VICTORIA: The BC division of the Canadian Taxpayers Federation (CTF) today released a study examining loans and guarantees made by the ministries of Employment and Investment (EI), Small Business, Tourism and Culture (SBTC), and the crown corporation Forest Renewal British Columbia. The study, based on information received by the CTF under the Freedom of Information Act, found that the government has written off at least $31.7 million and expects to write off at least another $104 million. The CTF, using conservative rates of interest, estimates the opportunity cost of such write-offs is $377 million.

"Business subsidies have been an expensive experiment under both the Socreds and the NDP," CTF-BC director Mark Milke. "Like corporate welfare elsewhere, the results have been disastrous for taxpayers. It's time the experiment ended."

Results of the CTF study:


Employment and Investment (since 1986/87):

Of the $459 million in loans/investments placed since 1986/87, only $74 million (16%) has been re-paid to date.

To date, $27.2 million in loans have been written off and the government anticipates losing another $104 million, for a total projected loss rate of 29% or $131.2 million.

This projected loss rate is 30 to 70 times higher than projected loss rates for business loans issued by the major banks.

When compared with a conservative prime business loan rate, the loans (equity investments excluded) earned 2.91% interest, compared to 8.83% average prime loan rate over the same period. The difference represents a hidden interest subsidy of at least $41.7 million dollars.

On a net opportunity cost basis (the difference between what the money invested actually earned and what it could have earned assuming all revenues were prudently reinvested,) the CTF estimates the loan programs added at least $340 million to the province's net debt.


Small Business, Tourism and Culture (since 1985/86):

While these loan programs were terminated over six years ago, only 73% of the $51.6 million in loans have been repaid to date.

To date, $2.4 million in loans have been written off and the government anticipates losing another $2.8 million for a total projected loss rate of 10%.

This projected loss rate is between 7.7 and 20 times higher than the projected loss rate for business loans issued by the major banks.

When compared with a conservative prime business loan rate, the loans earned 2.38% interest, compared to 8.83% average prime loan rate over the same period. This difference represents hidden interest subsidy of at least $15.8 million dollars.

On a net opportunity cost basis, the CTF estimates the loan programs added at least $37.7 million to the province's net debt.


Forest Renewal British Columbia

$81 million has been committed to various loan and credit enhancement programs.

The information provided by FRBC is incomplete.

The fragmented data suggests FRBC has actually lent out $61.6 in business assistance loans and emergency credit. An estimated $21.9 million has been repaid to date (36%) and $2.1 million has been written off (3%.) This suggests and outstanding loan balance of $37.6 million.

Solutions

As part of the study, the CTF has drafted model legislation, the Business Financial assistance Limitation Act, which would prevent loans or loan guarantees to business unless each proposed case was first voted on in the Legislature.

"It is time for the government to get out of the business of being in business and stick to the basics; balance the budget, reduce the province's debt, reduce taxes, simplify the tax system, and reduce regulatory burdens placed on business," said Milke. "Moreover, if Premier Ujjal Dosanjh wants to distance himself from his predecessors - and return to previous NDP policy - scrapping corporate welfare in BC is one way to do it."