An Ontario pasta maker is getting an extra helping of taxpayer money.
The federal Liberal government announced it is giving $1.7 million in corporate welfare to Italpasta, a pasta manufacturer in Brampton, Ont.
The handout is supposed to meet a “growing product demand.”
The company makes an estimated $25 to 100 million annually, according to the business insight website Owler.
Taxpayers will pay to replace old equipment with a “state-of-the-art production line.”
It said the new equipment will triple the company’s production capacity, reduce production times, increase supply chain spending and create ten skilled jobs.”
The government said the tax-funded handout will assist the pasta company in addressing the “evolving needs” of both domestic and global markets while reducing energy consumption.
According to the announcement, the Federal Economic Development Agency for Southern Ontario, the branch responsible for the handouts, the Liberal government has given over $40 million to more than 100 projects in Brampton since 2015.
FedDev Ontario also gave $75 million to more than 80 food manufacturing businesses since Trudeau was first elected in 2015.
This isn’t the first time the Canadian government has handed out tax funds to the Canadian pasta manufacturer. In 2015, Stephen Harper’s government spent $3.4 million to assist the company in producing macaroni and cheese products.
The last subsidy in 2015 created eight new jobs at Italpasta.
The Harper handout was done through the AgriInnovate program. According to the government website, the objective is to provide “repayable contributions” to incentivize commercial innovations.
Jake Fuss, the director of fiscal studies at the Fraser Institute, warns that business subsidies like these will likely have the opposite effect on the economy than intended.
“There’s little to no empirical evidence that corporate welfare creates jobs on the net or produces widespread economic benefits. What happens instead is that governments are simply picking winners and losers,” he told True North in an interview. “They’re shifting jobs and investment away from other firms and industries and circumventing the preferences of consumers and investors.”
He said corporate welfare is just one example of governments believing they know the market better than investors and entrepreneurs.
“They’re using taxpayer money to allocate scarce resources to their favoured projects and industries, which actually hinders economic growth, something we desperately need in Canada,” Fuss said.
Fuss believes that when governments interfere in the market, they distort private decisions and misallocate resources, making the economy “far less efficient” than if left in the hands of private individuals.
“This can have consequences for economic growth, living standards for Canadians, and job creation,” he said. “The better option to generate widespread economic benefits is to let Canadians make their own decisions about where to spend their money and subsequently determine what businesses will actually succeed in the market.”
Fuss said government subsidies could disadvantage companies that don’t receive handouts. These companies otherwise would have created jobs as demand and capital investments grew for their industry and business.
“(Government) might not be creating as many jobs by doing these measures than if (it) chose not to interfere in the market,” he said.
Investors might fund a less efficient company to chase government funds rather than more productive industries and companies.
He warned that corporate welfare could create a toxic environment that incentivizes spending on lobbyists to obtain government funding rather than on production.
“When (government) is giving out corporate welfare, (competitors or other industries) also want those same benefits, subsidies or other agreements with governments,” he said. “That creates bad incentives in a system where everybody’s asking the government for money to essentially subsidize jobs or other things as well, for the companies and industries.”
The federal government spent $52 billion on corporate welfare in 2022, though Canada’s unemployment rate has increased.
“This isn’t proving successful for Canada right now,” he said. “We also have challenges with job creation, especially in the private sector, so we’re kind of just doubling down on this strategy right now in Canada. It’s not working. It’s not proving to be effective over time.”