This article originally appeared in the Financial Post. Below is an excerpt from the article.
By Jack Mintz, November 27, 2024
Swedish battery manufacturer Northvolt filed for Chapter 11 bankruptcy protection in the southern district of Texas yesterday. That’s bad news for the federal and Quebec governments, which have committed $2.7 billion in capital and a further $4.6 billion in future production subsidies to the financially strapped EV company. Quebec also took a $420-million equity stake it may soon regret. If, as expected, Northvolt does go belly up, Canada can kiss $3 billion goodbye.
Northvolt isn’t the first company to dine at the taxpayer trough, of course. Many Canadian businesses lobby for subsidies on the premise that each grant dollar will create multiple dollars of GDP. In fact, if we added up all the multiplier effects subsidy-seeking businesses claim, our economy would be half the size of the American, instead of just one-eleventh.
Corporate welfare is one reason for Canada’s poor productivity record. Subsidies kill productivity two ways. If they go to companies with poor profitability, economic growth suffers as workers and capital are tied to sub-par investments. On the other hand, if they go to highly profitable companies, money raised with growth-killing taxes is wasted supporting investments that probably would have taken place anyway. Either way, there is no free lunch.
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Jack Mintz is the President’s Fellow at the University of Calgary’s school of public policy and a distinguished fellow at the Macdonald-Laurier Institute.
