A quick word on economic impact

I just wanted to make a quick point this morning about economic impact.  This stems from a conversation I had a few weeks ago with someone that owned a company in the proivnce.  They were talking about how a specific company generated over $2 million a year in economic activity for the local community and that economic impact justified a $1 million in grants from government.

Return on taxpayer investment, whether you like it or not, should be tied to significant incremental tax revenue generated.  In the example above, the $2 million in payroll will only generate something like a few hundred thousand per year in new taxes for the provincial government – even if you consider indirect and induced impacts.  In addition, if the government only received back in incremental new taxes about the same as the money they put into a project, it would be a neutral benefit. 

These types of projects need to generate significant incremental tax revenues – well above any grants or contributions to be worthwhile.  Quite frankly, that is why I much prefer tax-based incentives.  The government gives up corporate taxes but immediately benefits from the incremental personal income taxes generated.