Fraser Institute
Trudeau and Ford should attach personal fortunes to EV corporate welfare

From the Fraser Institute
By Jason Clemens and Tegan Hill
Last week, with their latest tranche of corporate welfare for the electric vehicle (EV) sector, the Trudeau and Ford governments announced a $5.0 billion subsidy for Honda to help build an EV battery plant and ultimately manufacture EVs in Ontario. Here’s a challenge: if politicians in both governments truly believe these measures are in the public interest, they should tie their personal fortunes with the outcomes of these subsidies (a.k.a. corporate welfare).
One of the major challenges with corporate welfare is the horrendous economic incentives. The politicians and bureaucrats who distribute corporate welfare have no vested financial interest in the outcome of the program. Whether these programs are spectacularly successful (or more likely spectacular failures), the politicians and bureaucrats experience no direct financial gain or loss. Simply put, they’re investing taxpayer money, not their own.
Put differently, the discipline imposed on investors in private markets, such as the risk of losing money or even going out of business, is wholly absent in the government sector. Indeed, the history of corporate welfare in Canada, at both the federal and provincial levels, is rife with abject failures due in large measure to the absence of this investing discipline.
In the last 12 months in Ontario, automakers have been major beneficiaries of corporate welfare. The $5.0 billion for Honda is on top of $13.2 billion to Volkswagen and $15.0 billion to Stellantis. That equates to roughly $979 per taxpayer nationally for federal subsidies and an additional $1,372 for Ontario taxpayers. And these figures do not include the debt interest costs that will be incurred as both governments are borrowing money to finance the subsidies.
And there’s legitimate reason to be skeptical already of the potential success of these largescale industrial interventions by the federal (Liberal) and Ontario (Conservative) governments. EV sales in both Canada and the United States have not grown as expected by governments despite purchase subsidies. Disappointing EV sales have led several auto manufacturers including Toyota and Ford to scale-back their EV production plans.
There are also real concerns about the practical ability of EV manufacturers to secure required materials. Consider the minerals needed for EV batteries. According to a recent study, 388 new mines—including 50 lithium mines, 60 nickel mines and 17 cobalt mines—would be required by 2030 to meet EV adoption commitments by various governments. For perspective, there were a total of 340 metal mines operating across Canada and the U.S. in 2021. The massive task of finding, constructing and developing this level of new mines seems impractical and unattainable, meaning that EV plants being built now will struggle to secure needed inputs. Indeed, depending on the type of mine, it takes anywhere from six to 18 years to develop.
Which brings us back to the Trudeau and Ford governments. Given the economic incentive problems and practical challenges to a large-scale transition to EVs, would members of the Trudeau and Ford governments—including the prime minister and premier—want to attach a portion of their personal pensions to the success of these corporate welfare programs?
More specifically, assume an arrangement whereby those politicians would share the benefits of the program’s success but also share any losses through the value of their pensions. If the programs work as marketed, the politicians would enjoy higher valued pensions. But if the programs disappoint or even fail, their pensions would be reduced or even cancelled. Would these politicians still support billions in corporate handouts if their personal financial wellbeing was tied to the outcomes?
As the funding of private companies to develop the EV sector in Ontario continues with the support of taxpayer subsidies, Ontarians and all Canadians should consider the misalignment of economic incentives underpinning these subsidies and the practical challenges to the success of this industrial intervention.
Authors:
Banks
Scrapping net-zero commitments step in right direction for Canadian Pension Plan

From the Fraser Institute
By Matthew Lau
And in January, all of Canada’s six largest banks quit the Net-Zero Banking Alliance, an alliance formerly led by Mark Carney (before he resigned to run for leadership of the Liberal Party) that aimed to align banking activities with net-zero emissions by 2050.
The Canada Pension Plan Investment Board (CPPIB) has cancelled its commitment, established just three years ago, to transition to net-zero emissions by 2050. According to the CPPIB, “Forcing alignment with rigid milestones could lead to investment decisions that are misaligned with our investment strategy.”
This latest development is good news. The CPPIB, which invest the funds Canadians contribute to the Canada Pension Plan (CPP), has a fiduciary duty to Canadians who are forced to pay into the CPP and who rely on it for retirement income. The CPPIB’s objective should not be climate activism or other environmental or social concerns, but risk-adjusted financial returns. And as noted in a broad literature review by Steven Globerman, senior fellow at the Fraser Institute, there’s a lack of consistent evidence that pursuing ESG (environmental, social and governance) objectives helps improve financial returns.
Indeed, as economist John Cochrane pointed out, it’s logically impossible for ESG investing to achieve social or environmental goals while also improving financial returns. That’s because investors push for these goals by supplying firms aligned with these goals with cheaper capital. But cheaper capital for the firm is equivalent to lower returns for the investor. Therefore, “if you don’t lose money on ESG investing, ESG investing doesn’t work,” Cochrane explained. “Take your pick.”
The CPPIB is not alone among financial institutions abandoning environmental objectives in recent months. In April, Canada’s largest company by market capitalization, RBC, announced it will cancel its sustainable finance targets and reduce its environmental disclosures due to new federal rules around how companies make claims about their environmental performance.
And in January, all of Canada’s six largest banks quit the Net-Zero Banking Alliance, an alliance formerly led by Mark Carney (before he resigned to run for leadership of the Liberal Party) that aimed to align banking activities with net-zero emissions by 2050. Shortly before Canada’s six largest banks quit the initiative, the six largest U.S. banks did the same.
There’s a second potential benefit to the CPPIB cancelling its net-zero commitment. Now, perhaps with the net-zero objective out of the way, the CPPIB can rein in some of the administrative and management expenses associated with pursuing net-zero.
As Andrew Coyne noted in a recent commentary, the CPPIB has become bloated in the past two decades. Before 2006, the CPP invested passively, which meant it invested Canadians’ money in a way that tracked market indexes. But since switching to active investing, which includes picking stocks and other strategies, the CPPIB ballooned from 150 employees and total costs of $118 million to more than 2,100 employees and total expenses (before taxes and financing) of more than $6 billion.
This administrative ballooning took place well before the rise of environmentally-themed investing or the CPPIB’s announcement of net-zero targets, but the net-zero targets didn’t help. And as Coyne noted, the CPPIB’s active investment strategy in general has not improved financial returns either.
On the contrary, since switching to active investing the CPPIB has underperformed the index to a cumulative tune of about $70 billion, or nearly one-tenth of its current fund size. “The fund’s managers,” Coyne concluded, “have spent nearly two decades and a total of $53-billion trying to beat the market, only to produce a fund that is nearly 10-per-cent smaller than it would be had they just heaved darts at the listings.”
Scrapping net-zero commitments won’t turn that awful track record around overnight. But it’s finally a step in the right direction.
Business
Federal fiscal anchor gives appearance of prudence, fails to back it up

From the Fraser Institute
By Jake Fuss and Grady Munro
The Parliamentary Budget Officer (PBO)—which acts as the federal fiscal watchdog—released a new report highlighting concerns with the Carney government’s fiscal plan. Key among these concerns is the fact that the government’s promise to balance its “operating budget” does not actually ensure the nation’s finances are sustainable. Instead, the plan to balance the operating budget by 2028/29 gives the appearance of fiscal prudence, but allows the government to continue running large deficits and borrow more money.
First, what’s the new government’s fiscal plan?
While the Carney government has chosen to delay releasing a budget until the fall—leaving Canadians and parliamentarians in the dark about the state of government finances and where we’re headed—the Liberal platform and throne speech lay out the plan in broad strokes.
The Carney government plans to introduce a new framework that splits federal spending into two separate budgets: The operating budget and the capital budget. The operating budget will include “day-to-day” spending (e.g. government salaries, cash transfers to provinces and individuals, etc.) while the capital budget will include spending on “anything that builds an asset.” Within this framework, the government has set itself an objective—also called a ‘fiscal anchor’—to balance the operating budget over the next three years.
Fiscal anchors help guide policy on government spending, taxes and borrowing, and are intended to prevent government finances from deteriorating while ensuring that debt is sustainable for future generations. The previous federal government made a habit of violating its own fiscal anchors—to the detriment of national finances—but the Carney government has promised a “very different approach” to fiscal policy.
The PBO’s new report highlights two critical concerns with this new approach to finances. First, the federal government has not yet defined what “operating” spending is and what “capital” spending is. Therefore, it’s difficult to know whether any new spending policies—such as the recently announced increase in defence spending—will hurt efforts to achieve the government’s goal of balancing the operating budget and how much overall debt will be accumulated. In other words, the government’s plan to split the budget in two simply muddies the waters and makes it harder to evaluate federal finances.
The PBO’s second, and more alarming, concern is that even if the government achieves its goal to balance the operating budget, federal finances may still continue to deteriorate and debt may rise at an unsustainable rate (growing faster than the economy).
While the Liberal election platform does outline a fiscal path that appears to balance the operating budget by 2028/29, this path also includes higher deficits and more borrowing than the previous government’s plan once you factor in capital spending. Specifically, the Carney government plans to run overall deficits over the next four years that are a combined $93.4 billion more than was previously planned in last year’s fall economic statement. This means that rather than the “very different approach” that Canadians have been promised, the Carney government may continue (or even worsen) the same costly habits of endless borrowing and rising debt.
The PBO is right to call out the major transparency issues with the Carney government’s new budget framework and fiscal anchor. While the devil will be in the details of the government’s fiscal plan, and we won’t know those details until it releases a budget, the government’s new fiscal anchor gives the appearance of prudence without the substance to back it up.
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