Providing that hospitable environment for huge projects sometimes requires governments to play a few hands using the taxpayer’s money to make their bets.
General rule: governments should focus on providing an economic environment that is conducive to good business and leave the good business to companies that understand the markets in which they operate. If the market is sound and business is good, there are jobs and lots of spin-off economic activity, the taxes roll in and everybody’s happy.
But providing that hospitable environment for huge projects sometimes requires governments to play a few hands using the taxpayer’s money to make their bets, and it has been argued in this space that the automotive industry is such a case because governments of competing jurisdictions are doing the same. It’s about levelling the playing field.
Not everyone agrees with this view, including several readers of last issue’s editorial. The consensus is governments should not be in the business of picking winners and losers, and taxpayers certainly have good reason to be skeptical considering some of the “investments” that haven’t paid off.
In the 1970s New Brunswick provided an initial $4.5 million to get the Bricklin sports car with the fancy but impractical gull-winged doors into production. By the time the company went bankrupt, the government was owed $23 million.
In 1989, Newfoundland was down about $13 million after a hydroponic super cucumber venture it invested in went soft.
More recently, there is the bizarre case in Ontario where the Liberal government (blame former premier Dalton McGuinty) will be responsible for investing about $1.1 billion on behalf of taxpayers to not build two natural gas power plants.
And in Quebec, the Parti Quebecois has committed the taxpayer to a $450 million stake (loan and direct investment) in a $1 billion modern cement plant that proponents of the province’s industry say isn’t needed.
The McInnis Cement project (controlled by Beaudier, a Bombardier-Beaudoin family holding company) in Port-Daniel-Gascons is getting $275 million financing from a syndicate led by the National Bank of Canada. Beaudier is kicking in $150 million.
The firm will receive tax breaks for 10 years, the plant will also avoid the BAPE environmental assessment other industrial operations must go through and it will be eligible for a break on power costs.
In a region where unemployment is running at 16.4%, the project is supposed to create 1,500 jobs during two-years of construction and provide direct employment to 200 when the plant is up and running.
But the other industry players protest. They say their plants are barely operating at 60% capacity and this revived, 20-year-old project wouldn’t see the light of day without the government’s involvement.
The Port-Daniel-Gascons plant will eventually produce 2.2 million tons of cement, with a potential increase to 2.5 million tons. Most of the cement produced is to be exported out of Quebec, serving the reviving construction demands of the Boston-Washington, DC corridor, yet the existing cement plants say they already serve this market with up to 25% of their capacity.
They claim any drop in production resulting from the new, subsidized plant will threaten the 650 jobs at Quebec’s four other cement plants, and thousands of indirect jobs.
“People realize what’s happening here is Peter’s being robbed to pay Paul,” said Michel Binette, the group’s spokesman.
With a hefty position in this enterprise, the Quebec government is hardly neutral about the project’s fortunes. If the McInnis cement plant’s success comes at the expense of the other industry players, it will certainly provide a twist to government levelling the playing field.
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