Reform: Under latest Business New Brunswick system, a company must hire employees by a set date and only then – and over a period of time – will it receive government subsidy
After years of criticism, Business New Brunswick has changed the way it dolls out subsidies to companies to ensure jobs stay in the province.
Payroll rebates are a way to attract companies to the province, says Business New Brunswick Minister Victor Boudreau. The move comes after the government faced criticism for handing out substantial amounts of money to companies, such as Miramichi-based Atcon Industrial Services, only to watch the jobs quickly dry-up.
“In some cases we give the money up-front and the company might not reach its target and it means the government has to run after the company to get their money back,” Boudreau said.
“This way we make sure the jobs are here before the company gets a dime,” he said of the payroll rebates.
Boudreau announced this week $1.2 million would go to Computer Generated Solutions Ltd. for the creation of 75 jobs at its Saint John office. The office creates online virtual environments for meetings and e-learning.
Under the payroll rebates system the company must hire the employees by the set date of 2012 and only then will it receive the subsidy over a period of around six years, said Deborah Nobes, spokeswoman for Business New Brunswick.
Payroll rebates are new for the department, explained Nobes. The change represents a policy shift from the premier to look for new ways to attract companies, Nobes said.
“The idea is the rebates are offset by taxes that the employees are paying in the form of income or property taxes,” she said.
In order for a company to receive the money it must not only hire the workers but over the period of several years it must provide proof of payroll. The company must also show that it maintained their workforce. Only once these conditions are met would the government pay out a portion of the employee’s salaries to the company, Nobes explained.
Charles Cirtwill, president and CEO of the Atlantic Institute for Market Studies, says Nova Scotia Business Inc. has used this type of agreement for the last five years. “Payroll rebates are relatively new for New Brunswick but they are par for the course in other jurisdictions, principally Nova Scotia.”
Nova Scotia Business Inc. is a government agency run by a private-sector board of directors whose mandate is to attract businesses to Nova Scotia through incentives.
Government should force a company to do something that will benefit a community first, rather than paying a company to make promises, Cirtwill said.
“It’s far better than the government simply cutting a cheque for a company,” he said of the rebate system.
In January 2010, Chalk Media Corp., a subsidiary of Research In Motion Ltd. (TSX:RIM), announced it would bring 50 high-tech jobs to Fredericton. The agreement was the first time Business New Brunswick adopted this type of payroll rebate agreement and was similar to the Computer Generated Solutions deal.
Constantine Passaris, chairman of the economics department at the University of New Brunswick, also believes reimbursing companies for the employment opportunities they create, after the fact, is the way to go.
“In the past we use to give businesses a lump sum and subsidize their operations.” He said. “I like the idea of a targeted approach to private-sector subsidies.”
“After all, creating employment opportunities is a principle task of government,” he said.
Passaris believes government should steer the economy in the direction of value added jobs. “I tell my class the old economy was about the resources under our feet. The new economy is about the resources between our ears.”
Auditor general Michael Ferguson declined to comment on the specifics of using payroll rebates but he did acknowledge that government often does not report on the results of money spent.
“What are we looking for when we are putting money into business? Shouldn’t we have a method of measuring if it is successful?” he asked.