Vehicles move along the assembly line at Honda's automotive assembly plant in Alliston, Ont., in 2024.Carlos Osorio/Reuters
The latest report from Quebec’s Auditor-General, Christine Roy, adds to a vast literature of cautionary tales that warn governments not to stick their fingers into the economy to pick winners and losers. Spoiler alert: They have a bad habit of picking losers.
Her analysis of the province’s six-year-old plan to pour billions of taxpayer dollars into subsidies for electric-vehicle battery plants, released earlier this month, concludes that Quebec’s strategy was “based on a largely unplanned approach.” Her team looked at $2.2-billion in handouts to 11 companies, and concluded the exercise lacked “essential elements, such as objectives, timelines and targets.”
Worse, the audit found that four of the 11 companies that received taxpayer cash later filed for credit protection, after getting $760-million. (Some of that money may be recovered.) Two companies suspended or abandoned their business plans altogether.
One of the losers picked to light Quebec taxpayer money on fire most spectacularly was Sweden’s Northvolt AB. The company had talked up a $7-billion Montreal-area facility to build battery cells, which would have been the biggest private-sector project in the province’s history.
But Northvolt’s operation flamed out, and $270-million in provincial cash went up in smoke. Ottawa had also promised, but not yet given, Northvolt up to $4.4-billion in future production subsidies.
Swedish EV battery maker Northvolt files for bankruptcy, putting Quebec plant plans in doubt
Responding to the audit, Quebec’s Economy Ministry issued the usual the other-guys-were-all-doing-it-too response: Governments across North America and the world – particularly the U.S. under then-President Joe Biden – were throwing money at battery companies and EV makers. Competition was fierce.
But Quebec says that it, and other jurisdictions, were taken by surprise by what happened next. There was a major slowdown in EV demand. And Donald Trump came along and undid some of those big U.S. subsidies, while slapping Canada’s auto sector with punitive tariffs and suggesting cars needn’t be made in Canada at all.
The spendthrift approach to subsidies is not limited to Quebec or batteries. Federal corporate subsidies of all kinds have shot up over the past decade and a half. Ontario, according to the Montreal Economic Institute, a free-market think tank, surpassed la belle province as the country’s top province for “corporate welfare” in 2018 and hasn’t looked back.
Ottawa and Ontario joined the EV-battery spending spree, which totalled more than $50-billion in pledged subsidies. While Ontario has not seen a Northvolt level washout, some big companies have walked away or scaled back big promised EV or battery factories, including, most recently, Honda.
Report that Honda might shelve Ontario EV plant points to industry upheaval, Ottawa says
It is true that Volkswagen AG’s massive PowerCo SE battery-cell “gigafactory” is still going ahead in St. Thomas, Ont., the largest single auto-industry investment in Canadian history, which comes with a promised 3,000 jobs.
But it also has a price tag of more than $13-billion in taxpayer cash, some of it paid upfront from Queen’s Park to help with construction but the vast majority pledged by Ottawa over 10 years and tied to future production.
So even this apparent success is really a failure. If it makes economic sense to build these battery plants in Canada, it should be doable without massive government handouts.
In reality, the bill for these subsidies is passed on to all other companies, across all sectors, that don’t benefit from this government largesse. They get a particularly bad deal: They get to keep paying higher-than-necessary taxes, in order to fuel a state-run cheque-writing machine for others.
Joly to meet Chinese EV makers as they eye investment in Canada
No one wants to see good-paying auto-sector or other manufacturing jobs leave the country. And it is true that many other jurisdictions use subsidies to attract investment.
But there is another way: Scrap all the corporate welfare and use the freed-up cash to cut corporate taxes, across the board. Companies that can actually stand on their own, without handouts, will create new jobs and grow. The strongest, most productive firms will expand.
What about those EVs? Canadians will be able to buy cheap EVs, helpfully subsidized with other countries’ tax dollars.
If it makes sense to build some batteries or cars here, those investments will still come. Meanwhile, this country will make and do other things, more competitively, more productively – with private investors and millions of consumers picking the winners and the losers, not governments.