We’ve all heard the stories about people who live in subsidized housing somehow or other being able to afford the big screen TVs or the latest model cars and SUVs. The practice is infrequent enough to justify calling it rare, but it does happen, and when it does, taxpayers are rightfully indignant that their generosity should be so blatantly abused. What does it say when the abuser isn’t an individual though, but a whole government?
This week, Ontario’s Liberal government announced plans to offer a rebate of up to $10,000.00 to everyone who replaces their gasoline fueled vehicle with one that runs on electricity. The goal, according to the government, is for 5 percent of all cars in Ontario to be electric-powered by the year 2020.
On the surface at least, the plan looks good. It will help kick-start an ailing auto industry, create jobs and reduce greenhouse gas emissions. Scratch below the surface though, and it quickly becomes clear just how bad the whole idea really is.
To start with, Ontario taxpayers can’t afford to fund such a gold-plated subsidy. Since taking office in 2003, the McGuinty Liberals have already increased government spending in the range of 40%. In doing so they have transformed Ontario’s economy from the engine that drives Canada’s prosperity to that of a so-called “have not” province seeking handouts from other regions of the country.
Ontario’s deficit is now approaching $20 billion on spending of somewhere around $100 billion in the current fiscal year. To put that into perspective, consider that the budget crisis threatening to force the State of California into bankruptcy was triggered by a shortfall of $21 billion on spending of a little over $111 billion – numbers similar to those of Ontario, except that California has a population more than three times that of Ontario. In short, there’s simply no money left in Ontario to pay for this program – the cupboard is bare. Who will have to fund it if it goes ahead then?
Taxpayers from other provinces, that’s who.
Is that fair?
Good for the environment? Think again. The electricity that will be needed to power the plug-in cars will have to be produced somehow. Yes, I know, electrical consumption in Ontario is down significantly, but that’s mainly due to the recession, not conservation. When the economy begins to recover, consumption will begin to grow again too. Throw in the new demands of a large number of electric cars and the need for increased generating capacity becomes acute. That means more fossil-fuel burning generators or more nuclear power – windmills and solar panels just won’t do the trick.
What about helping the auto industry?
Let’s get something straight once and for all: the auto industry is not in crisis. GM and Chrysler may be, but all of the other manufacturers – and there are several – seem to be riding out the storm just fine. True, fewer cars are being sold right now, but they are still being sold. Had GM or Chrysler been forced to close their doors, other manufacturers would have picked up their market share. The government didn’t save the auto industry by acquiring an ownership stake in GM; it saved GM.
And that’s the point. The government won’t be helping the auto industry with its proposed subsidy for plug-in cars; it’ll be helping the one company willing to mass produce the product – GM. This is exactly the sort of policy rigging one can expect when government assumes an ownership stake in what should be a private company.
No wonder manufacturers like Toyota are crying foul. It’s the ultimate conflict of interest. Toyota has been a model corporate citizen since setting up shop in Cambridge Ontario in 1986. Now, if the McGuinty government has its way, it will be forced to pay higher taxes in order to subsidize its competition. Of course, the government could re-establish a level playing field by either expanding the subsidy to include something that other manufacturers are producing or creating new subsidies altogether, but both of these solutions require even more spending and, inevitably, higher taxes.
What about creating jobs? It might, although the US $40,000 price tag is pretty steep for a car that is, for all intents and purposes, only for local, urban use, even with a $10,000 rebate. The only problem is that GM is planning to produce the cars in Detroit only, not Ontario.
There is a way that government can boost new car sales, create jobs here at home and strengthen the auto industry as a whole, all without increasing spending, buying shares or picking winners and losers. It could cut the sales tax on new car purchases, and reduce taxes, fees and red tape at the manufacturing stage that artificially drive the cost of production up. On a car that retails at US $40,000 plus tax, I’ll bet you could find $10,000 in savings right there. We’d soon learn if there really is a market for them.
Don’t expect that kind of common-sense approach from this bunch though. For them, the very idea of leaving economic decisions to individual consumers is repugnant. Picking winners and losers isn’t just the byproduct of their economic policy; it’s the goal, and they don’t much care whose money they spend – or how much – to achieve it.