Big-spending politicians often insist that more government spending is needed to help the poor. The cost of living is going up, therefore government must increase its spending and run bigger deficits to ensure the poor don’t get left behind, or so the profligate politicians like to claim.
But there are a few problems with this claim. Firstly, making government bigger to reduce poverty is problematic because big government and existing bad policy are largely to blame for driving up the cost of living and reducing economic opportunity for people at the bottom of the economic ladder.
For example, the high price of electricity in Ontario is responsible both for making life more expensive and killing jobs and causing businesses to shut their doors or move out of the province.
Another problem with politicians saying more government spending is needed to tackle poverty is that overwhelmingly, increasing the size of government makes the poor worse off. People often imagine that the government takes money from the rich and uses it to help the poor, but this is a myth.
In reality, when politicians make government bigger, the poorest citizens usually pay the cost while others benefit. Since poor people tend to have little political influence and few political connections, they’re the ones who get shafted when politicians hand out favours to politically powerful special interest groups — such as government employee unions.
Many studies show that government workers get paid far more than comparable private-sector workers. So when politicians increase government employee wages to please the unions, they are giving special benefits to a relatively higher-paid and more privileged class of workers, at the expense of the taxpaying public.
Crony capitalism — in the form of subsidies, regulations, tariffs, and other arrangements that benefit certain businesses or segments of the population to the detriment of the public at large — is another way people are hurt as politicians rush to provide special privileges to the rich and politically connected. (Hello Bombardier!)
In Ontario, the recent ramp-up in cronyism is largely due to the Liberal government’s environmental zeal, according to a report last year from the Canadian Taxpayers Federation. “The new frontier in corporate welfare,” wrote author Mark Milke, “is a bonanza for companies producing green products and services.”
A prime example of special-interest spending that benefits the rich at the expense of the poor is the $47-million spent so far on electric vehicle subsidies in Ontario (plus tens of millions more for electric vehicle “education” and infrastructure). Much of this money has gone to subsidizing luxury cars that retail for over $70,000.
Another example is the $150,000 per year subsidy that the Ontario government gives companies to hire “Multi-Site Customer Energy Managers.” It’s a program that benefits energy managers who get paid six figures, and the businesses that hire them. But it’s bad for the rest of us who pay the bill.
Yet more special subsidies and corporate welfare programs are funded by the Ontario government’s cap-and-trade system, which costs Ontario residents billions of dollars annually with minimal environmental benefits. If government wants to help poorer Canadians, cutting this wasteful spending and keeping energy costs down would be a good start.
— Matthew Lau is an economics writer in Toronto and a contributor to Canadians for Affordable Energy.