When it comes to public finance, nothing should be a “no-brainer”

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The Article

The controversy surrounding the Harper government’s decision to give $400K to Toronto’s Gay Pride Festival continues to grow. In his July 9th column in the National Post, Don Martin calls the decision a “no-brainer”, reporting as fact the claims that the event leaves a $100-million “economic footprint”, creates 650 jobs and generates $18-million in tax revenue. Mr. Martin is right of course; the grant – and others like it – was indeed a “no-brainer”. That’s precisely the problem.

Let’s start with the claim that the Festival generates $100-million “economic footprint”. This is an estimate of the gross economic activity surrounding the event. What’s important, however, is not its gross impact, but its net impact, that is, the aggregate of all commercial activity connected to the event minus the aggregate of commercial activity that would have occurred in the same time-frame had the event not been held.

The reason why net impact is important is easy to understand when you think about it.

Let’s say I live in a Toronto suburb and decide to travel downtown to take in the Pride Parade. While there, I might buy a hotdog and drink at a small restaurant along the parade route. That would count as part of the $100-million footprint. In the absence of the Pride Parade, however, I would still have to eat. I might find myself grabbing a hotdog in the same place, or I might eat at a restaurant in a different location closer to where I live. I might also buy groceries at my local supermarket and just eat at home.

The same thing goes for those who visit from outside Toronto for the Festival. The money these visitors pump into the city’s economy counts as part of the aforementioned $100-million, but who can say that they would refuse to visit if there were no Festival? And even if they did stay away, does that mean that they no longer take vacation? Perhaps they will spend their holiday and entertainment dollars elsewhere in Ontario or Canada.

The point is this: economic activity would not just grind to a halt if the Gay Pride Festival wasn’t held. Consumers will still consume; they may spend their money on other products and activities elsewhere, but they will still spend their money, generating the same tax revenue. The net benefit of the Festival, then, is much smaller than the $100-million being bantered about.

What’s more, any net benefit – however small it is – to Toronto’s business community is a net loss to other communities in competition with that city for the same tourism dollars. Not only is the resort operator in the Lake-of-the-Woods region of north-western Ontario losing potential customers, he’s paying to lose them as well!

But the real issue here isn’t the overall economic impact of the Festival; it’s the specific impact of the $400K federal grant. Given that the Festival has operated for years and will certainly continue to do so in the future without it, the impact of the grant, and therefore the net benefit to taxpayers – even those who live in Toronto – is virtually zero.

This brings us to the issue of whether or not federal taxpayers should be subsidizing any cultural festival. It’s a good question.

Fiscal conservatives rightly criticize the use of tax dollars to subsidize businesses and stimulate economic activity, but when it comes to so-called cultural events, they tend to give the government a pass. This is difficult to understand since the same principles apply to the cultural industry as any other. The Calgary Stampede may be great for that city’s economy (although I question how big the benefit is for the same reasons I question the claims surrounding Toronto Gay Pride Festival), but its net impact for taxpayers in the rest of the country is also zero. Whether it’s Gay Pride in Toronto, the Stampede in Calgary, or Quebec City’s winter Carnivale, using federal tax dollars to support such events means forcing someone elsewhere in the country in the tourist industry to subsidize their competition.

If local citizens and businesses want to pay the higher taxes necessary for their local government to support cultural festivals that attract tourists to their region, that’s fine, but when the provincial and federal governments force taxpayers from other regions to support the very same events, it becomes a problem, especially when those taxpayers are doing so at the expense of their own economic well being. In that case, a little less “no-brainer” attitude on the part of politicians and bureaucrats and a little more critical analysis would be a good thing.

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