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opinion

Jim Stanford is an economist with Unifor, Canada's largest private-sector trade union.

A day after trade ministers in Atlanta agreed to form the Trans-Pacific Partnership, Stephen Harper visited Whitby – a community in Ontario's auto manufacturing heartland. There, the Conservative Leader announced funding to attract future auto investment: $1-billion over 10 years, beginning in 2017-18.

The program was widely interpreted as "compensation" for the auto sector, which was concerned about the trade deal's impact on future investment – "analogous" to the $4.3-billion TPP aid package for dairy farmers.

Closer analysis of the Conservative announcement, however, casts doubt on whether it will help the industry – or hurt it. The headline-grabbing billion-dollar figure equals the sum of 10 annual $100-million contributions to an existing federal program, the Automotive Innovation Fund, stretching out to 2028. The commitment doesn't even begin until the third year of the next government's mandate – then extends right through the terms of the subsequent two governments.

It's odd to take credit for money that will mostly be spent by future governments. But more worrisome is that Mr. Harper's plan would actually reduce federal support for auto investment, not increase it.

The AIF was created in 2008, with a total of $900-million in funding over its first eight years – an average of $112.5-million per year. The Conservatives have budgeted another $50-million per year for the upcoming two fiscal years (2015-16 and 2016-17). Then, the funding extension would come into effect at $100-million per year. On an annualized basis, therefore, future AIF funding (from now through 2027-28) will be less than the funding provided from 2008 through 2015.

The problem looks even worse when we consider the effects of inflation on capital investment projects. According to Statistics Canada, the average cost of non-residential investment is 12 per cent higher today than in 2008 (when the AIF was created), and will grow further with future inflation. Mr. Harper's promise extends to 2028. Assuming future inflation at 2 per cent (in line with Bank of Canada targets), project costs will then be 45 per cent higher than when the AIF was formed. Yet under Mr. Harper's plan, federal funds for investment attraction would lag far behind.

In inflation-adjusted terms, average annual AIF funding from now until 2028 will be almost one-third smaller than over the 2008-2015 period. Only in a heated election campaign could a one-third reduction in an existing program be repackaged as a "billion-dollar" promise.

It's not even clear how much of the billion dollars will actually be new money. Less than half of the funds already allocated to the AIF have been spent; the fund is carrying a net balance of nearly half a billion dollars, partly because of cumbersome rules that made the program unworkable for many automakers. Some of that unspent cash was already "re-announced" with great fanfare in the 2015 budget, for a different program to help small and mid-sized auto parts firms.

Will any outstanding AIF balance at the end of 2016-17 be carried over, or will it join billions of dollars of other "lapsed" federal program funds (conveniently helping reduce Ottawa's deficit)? And will future auto-parts support past 2017 (also already announced) come out of the same funding envelope? If so, then some of that promised AIF money will eventually have been announced and reannounced three times over.

In short, Mr. Harper's package looks more like a fiscal shell game than a genuine commitment to attracting auto investment. This year, the auto industry has once again established itself as Canada's most important export, surpassing energy. It's too important to our national economy to be subjected to such politicized and misleading oversight.

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