WILL A RE-ELECTED MAJORITY GOVERNMENT IN ONTARIO REALLY BENEFIT AUTO MANUFACTURING IN CANADA?
Given a series of highly publicized scandals, it might seem odd that the Ontario Liberal party would not only be re-elected on June 12 but gain majority status at Queen’s Park (taking 58 of the 107 seats in the provincial legislature). A closer analysis however, reveals that the re-election of the Liberals likely demonstrates a collective mistrust against the policies of one party (the Progressive Conservatives’ austerity measures and job cuts) rather than voting in favour of those offered by another.
Interestingly, the Liberals’ spring budget, which triggered the election was quickly reintroduced once the government was back in session on June 14.
Considered an “activist” budget by some, it will see the deficit actually increase by $1.2 billion to $12.5 billion for this fiscal year due to a principle focus on jobs and infrastructure. Nonetheless, reappointed Finance Minister, Charles Sousa maintains that after 2014, the deficit will actually fall — to $8.9 billion in 2015/16 and $5.3 billion in 2016/17, with a goal of being eliminated entirely by 2018.
DEALING WITH SHORTFALLS
By the Liberal government’s own admission however, revenue shortfalls in Ontario have been adding to fiscal challenges with some of the budget papers referencing the fact that actual revenues in 2014 were about $2.9 billion less than originally predicted four years prior. The findings also caused debt rating agency Moody’s to change its outlook on the province from “stable” to negative.” As a result, it is likely that ratings agencies will be paying close attention to ensure the elected government follows through with respect to raising revenues and decreasing expenditures.
So what does this mean for Ontario’s automotive sector? Traditionally both federal and provincial governments have worked together when it comes to automotive manufacturing investment because assembly plants are a significant job multiplier, not only for the automotive supply chain, but the broader economy as well.
While some scoff at the idea of government funding being provided to large, multinational firms as essentially “corporate welfare,” the reality is that public sector funding is necessary to secure investment in vehicle manufacturing. In fact, auto analyst Dennis DesRosiers recently noted that writing a cheque was the only tool in the box that Canada could really leverage for new investment since some of the others, such as a lower dollar and public healthcare no longer provide the advantages they once did.
In Canada, roughly 20 per cent of a manufacturer’s investment has been traditionally provided by both federal and provincial governments (by contrast, subsidies of up to 50 per cent have been offered to OEMs for setting up facilities in southern U.S. states).
Back in February, Ontario Progressive Conservative Leader Tim Hudak decried Chrysler’s request for up to $700 million from Queen’s Park and Ottawa to help anchor a $3.2 billion investment for its Windsor and Brampton assembly facilities, while Liberal Premier Kathleen Wynne also referred to the plan as “irresponsible.” As a result of this “politicization,” Fiat Chrysler CEO Sergio Marchionne withdrew his request for government assistance and promptly moved forward with private funding initiatives though cautioned that these would hinge on co-operation with Unifor, (the union representing Chrysler workers in Canada) and our country’s competitiveness against other jurisdictions.
MORE JOBS, LESS RED TAPE?
Nevertheless, the Ontario Liberals’ spring budget contained a $2.5 billion, 10-year Jobs and Prosperity Fund designed to attract and leverage investment in 11 key sectors, including the automotive industry. It also included initiatives designed to assist vehicle manufacturing such as the Industrial Energy Incentive Program (created to help save energy costs for those companies adding jobs and/or expanding their operations), as well as measures conceived to reduce red tape and boost productivity without impacting public safety.
Additionally, with $29 billion allocated for transportation and infrastructure over the next decade, measures designed to ease congestion should also impact the automotive supply chain, theoretically improving the shipment and distribution of both components and completed vehicles.
On the surface, it would therefore seem that a new majority Liberal government is looking for ways to continue supporting vehicle assembly in Ontario. However, in the face of revenue challenges, some necessary austerity measures, and very limited wiggle room on the expenditure side, the politics of continuing to provide public sector investment subsidies to vehicle manufacturers becomes a bit of a hot potato. For instance, the $700 million that Chrysler was reportedly seeking (albeit collectively from both governments) is about the same as that allocated over a 10-year period for deferred maintenance in Ontario hospitals.
If the automotive manufacturing pie is not growing then either, everyone’s slice becomes a little thinner or some gain bigger slices at the expenses of others. If sacrifices are to be made for the purpose of subsiding future automotive investment, then the government needs to ensure it gets a return on investment via commitment from OEMs in such areas as job guarantees and R&D.
Furthermore, neither Canada, nor Ontario should heed to the notion of protectionist measures that often arise during fiercely competitive times such as these, since greater competition tends to spur innovation, resulting in both a greater choice and affordability of vehicles for consumers.
