OTTAWA — A new report casts doubt on a central justification for Prime Minister Justin Trudeau’s $188-billion infrastructure spending program, suggesting its economic benefits could be well below previous estimates.
During the past two years, provincial spending on infrastructure has fallen $3.8 billion, even as the federal government has boosted funding, according to a report released Wednesday by the Parliamentary Budget Officer.
That drop contradicts a central assumption under the Liberal plan, which claimed in a 2016 report that provincial spending on infrastructure would rise in lockstep with the feds, and “more than double” the reach of the $188-billion program. That doubling of spending is often used as a premise to justify fiscal stimulus plans, in which federal dollars are “matched” by lower orders of government.
The infrastructure plan was part of a Trudeau campaign promise in 2015 to boost the faltering Canadian economy by expanding roads, bridges, rail lines, social housing facilities and other projects, funded in part by running budget deficits. In all, the Liberals promised nearly $100 billion in new infrastructure spending as part of their 2016 budget, adding to the $92 billion already set aside by the previous Harper government.
Since the plan was introduced, Ottawa has spent roughly $19 billion and approved over 4,700 projects, according to Infrastructure Canada data.
The PBO report raises doubts about the efficiency of a program that has already been hurt by delays, reporting gaps, and questionable economic payoffs. Rather than incentivize provinces to spend on infrastructure, the higher federal spending may have instead provided room for provincial leaders to put their money elsewhere.
The intention was not to displace funding but to leverage it
“The intention was not to displace funding but to leverage it,” said Parliamentary Budget Officer Yves Giroux.
Overall, the report found that provincial spending on infrastructure has been on a gradual rise, but at a slower pace than what provinces had planned before Ottawa rolled out the program. Provincial spending in fiscal 2016 and 2017 was expected to reach $100 billion, but came in closer to $85 billion after Ottawa’s plan was introduced.
“This reduced the stimulus that the government was expecting — or at least it reduced it from what it could have been had provinces kept up with their initial capital plans,” Giroux said.
The PBO report on Wednesday comes as the Canadian economy is again showing signs of weakness. This month, data from Statistics Canada showed that GDP growth had collapsed down to around 0.1 per cent in the last quarter of 2018 — essentially grinding the economy to the halt. That comes after several years of strong economic growth that outpaced other developed nations, reaching as high as 3.7 per cent in early 2017.
That growth was at least partly aided by infrastructure stimulus spending, according to the Bank of Canada and others. But doubts remain about the degree to which that spending has influenced the broader economy, raising deeper questions about whether such programs are worth the use of taxpayer dollars.
An August 2018 report by the PBO found that Ottawa’s infrastructure plan boosted Canadian GDP by between 0.13 and 0.16 per cent, well below the 0.4 per cent growth the government had projected in its 2016 budget.
On Wednesday the PBO estimated that, had provincial governments kept capital spending plans at previous levels, their contribution to GDP growth would have been between 0.15 and 0.16 per cent.
“They developed an infrastructure policy with zero evidence or research on the economic benefits,” said Matt Jeneroux, Conservative shadow critic to the Infrastructure Minister.
They developed an infrastructure policy with zero evidence or research on the economic benefits
“They stand up constantly in the House of Commons and say this is driving the economy, but if the provinces aren’t doing their part and also investing in infrastructure, what is it really accomplishing?”
However, unlike provincial spending levels, municipal funding for infrastructure actually increased slightly, rising $1 billion over the past two years, according to the report.
A spokesperson for Infrastructure Minister François-Philippe Champagne said the program is “providing the support for Canadian communities that they have long sought,” and said that the program is “working.” After suffering some reporting gaps early in the program, Infrastructure Canada has since established an online database that tracks project spending by location and cost.
Municipalities have been broadly supportive of the plan, and often point to what they view as a failure over many years in Canada to maintain critical infrastructure like roads and bridges — often called the “infrastructure gap.”
On Monday, Ottawa committed $1 billion to go toward expanding the existing light rail system in Edmonton, after announcing several similar large-scale investments in Montreal, Vancouver, and other cities. Toronto, Montreal and Calgary have all boosted municipal funding on infrastructure since the federal plan was established.
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