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    November 2012
    M T W T F S S
    « Oct   Dec »


    There Is Only One Workable Government Incentive

    Don Shaughnessy

    The American Presidential election has provided us with repetitive rhetoric about how the government will create jobs and renew prosperity.  Surely, no one takes these folks seriously.  It is hubris and the result is the same as it would be in a Greek tragedy.

    No government has ever created a productive job.  No government incentive has ever led to much either.  If Thomas Edison had relied on governments for success, we would be reading by candlelight.

    I have a client who claims that he would not consider government grants (not loans, outright grants) for a new project unless the grant exceeded $1,000,000.  Not worth the paper work and the “advice.”  Government money is like lunch, there is no such thing as free.

    Another client is now in the midst of a freedom of information act request regarding his business expansion.  I think if he had thought that possibility existed, he would not have applied for the grant.  In his words, “I could have saved more than the grant by shopping better.”

    So where are we?  If the government cannot create jobs, who can?

    Some would argue that businesses do so.  Probably true, certainly more true than the government does it.  However, to be complete, the marketplace creates jobs.  Businesses will not do so unless the marketplace demands it, by requiring product and services and by supplying labour and other resources at competitive prices.

    The only thing that can go seriously wrong is that the marketplace distorts.  Minimum wages, payroll taxes, difficulty in reducing labour force, unions, land use regulations, product safety, tort lawsuits and a thousand more restrict the ability of enterprises to get the most from their opportunities.  I would like to blame the government for all the distortion but that would be unfair.  The only produce most of it and create a culture that permits the rest.

    Most of it is well meaning, but regulation and limitations on performance have passed the point of innocuous.  The result is slower than required job growth, reduced expectations and higher than required liquidity.

    If a business moves some excess money into new products, services and facilities, jobs will follow.  They will not do that until they can see two things:

    • Level of intrusion is less than it is now
    • The future of the marketplace is reasonably predictable.

    Tax rates matter too.  Business tax rates should be zero.  AS LONG AS THE EARNINGS ARE REINVESTED IN PRODUCTIVE ASSETS.  Tax the money that goes for dividends, marketable securities, and excessive cash.  Productive investment should happen without a cash drag to the government.

    In the end, there is only one workable incentive that a government can give businesses.  They can reduce the level of disincentives.

    Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

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