A for sale is sign is displayed in front of a house in Toronto's Riverdale area on Sept. 29, 2021.Evan Buhler/The Canadian Press
As the old saying goes, the best time to plant a tree is 20 years ago. The second best time is now.
That axiom came to mind with the recent news that the federal government had cancelled two much-heralded, but ill-conceived, billion-dollar subsidy programs: the First-Time Home Buyer Incentive Program and the Canada Digital Adoption Program (CDAP).
With apologies to whichever scribe first wrote down the wisdom about trees: the best time to cancel a poorly designed federal program is before it has launched; the second best time is now.
The two programs shared similar flaws. It’s instructive for us – and hopefully the bureaucrats who designed them – to examine why they were never going to work.
The program for prospective homebuyers was announced with much fanfare in the 2019 budget. Ottawa offered to, in effect, buy a small amount of equity in a newly purchased house (5 or 10 per cent), as long as the house was priced under $1-million and the buyer was below a certain income threshold. The homeowner had to buy out the government’s share after 25 years, or when they sold the house.
Ostensibly, the purpose of the program was to help homebuyers get into housing markets they otherwise couldn’t afford. But the price and income ceilings were too low to actually help anyone living in the hottest markets.
As many a realtor pointed out, what could one actually buy in Toronto or Vancouver for $1-million? The program got only 23 per cent of its expected uptake after five years; only a tenth of that went to buyers in B.C. and Ontario.
That low uptake was actually a good thing, since the program’s direct subsidies to homebuyers only served to make the affordability problem worse.
If every bidder on a house came armed with an extra 5 or 10 per cent more than they could afford, sellers could just increase their prices accordingly. If the program had been fully subscribed, it would have simply padded the profits of home sellers.
On CDAP, announced in the 2021 budget, it was a similar story. The federal government had a laudable goal: to address the sluggish investment in technology and innovation among small- and medium-sized businesses. Unfortunately, it sought to address it with a complicated offering of various subsidies and loans.
Many entrepreneurs found the program bizarre. Some of the subsidies were to go to businesses’ social-media ads – in effect meaning Ottawa was just writing cheques to Facebook and Google.
But the largest subsidies were grants of up to $15,000 to hire a consultant to draw up a plan on how a business could adopt new technologies. This did create one economic effect: a cottage industry sprung up overnight of questionably credentialed advisers who pummelled small-business owners with offers to write them plans for $15,000.
Some of the shadier ones even offered to split the $15,000 grant with business owners. Whether the plans were actually put into action didn’t even matter.
Last month, Ottawa pulled the plug. Although the government messaging was, bafflingly, that the program was “fully subscribed,” it had in reality spent less than a fifth of its $4-billion budget.
The failures of both programs show the danger of policy-by-subsidy. Throwing government money at a problem distorts markets and changes incentives in ways that are hard for bureaucrats to predict (even if, in the case of these two programs, they’re obvious in retrospect).
Better in both cases to fix problems by changing counterproductive rules. One of the best ways to relieve the housing crisis is to build more homes, a goal that has been stymied time and again by zoning and density regulations. The federal government can continue to lean on provinces and municipalities to clear away housing red tape.
It can do the same for businesses that need to invest in technology. Instead of corporate subsidies, Ottawa can make sure corporate taxes are designed in a way to encourage research and innovation, and to make sure intellectual property remains Canadian-owned.
There is one bright side to the fact that uptake on these doomed programs was so low: less money was thrown into the bonfire than planned.
The best time for Ottawa to waste money? Never.