The blockbuster deal

Canadian Press is reporting today that the Newfoundland government will invest $10 million a year for at least the next three years to keep Abitibi Consolidated from closing its paper mill in Stephenville. In addition, the story states that the deal can be renewed for up to 12 years after the initial deal expires in 2008.

Now frequent readers of this blog will know that I am in favour of targeted government incentives to stimulate new jobs but this deal is unbelievable. $10 million to sustain 400 jobs – that $25,000 per job per year and the company, as I read the press release, has the ability to keep the deal 12 more years after 2008. That would end up being $150 million to sustain 400 jobs.

Makes Premier Lord’s Molson deal seem like peanuts, doesn’t it?

I just hope the folks in Nackawic aren’t reading the newspaper tomorrow when the news of this deal breaks.

Do you think Premier Lord would spend $150 million to keep the mill in Nackawic open? 🙂

It’s deals like this that frig things up. Government incentives should be designed to stimulate the creation of new jobs that are sustained by a profitable and long term underlying business plan (i.e. the new Toyota plant in Ontario) not as a pure subsidy to keep people off EI. But even if you prefer subsidies to EI (and there is some benefit to this thinking) the subsidies shouldn’t be double or triple what the EI would have been.

We need to stop subsidizing bad business models and start stimulating good ones.