Globe editorial: Ottawa’s $13-billion (and counting) ribbon-cutting won’t reverse Canada’s economic decline

It will surely go down as the most expensive ribbon in Canadian ribbon-cutting history. Ottawa has finally fessed up to how big a bribe – sorry, industry-building anchor investment – it will pay to Volkswagen to build an electric-vehicle battery plant in Southwestern Ontario.

The eye-popping price tag: up to $13-billion (contingent on production and future U.S. subsidies), plus another $700-million in capital grants and whatever extra inducements the Ontario government adds to the pot.

And that will not be the end. Already, the corporate partnership backing an earlier battery plant is asking for a bigger handout, with its $1-billion subsidy now looking anemic.

The federal Liberals are promoting the massive subsidy to Volkswagen as both a necessity and a virtue. It’s a necessity, they say, because the United States is intent on spending vast sums to accelerate its shift to a green economy, and a virtue, because of the many, many economic benefits it will bring.

Finance Minister Chrystia Freeland has, surprisingly, already effectively rebutted the we-gotta part of the argument. Ms. Freeland pointed out the perils of “a new mutually sabotaging competition to provide ever richer corporate subsidies” in a speech earlier this month in Washington.

Of course, Ms. Freeland was not breaking ranks on the Volkswagen deal, but rather cautioning others on taking subsidies too far. Still, her logic is impeccable: Writing a cheque for $13-billion (and counting), for instance, takes funds away from other priorities, or keeps taxes higher than they need to be, or adds to the national debt.

In any case, there’s a cost. And the notion that Canada can keep pace with the United States on subsidies, dollar for dollar, is clearly ludicrous. The real question is, why even start?

Industry Minister François-Philippe Champagne has his own answer, asking rhetorically what the cost of inaction would be, an oratorical brushback of those criticizing the costs of the Volkswagen subsidy.

We would frame the question more broadly: What’s the best use for that $13-billion (and counting)?

Mr. Champagne’s answer is for Ottawa to spend that largesse on industrial subsidies, which will create good-paying jobs and generate thousands more in economic spinoffs. Undoubtedly his math is impeccable. So is similar arithmetic from every special interest that ever sought a government handout: Give us a dollar and we’ll generate three, no four, no make that five dollars!

But there are a few caveats that pop the bubble on that argument. For one, the next best use of the $13-billion (and counting) would presumably not be to throw it all in a giant heap and set it alight.

The federal government could spend it in other, perhaps even more productive, ways. Spending more, and faster, to bolster the national electrical grid, or to relieve pressure points in supply chains, come to mind.

Even better, Ottawa might cut taxes by $13-billion (and counting). Or to put it another way, the Liberals could cease forcing individuals and the owners of small- and medium-sized businesses to pony up to pad Volkswagen’s bottom line. The government might, for a change, think of ways to get out of the way of private-sector job creation.

Unfortunately for those businesses, a job created here and there doesn’t deliver the thrill of a $13-billion (and counting) ribbon cutting.

Still, those are theoretical points and counterpoints. What about history?

We have had more than seven years of the Liberal economic program of higher taxes, increasing regulation and aggressive subsidies. And in those seven years of ever-growing government intervention, Canadian living standards have stagnated (a trend well under way before the pandemic). Gross domestic product, adjusted for inflation and population growth, has almost flatlined, growing by a scant 0.4 per cent a year on average. The immediate future is even worse, with real GDP per capita likely to stagnate or even decline.

One might think that such a record would give the Liberals pause. That would, however, require the government to recant its economic dogma.

Instead, the Trudeau government is intent on more spending, more debt, more regulation and more meddling in the economy. A cheque for $13-billion (and counting) will pay for a heck of a ribbon-cutting ceremony. What it won’t buy is a reversal of Canada’s economic decline.

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