Commission on the Reform of Ontario's Public Services

Our View on Business Subsidies
Empirical evidence suggests that business subsidies are often not an efficient use of public
resources and have done little to raise living standards. Subsidy programs can distort business
decisions to the point that they are no longer based on sound economic criteria or require a
reasonable degree of private risk. Without proper accountability, these programs are also
susceptible to stakeholder lobbying, which can result in an economically inefficient allocation
of funds. Furthermore, the outcomes of these programs are often vague and difficult to
measure, preventing thorough evaluation and analysis. It is not enough to demonstrate that
a program creates or retains jobs, especially as these jobs may have been created without
government support. We agree with the conclusion reached by the Task Force on
Competitiveness, Productivity and Economic Progress, headed by Roger Martin, that an
economic policy focused on job creation “can be very costly with few results.” 7
Subsidies that are used to bail out failing firms or declining sectors are also problematic.
While they can achieve short-term objectives such as job retention, over the long term they
can impede structural shifts and allocation of resources that would improve productivity in the
overall economy. Bailouts entail a potential political risk, provoking questions of fairness and
the creation of an “un-level” playing field among business competitors. The record of such
interventions has generally featured more failures than successes.
Certain sectors and activities rely considerably on government support. When the combined
subsidy of federal and provincial grants and tax credits is considered, the support can be
significant. For example, it is estimated that almost 60 per cent of all film and television
production spending in Ontario in 2010 was subsidized by federal and Ontario film tax credits,
grants and other related funding. 8 Similarly, federal and provincial tax incentives for research
and development can reduce the after-tax cost of a $100 R&D expenditure in Ontario to as low
as $37. There are also situations where a single dollar of business expense is eligible for two
or more provincial tax incentives, or in which tax incentives are provided on expenses where
the business received direct funding from the provincial or federal government.
7 “Prospects for Ontario’s Prosperity,” Task Force on Competitiveness, Productivity and Economic Progress, November 2011, p. 31.
8 Ministry of Finance estimate based on data from the 2010 Ontario Transparency in Taxation Report, the Federal Tax Expenditures and
Evaluations 2010, the Canada Media Fund, Telefilm Canada, the Ontario Media Development Corporation, and Statistics Canada.
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