making TPC repayment records public. Despite assurances made by the Liberal government that TPC loans were generally in good standing, the data revealed the opposite. A group of 42 recipient companies had yet to submit any reimbursements whatsoever; repayment records for 88 others totaled a paltry $149-million; and another 78 companies had repaid a total of $7.4-million but refused to make their exact repayments known to the public. The data confirmed what critics of Ottawa's corporate welfare program have been stating for years: These programs are a sinkhole for tax dollars.

Because the Liberals had already dug the TPC grave and tossed in the body, the Conservative government would not need to lift a finger to scuttle the program. It was done. Seldom do events in government work out so well. Corporate Canada was unlikely to cause a dust-up, particularly when many businesses prefer a lower tax regime to more subsidies. Moreover, there is no public demand for more corporate welfare. The only advocates are a handful of corporate executives and union bosses, hardly a core constituency of the Conservative Party. Taxpayers could finally see the day with one less government subsidy program.

Unfortunately, this was all thrown into doubt last week when Industry Minister Bernier's office issued a news release. It outlined regulations for future projects funded under the TPC. Future projects? Incredibly, Mr. Bernier put TPC on life support. What is happening here?

TPC was established to replace the old Defence Industries Productivity Program (DIPP), a corporate welfare plan that paid out $2.15 billion in grants and contributions to businesses over a 20 year period. DIPP was also cancelled by the Liberals because fewer than one-in-four dollars were repaid to the government. When TPC was created a decade ago, the government declared it would be properly managed. Taxpayers were assured government officials would make certain that tax dollars paid to companies would be repaid.

Unfortunately, that policy dream ended in a nightmare. Government records reveal that TPC funds comprise a pit of $3-billion, of which $2.2 billion has been invested since 1996 and hundreds of millions in approved funding yet to be paid out. Of the $2.2-billion, approximately 10% has been repaid to Ottawa, leaving $2 billion outstanding. This makes DIPP a success story by comparison even though it has $1.6 billion in outstanding "repayable" loans. Big business owes the treasury billions of tax dollars and yet Mr. Bernier seems to believe TPC is worth saving.

Industry official have likely assured their minister they possess the wherewithal to make a more transparent, more accountable, and more cost-effective corporate welfare program. They do not. The minister should not allow TPC to be revived or renamed.

Mr. Bernier needs to review the dismal repayment records of all of his department's programs. Next he should ask industry officials and his cabinet colleagues why the Industry Department should subsidize research and development undertaken by private sector firms in the first place. After all, Ottawa already provides well in excess of $1 billion in research and development tax credits every year. This is in addition to support provided by provincial governments.

The industry minister tells us that "companies that behave inappropriately will be held publicly accountable for their actions." He hopes to "name and shame" companies that fail to repay loans. Yet his department's dismal repayment record is not entirely the fault of companies - or even lobbyists - but rather the ministers and bureaucrats that let tax dollars flow out the door in the first place.

Empty promises made by a Liberal government should not today be echoed by the Conservative government. It is time for this wasteful spending to stop.

John Williamson
Federal Director
Canadian Taxpayers Federation