For those of you that believe any government incentives to attract industry are an abomination, please click on the top right X of your window and close this posting as I will be dealing directly with that abomination.
I have raised this before but I think it’s well worth a refresh after Halifax announced a major coup yesterday.
The province of Nova Scotia is giving $9.1 million in payroll rebates to the Bermuda-based hedge fund management firm if it creates and maintains 400 jobs over the next seven years.
These jobs all require formal degrees in accounting and some require even more skills. From Census and wage surveys we know that the salary range here will be between a starting wage of around $42,000 going up to $80,000 or higher.
PS – I have been adamant that New Brunswick target financial back offices but so far to no avail.
So the comments I have are these:
As far as I know, New Brunswick has not changed its incentive programming in 15 years. If anyone has knowledge of this let me know but if you go to the BNB web site you get boilerplate that reads about “tailoring a customized financial package to meet your needs” or some such rot.
Essentially, the loan/forgiveable loan model has been used almost exclusively since Frank McKenna around 1990 (when I came on the scene).
Meanwhile other jurisictions have evolved. Nova Scotia implemented a payroll rebate incentive program which gives the company ‘cash back’ only when the create jobs. While not a perfect model it makes sense for a number of reasons:
1. No risk to taxpayers. If the company doesn’t create and sustain the jobs, they don’t get the incentive. Contrast that with an NB loan which is paid up front and much harder to get back if the project goes bust.
2. It is easier to draw a straight line for the public as to the value of the project. Company x employees generate $25 million in new taxes for the NS government and we rebate a portion of that to the company. You might argue that a forgiveable loan has similar effect but it is harder to draw that straight line.
3. Companies seem to like it. By my count, Nova Scotia has attracted 2-3 times as many projects as New Brunswick in the last 4-5 years (including VAS).
Overall, I think New Brunswick needs to get much more innovative on this front.
The truth is that any kind of use of public funds to encourage private investment are going to be decried by lots of folks. How dare you give public money to those greedy firms?
But I believe you have to get above ideology on this. The truth is that just about every jurisdiction does it from Alberta to Ontario to Quebec. That’s the blunt truth.
And the question is this. Who needs the jobs more? New Brunswick with its declining population, disappearing communities and ever increasing dependency on Federal transfers or Alberta and Ontario with very strong economies?
You might argue both.
Having said all that, incentive programs such limit the risk to taxpayers (like payroll rebates and and tax incentives which are based on after the fact economic activity). Forgiveable loans or straight loans mean much more risk to the taxpayer. In addition, incentives should be based on a realistic payback for the taxpayer. If you invest $10,000 of my money to attract a firm, you had better get $30,000 back over time. And that is what a good incentive program (like the NS payroll rebate program) does.
I have said before my preference is for programs like the payroll rebate or tax incentives for direct job creation and investment. General tax cuts, the preferred method for Conservatives, doesn’t guarantee job creation and usually are so diffused they have limited impact (unless they are massive like a 50% cut in corporate tax rates). In addition, as I have also stated many times before, we don’t even know where corporations are paying their corporate taxes.