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The federal government has announced financial assistance to Bombardier in the form of a $372.5-million loan to support the C Series program and to develop the Global 7000 business jet.
Even though Ottawa is showing a certain degree of caution in not giving the aerospace giant a billion dollars, as it has been requesting for several months, the MEI points out that corporate subsidies create major distortions in the economy.
“Once again, the government is artificially favouring one company or economic sector, at the expense of other, more cost-effective projects,” said Mathieu Bédard, economist at the MEI.
The Quebec government already gave the company US$1 billion in October 2015 in order to ensure the development and marketing of the C Series. And since 1966, when it collected its very first subsidy, Bombardier has received over $4 billion in public funds.
“It is taxpayers who involuntarily become investors,” said Bédard. “They are forced to wager their money on the more or less likely success of risky subsidized projects chosen by politicians and bureaucrats for political reasons rather than economic ones.”
Even though in this case the contribution is reimbursable, it must be kept in mind that loans and loan guarantees offered by governments include a form of subsidy in the form of preferential rates and conditions. If this were not the case, private financial institutions would offer the same conditions. The fact that they don’t means that they consider the loan too risky.
“Taxpayers have been generous enough. It’s time to think about completely eliminating corporate subsidies so that the most successful and the most innovating would distinguish themselves, instead of those chosen by government,” said Bédard, adding that “Ottawa has nonetheless shown a certain degree of caution, which is commendable.”
The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.
