Economy Lab

Is Ottawa's aerospace review about productivity, or pork?

OTTAWA — The Globe and Mail

Federal Industry Minister Christian Paradis announces a review of federal aerospace and space policies on Monday at an aerospace school in Longueuil, Que. (Ryan Remiorz/THE CANADIAN PRESS)

When governments “review” programs it’s often with an eye to cutting them.

That’s apparently not the case with a sweeping federal review of the billions of dollars a year Ottawa pumps into the aerospace industry.

The object of this exercise is to help keep the industry globally competitive with cost-neutral changes to various loans, grants and credits Ottawa doles out.

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The aerospace industry, which generates sales of more than $22-billion a year and employs nearly 80,000 people, is facing a raft of challenges these days. There’s the lofty loonie, the prospect of much lower U.S. military spending and a gradual drift of production to low-cost countries, such as China and Brazil.

Even as it prepares to wield the ax to the civil service, the Harper government went out of its way to reassure the aerospace industry. It announced the review in Montreal, which is home to some of the main beneficiaries of federal largesse, including Bombardier, CAE and Pratt and Whitney.

Then, it named Jim Quick, president of industry lobby group Aerospace Industries Association of Canada, to one of the review panel’s three seats.

Ottawa’s apparent defence of business subsidies confirms an about-face for Prime Minister Stephen Harper. Back in 2004, the then-opposition leader promised to get rid of business subsidies as a condition of lowering business tax rates.

“I won't lower one without lowering the other,” Mr. Harper vowed back then.

That’s not quite the way it’s worked out. Ottawa has slashed business taxes (to 15 per cent from 22.5 per cent), while continuing to subsidize businesses.

Mark Milke, a senior fellow at the Fraser Institute, has spent years tracking federal subsidies to the aerospace industry and he says the Harper government is less transparent than previous Liberal governments about the money it doles out.

Based on Access to Information requests, Mr. Milke says he’s identified nearly $3-billion worth of “repayable contributions” by Industry Canada since 1982 to just seven major aerospace companies -- most based in Quebec. But he said figuring out what’s been repaid has proved difficult.

The government also appears poised to move to more direct funding of business research and development. A recent federal review of the government’s $7-billion R&D spending recommended a shift to direct funding and away from tax credits.

The Harper government has apparently discovered what many other governments quickly learn. Ministers and MPs love to make splashy local announcements with cheques in hand. It’s much harder to do that with a tax cut or a credit.

Ottawa is also embracing the decidedly un-conservative philosophy of picking winners and losers.

It’s increasingly clustering its in-house R&D efforts at the National Research Council around a smaller number of strategic projects, such as natural resources and agrifood. And its vowing to get much more out of the R&D dollars it lavishes on businesses, possibly by being more strategic about what industries get money.

That’s all well and good. Nurturing sectors where Canada has a strategic advantage makes sense.

The problem is that Ottawa continues to dole out far too much unproductive pork, spread evenly and non-strategically across the country -- billions and billions of dollars worth every year.