From playing a post-communistic state template, it appears that large subsidies budgets help keep down unemployment and thus reduce government expenditure requirements in other areas (crime, welfare, etc). What are the downsides of having large subsidies? Does their effect weaken as automation goes up?

In reality, I'd argue that artificially keeping businesses afloat with subsidies leads to them becoming inefficient (see: US ISPs/Cable, small-scale farming).