Wednesday, 27 January 2016 14:17

Federal gov’t needs to take time with infrastructure spending

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The Canadian economy is facing a challenging time during 2016 as it tries to adjust to the new reality of lower oil and other commodity prices along with a weak Canadian dollar.

Bank of Canada Governor Stephen Poloz said in his remarks at the release of the bank’s latest monetary policy report on Jan. 20 the country is facing a lot of structural change.
“One implication is that it may take up to three years for the full economic impact to be felt, and even longer for all of the structural adjustments to take place,” he noted.
The reality of this economic adjustment has placed even more focus on a key policy platform of Prime Minister Justin Trudeau’s government.
Political pundits have described the Liberal Party’s promise to run deficits and to spend billions of dollars on infrastructure as one of the defining moments of last October’s federal election.
That commitment involves the spending of $60 billion on new infrastructure investment over 10 years, which will include an additional $10 billion over the next two years.
Federal Minister of Infrastructure and Communities Amarjeet Sohi said during an address to the Toronto Region Board of Trade on Jan. 21 this money will be spend in three areas: public transit, green infrastructure, and social infrastructure. This is a lot of money, but the federal government will probably have no difficulty to find places to spend it.
A key finding of the 2016 Canadian Infrastructure Report Card, which was released by the Federation of Canadian Municipalities on Jan. 18, is that one third of Canada’s aging municipal infrastructure needs attention and reinvestment to stop deterioration.
The report calculated the replacement value of Canadian infrastructure in very poor or poor condition to be $141 billion.
According to Sohi, the federal government is facing two challenges in spending that $60 billion — how to make these infrastructure investments in the economy and to ensure it is done in a strategic way that will benefit the needs of a 21st Century economy.
However, there is an even more important challenge for the government — how to avoid the temptation to give in to public and political pressure to spend this money as soon as possible on shovel-ready projects as a means to stimulate a sluggish economy.
The Globe and Mail reported on Jan. 13, the Liberal government might not hold the usual pre-budget hearings by the House of Commons finance committee as a way to present a stimulus budget sooner, but opposition MPs have emphasized the need for consultations.
A Jan. 17 article in the Wall Street Journal reported there is mounting pressure on Canadian policy makers to act faster on infrastructure spending as a means to counter the impact of weaker commodity prices on the economy.
However, Bank of Canada Governor Poloz has indicated there cannot be a simple policy response to this drop in commodity prices. Monetary, fiscal and labour market policies can only provide a buffer for adjustments that must eventually take place.
Former Bank of Canada Governor David Dodge cautioned during a CBC Radio interview on Jan. 23, it will not be the correct approach to simply focus on infrastructure projects that are shovel ready. Projects should have long-term benefits.
A similar sentiment has been expressed in two recent policy reports by Canadian research institutions. The C.D. Howe Institute report Getting More Buildings for our Bucks: Canadian Infrastructure Policy in 2016 suggested all government levels should consider reforms to their current infrastructure policies to ensure the best long-term return and the federal government should consider public-private partnerships to finance infrastructure.
The Macdonald-Laurier Institute policy paper Avoiding short-cuts on the road to investing in Canada’s infrastructure said poor policy choices as a result of current economic conditions will be detrimental to the government’s infrastructure plan over the long-term.
The report noted decisions on infrastructure projects should not be influenced by political or ideological considerations. The goal of long-term economic benefit can best be achieved through a public-private partnership model.
The current state of the economy is certainly a cause of concern, but a fast-spending federal government will only leave Canadians with a huge bill with no real benefits to show beyond the next few years. For the Trudeau government the choice should be clear — be careful with the money.
Matthew Liebenberg is a reporter with the Prairie Post. Contact him with your comments about this opinion piece at This email address is being protected from spambots. You need JavaScript enabled to view it. .

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Matthew Liebenberg