Infrastructure a small share of the Liberal $29.4 billion deficit

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Appeared in the Ottawa Sun, April 2, 2016

A major theme in the lead-up to the recent federal budget was a commitment to increased infrastructure spending. The Liberals gave the impression that infrastructure would be a key driver of their deficit spending and that such spending would help drive long-term economic growth. Yet it turns out infrastructure spending is a surprisingly small share of the projected deficit for 2016/17. Moreover, claims that the deficit will drive future economic growth are dubious.

While the Liberals plan to ramp up spending on infrastructure by almost $60 billion over the next decade, little of this money will be spent in the current fiscal year. According to Annex 2 of the budget, the government is planning approximately $4 billion in new infrastructure spending in 2016/17. That represents just 13.5 per cent of the $29.4 billion deficit. Put differently, $25.4 billion of the deficit cannot be attributed to new infrastructure spending.

A large portion of the increase in program spending for 2016/17—and thus the deficit—is due to increases in direct transfers to persons in the form of EI, children, and elderly benefits, which together are set to increase by $8.3 billion this year, more than double the new infrastructure spending. It’s difficult to see how this type of spending will meaningfully contribute to future economic growth.

Even within the $4 billion envelope marked as new infrastructure spending, it’s hard to see how much of the planned expenditures will in fact foster future economic growth. In principle, as the budget states, “by making it easier to move people and products, well-planned infrastructure can deliver sustained economic growth for years to come.” Infrastructure in the form of improved roads, highways, and bridges can typically work to that end.

And yet, of the $4 billion being spent in 2016/17, only $1.6 billion is being spent on public transit and other municipal infrastructure (see table below). On the other hand, $1.2 billion is being spent on federal infrastructure, with a large portion for government buildings and properties, and parks and museums. Another $192 million is being spent on cultural, recreational, and other infrastructure. Although some Canadians might welcome such initiatives, it’s unlikely that upgraded government offices or new community centres will spur long-term economic growth.

Moreover, as our colleagues recently pointed out, future infrastructure spending is set to take a similar pattern. Most of the $11.9 billion in spending characterized as new “infrastructure” over the five years outlined in budget is not going towards improving key infrastructure such as roads, bridges, and highways.

Throughout the budget, the government repeated rhetoric about building a prosperous economic future for the middle class and for Canada as a whole. The reality is that the government has dug a $29.4 billion dollar hole that does little to invest in future economic growth.