Ottawa’s Automotive Tax Grab

Even Jim Flaherty’s “We Don’t Pick Winners” Conservatives were under pressure in this budget to do something for the auto industry.  The fact that at least a dozen swing ridings in southwestern Ontario could determine the outcome of the next election might have something to do with their sensitivity to the continuing industrial destruction being wrought in what is still Canada’s most important export industry.  His budget went through the motions of at least appearing to care about auto — but that was about it.

The budget committed to create a new $250 million fund (over 5 years, so the government is putting in just $50 million per year) to support auto industry “innovation.” The government has offered no details on what sorts of activities will be supported by the project, or how the money will be handed out. If it only goes to pure R&D (the sort of activity that already qualifies for a generous 20% federal tax credit), it won’t make any significant difference whatsoever to the industry’s presence in Canada. In addition to arguing for this fund to be expanded, the CAW is pressing for the money to be made available flexibly to support on-the-ground investment projects (like the proposed Ford engine plant in Windsor, or the St. Catharines transmission investment).

The silly “feebate” program (which was a form of industrial policy in reverse: tax domestic production, and subsidize imports) has been partially eliminated by the budget.  The subsidies for imports are cancelled after the current (2008) model year.  But the government will continue to collect much MORE money from the continuing taxes on large vehicles (over $100 million per year, according to last year’s budget plan), than it pays into the new $50 million per year auto fund!  So the net effect of Ottawa’s measures is actually a tax grab (equal to $50 million per year) by Ottawa from the auto industry.  Windsor NDP MP Brian Masse has been making this point effectively since the budget.  Some of that money has been directed toward a previously-announced program to encourage the retirement of older, more polluting vehicles, of which no details have been announced.

Ottawa is providing a modest expansion of tax write-offs for capital investment to all manufacturers; this is also useful (much better than an across-the-board tax cut), but still of no benefit for companies which aren’t earning profits. And Ottawa has committed some funds ($400 million) to the future construction of access roads for a new Windsor-Detroit bridge crossing, whenever it is approved. All of these measures are all steps in the right direction, but the government has clearly not addressed the true scale of the industry’s crisis.

In fact, the government claimed in the budget (in a special box on p. 124) to have provided a cumulative total (up to and including 2012-13) of $1.6 billion in total to help the auto industry.  This is nonsense – but the fact they bothered to make the claim indicates they are feeling vulnerable on this issue.  Here is their breakdown of these “huge” benefits

:·        $1 billion: the assumed value to the auto industry of the across-the-board corporate tax cuts that were given to all industries.  Since most auto companies are not making profits these days anyway, the value of a corporate tax cut is approximately zero.

·        $400 million: money for the new Windsor bridge, which isn’t even being built yet (and isn’t just for the auto industry, anyway).

·        $250 million: the new auto innovation fund, over 5 years.

·        Unspecified: a small enhancement to Export Development loan guarantees for small exporters (will have no meaningful impact for assemblers or large parts producers).

·        $34 million per year: research support through the Natural Sciences and Engineering Research Council for “key industries” (including auto but also many others).

So as thousands of auto jobs continue to disappear, the government trumpets the value of income tax cuts for companies which have no income, and the cost of roads for a bridge that isn’t being built.  More than one anti-CAW commentator cited Ottawa’s “evidence” unquestionably in critiquing our response to the federal budget, saying more about their lack of independent thinking than anything else. 

Just for comparison purposes, consider that Ottawa collects about $1.5 billion per year in income taxes from Canadian autoworkers alone (let alone those employed in the various spin-off jobs that depend on the auto industry).  Using the same handy “cumulation” techniques employed in the budget, that would make a grand total of $12 billion or more in income taxes collected by Ottawa from autoworkers from the time Harper was elected until 2012-13.  Ottawa’s contributions to the auto industry are not remotely comparable to Ottawa’s fiscal take from the industry.  The government continues to milk the auto sector for whatever it’s worth – without paying serious attention to the need to sustain this incredibly important part of our industrial fabric.

2 comments

  • While protecting manufacturing jobs is a good idea, it would be nice if we could try to do without focusing on a environmentally destructive industry that may collapse in the next few decades.

    Canada has a good transit vehicle industry with several bus manufacturers and internationally successful Bombardier. Of course, transit vehicle assembly will never be as large as automobile assembly because transit is so much more efficient.

    If we do subsidize to automobile industry it should not only be on the condition that they focus on hybrids, but, as a general rule, we should expect equity in return for our investment, just like every other investor does.

    The benefits of equity are many:

    A share of the profits generated
    Power to influence the direction of the company and to insure they consider the interests of the Canadian people
    Weed out those who are just looking for free money when they could raise it themselves
    Eventual nationalization

  • Hi Darwin
    I completely about investing in building a more sustainable auto industry. The CAW’s been calling for years for a “green car strategy” that would support investments in Canadian facilities to produce smaller and alternative fuel vehicles. Here is our latest policy paper on the subject that maps out (on pp. 17-18) the main aspects of the strategy. People aren’t going to stop driving vehicles, but they will buy cleaner vehicles.
    CAW also represents workers in many public transit industries, including buses and subway cars, and fully supports more investments in public transit infrastructure. A stronger “buy Canadian” policy attached to those investments would make a major difference to Canada’s manufacturing base.
    I am not opposed, either, to governments taking equity positions in the companies that they support. That approach was used effectively in the past in Canada’s aerospace industry. And heh, if even free-market governments (like the UK and US) can nationalize beleaguered financial companies, then anything is possible!

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