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What Lester concludes is that markets do a pretty good job at allocating labour and capital to their best use and that governments intervene at their peril.

Industrial policies to create “good jobs” rarely result in a positive outcome for real income, according to Lester.

The reason is that subsidies are funded by either raising taxes or cutting program spending, both of which hurt economic performance.

The exceptions to the wasteful spending, in Lester’s opinion, are research and development tax credits governments provide to large firms, accounting for just over $2 billion of the $29 billion total.

The analysis is not good news for the federal Liberals, who are in the process of choosing a handful of promising industry “clusters” for special federal support, having earmarked $800 million for a “cluster networks strategy.”

Lester is not optimistic about its chances. “You have to make sure you don’t subsidize more than is warranted. If you have to raise taxes to pay for subsidies, you are harming the economy. The likelihood of coming out ahead is quite small,” he said in an interview. “There is an intellectual case for this kind of industrial policy but developing it successfully is a different story. If it is such a good deal, someone in the private sector would have worked it out.”

He said if the government is determined to go ahead with its clusters strategy, it should scale back existing subsidies.

Lester's study suggests that in 2014-15, business subsidies cost half of the money raised in corporate income tax revenues - and were largely ineffectual

But, having had its knuckles rapped over the recent small business taxation reforms, that seems unlikely. Far and away the largest subsidy program is a $7-billion small-business deduction, which offers companies a reduced rate of tax on income, provided it is used to finance investment.