A primer on economic development incentives

Someone sent me a link re: the last post saying that $50 million in incentives for 500 jobs seems like a lot of money – particularly in light of my emphasis on ROI for government dollars invested in projects like this.  Without knowing the specifics of the deal and the amount of tax revenue generated from the project it is hard to know but don’t forget that the government of New Brunswick gave the same level of incentives (on a per job basis) to Molson, A.V. Nackawic and those northern textile mills.

But for newbies to this blog, let me restate my guiding principles relating to government incentives for economic development.

First of all, I completely disagree with this notion of having a ‘fund’ of money for economic development like the Miramichi fund or the Acadian Peninsula fund.   This approach limits your ability to support a large project if one comes along and – worse – governments feel the need to spend this money whether it is on good projects or not.  You end up with what the TJ calls ‘sprinkling’ money around with no focus and no real understanding if it is leading to an economic transformation in Miramichi or the Acadian Peninsula.

Instead of a fund that needs to be spent each year, I believe the government should enact legislation that allows it to access a variety of ED programs on a case by case basis.  For example, if you land a $2 billion car plant, you should have the legislative flexibility to put a competitive deal on the table. 

Secondly, I don’t like cash and I don’t believe that most companies – at least the large ones – like cash either.  There are tax implications and other baggage associated with cash incentives (like forgiveable loans or outright grants).  I like tax breaks (i.e. you create 200 above average wage jobs and you will get a 15 year break on your corporate tax bill).  I like free land and other infrastructure support that costs the government virtually no cash out of pocket.  I like rebate programs like Nova Scotia’s payroll rebate program which is cash but only after the company has generated economic activity in the community.  I like training support.  When a company comes to town and needs 300 people to work putting together solar panels, I think we should have boot camp community college programs to help assist in the training of the workers.  I like recruitment support.  If a company comes to New Brunswick and part of their workforce needs includes 10 Phds, let’s have a program to help recruit these people to New Brunswick.

For larger projects, I like the idea of industrial revenue bonds or some other mechanisms (i.e. like the NB Investment Corp) to issue bonds or even take an equity stake that is bought out over time – if it enhances the attractiveness of New Brunswick.

This brings me back to that big plant announced for Tennessee (last post).  If the bulk of that $50 million deal was tax breaks, that is money that Tennessee wouldn’t have received anyway if the company didn’t set up in the state.  So the state forgoes corporate and property taxes but gets several million a year in payroll-related taxes. 

My overarching principle when it comes to incentives is simple.  I have heard BNB Ministers, DMs and ADMs say for 20 years that ‘we can’t compete with Nova Scotia on incentives’ or ‘we will never be able to  match the incentives offered in Alabama or Ontario’.  In my mind that attitude explains a lot.

I don’t like giving out tax payer dollars but I will never recommend that New Brunswick take some moral high ground while 80% of the states and provinces across the U.S. and Canada are doling out the gravy.  When everyone else stops giving incentives, so should we.  Until then, we should be as ‘competitive’ as we need to be understanding that all projects must provide an ROI on the government funds invested.  In other words, if we put money into a project that there was a strong likelihood would never generate a payback, we are wasting the taxpayers’ money.

2 thoughts on “A primer on economic development incentives

  1. “I don’t like giving out tax payer dollars but I will never recommend that New Brunswick take some moral high ground while 80% of the states and provinces across the U.S. and Canada are doling out the gravy.”

    I like that quote, it brings me back to the numbers you put up on corporate welfare per capita (it was in the post about the Fraser Institute paper). Those numbers showed that we are way behind in terms of paying businesses to set up in our province. As much as I dislike getting into the equivalent of an economic development arms race…….if the other provinces and states have the “bomb”, we need it too.

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