Thursday, April 19, 2007

A New Government "Investment"

Another day, another corporate welfare announcement. A lumber mill in Queens County, Nova Scotia will receive a $1.5 million loan from taxpayers to expand its operations.

Governments are enthusiastic about the business of business subsidies because it makes headlines, preserves jobs, and wins votes. What they're not interested in, is sound investments.

Banks on the other hand, are interested in sound investments. If they could have lent money to this lumber company without expecting a loss at reasonable rates, they would have. They compete with their rivals to loan money to make back interest revenue, while at the same time balancing the risks of business loans.

If it were a good investment, a bank would have offered the loan. Not so the government. A $1.5 million interest free loan for business equipment is akin to giving away $300,000 (estimating a business loan rate APR of 10%).