If business leaders ever wonder why so many people disdain business and call for higher corporate taxes or sector-specific increases (higher royalty rates for energy and mining, higher stumpage fees in forestry), here鈥檚 a clue: Too many companies are addicted to corporate welfare.
Crony capitalism is problematic all on its own. Addiction to it only reinforces the perception that businesses can鈥檛 be bothered to compete on merit, in an open market, but prefer to plead for political favours and protection at taxpayers鈥� expense.
Before highlighting the cost of corporate welfare, it helps to understand what it is. Reduced tax rates (when neutrally applied across the economy) are not subsidies. To assert they are is akin to a claim that where personal taxes are reduced, that means individual taxpayers are subsidized.
Not only is that fallacious, it is philosophically challenged: That notion presumes money first belongs to governments, not individuals, and that anything less than a 100 per cent tax rate constitutes a 鈥渟ubsidy.鈥� It is the view of the serf: Governments generously allow us to keep some money, which by rights is theirs first.
In the context of resources, be it royalty rates on oil, gas or minerals, or stumpage rates set on timber, another mistaken subsidy definition often crops up: that anything less than some theoretical higher rate is a subsidy.
However, resource rents are just that: rents. As with any property owner, governments should set resource rents at a level that extracts the maximum market rent available.
However, just as it鈥檚 unwise to get greedy and risk losing tenants, governments risk losing those who might otherwise mine and drill, but will exit a province or country when rents are exorbitant.
Getting the balance right matters and for everyone鈥檚 interest.
If neutrally applied tax rates and revenue-maximizing resource rents are not subsidies, what then is a useful definition?
Here are some clearly identifiable subsidies: When government cuts a cheque to an individual business, not for the purchase of some good or service, but simply to give away taxpayer cash.
Government loans to businesses also count as a subsidy, given that such loans are often interest-free, and in some cases, not repaid. The 2009 bailout of General Motors and Chrysler is a good example. The last time I did a net calculation in that situation, even after repayments and the value of the shares held by the federal and Ontario governments, and even if those shares were cashed in, taxpayers will still be out $5.5 billion.
Over 16 years, I鈥檝e looked at many files on crony capitalism and dug through numbers provided by federal and provincial governments and Statistics Canada. The level of subsidies to business is astonishing. Between 1994 and 2007, more than $202 billion was disbursed by federal and provincial governments.
Tax dollars lent or given away range from thousands of dollars for everything from ice cream shops and muffler shops, to billions for selected automotive and aerospace companies. No sector is exempt 鈥� and that includes energy companies.
Most companies don鈥檛 take cash from taxpayers. But enough do to make some 91原创s think free markets and wealth creation are a sham and only benefit the very rich or the well-connected.
That鈥檚 dangerous for entrepreneurs. It also harms businesses that do not seek government aid, but would be affected by higher taxes or higher levies on their industries.
A dynamic business environment is essential for jobs and higher living standards. So, too, are privately funded research and subsequent inventions widely applied that improve our lives.
But the quickest way to dissipate any sympathy for brilliant entrepreneurial activity is to engage in crony capitalism. That can damage the public view of capitalism more than a thousand Occupy Wall Street movements could ever do.
Mark Milke is a senior fellow at the Fraser Institute.
