EDITORIAL PAGE Taxpayers shouldn’t be `bank of last resort’

The problem with government assistance for commercial ventures is that taxpayers usually end up footing the bill for an enterprise that simply wasn’t good enough for conventional backers. A recent loan from the Northern Ontario Heritage Foundation to help increase capacity at the old Kerr Addison mill in Virginiatown, Ont., is a case in point.

Made with the best of intentions — to stimulate economic activity and create jobs in northern Ontario — the loan to Deak Resources is understandable but it is simply inappropriate. If Deak can’t convince bankers or brokers to back the project fully, why should taxpayers take the risk?

Activities of the heritage fund, a Crown corporation, are directed by a board that represents communities across northern Ontario. They make the final decision on which applications for loans or grants are approved. Part of the mandate of the heritage fund, set up in 1988 with annual funds of $30 million from the Ontario government, is to assist single industry towns. Virginiatown certainly falls under that category and the assistance meets the fund’s criteria. It has already advanced $1 million to Deak and is considering an application for another $4 million.

But look at the background. Deak, whose major shareholder lives in New Zealand, acquired the old Kerr Addison mill in a bankruptcy sale and plans to put $10 million into a mill expansion and modernization. The majority of ore for the refurbished mill will come from Quebec mining operations.

It’s a good deal for Deak, but much as we hope Virginiatown can improve its current economic plight, it is hardly one that Ontario taxpayers should finance.

As far as the fund is concerned, ownership of Deak has no bearing on the matter. It is simply a matter of stimulating economic activity through reasonable use of its funds. The origin of the ore feed is also unimportant.

But, in effect, Ontario taxpayers are assisting a New Zealand investor to treat ore for Quebec mines in a deal that couldn’t gain the confidence of bankers or brokers.

Government should do what it can to help communities like Virginiatown, but a better method would be for the government to look into ways to stimulate investment by individuals. It need look no further than the overly successful flow-through financing provisions of the mid-1980s.

That federal program was the victim of its own success. But when the federal government tried to stem the flow of money into mineral exploration by changing the rules of flow-through investing, it threw out the baby with the bath water.

If nothing else, flow through proved that it was an effective means of channelling private funds. The problem with the old flow-through scheme was that private money was so eager to make use of the system money was spent indiscriminately. Governments, including the federal government, should try to find ways to use that successful mechanism to channel money into projects of merit.

That way, money comes from investors who can afford to take the risk, not from taxpayers who are already overburdened. A board comprising community leaders might better serve by determining what projects might qualify for such investments rather than by being a “bank of last resort.”

Ultimately, government would still benefit from increased income tax, less unemployment insurance and payouts, and possibly some mining profit tax as well.