Ottawa’s fiscal plan not really about growth-maximizing infrastructure
Since coming into power, the federal Liberals have said they would pursue deficit spending to make investments that will drive Canada’s long-term economic growth. As Finance Minister Bill Morneau recently put it, “we believe that we should be focused on making investments for today and for tomorrow that will allow us to have a higher level of economic growth in this country.”
While infrastructure spending was featured prominently in the government’s recent fiscal and economic update, a closer look at the data shows the government’s actual fiscal plan does not match its rhetoric.
For starters, it’s important to clarify the minimal role that infrastructure spending plays in the government’s five-year fiscal plan. While some Canadians may have the impression that infrastructure spending is largely why the government will be in deficit for the foreseeable future, it turns out new infrastructure spending is a surprisingly small share of the projected deficits over five years.
Of the $145 billion in total deficits over the government’s five-year budget period (including the annual $6 billion cushion that was arbitrarily stripped out of the recent fiscal update), new infrastructure spending amounts to just $29 billion—or just 20 per cent of the cumulative deficits.
Put differently, approximately 80 per cent of the expected federal deficits are not due to infrastructure spending. Instead, this money is being spent on day-to-day operations of the federal government and various transfer payments to governments and individuals.
More concerning, however, is the small portion of infrastructure spending that will go towards building more efficient transportation corridors to move people and goods across our country and to borders and ports. This is the type of infrastructure that will actually improve Canada’s long-term economic potential.
Yet only $2.4 billion is being spent on trade and transportation infrastructure over the next five years—less than 10 cents of every infrastructure dollar. The rest will largely be spent on things like “new federal investments in social infrastructure” and “green infrastructure” projects.
For instance, over the same period, $6.9 billion (or about a quarter) of the total infrastructure spending will be spent on social infrastructure. This loosely defined category amounts to building infrastructure to support social services and cultural and recreational amenities such as parks or arenas. Although some Canadians might derive value from such initiatives, it’s very unlikely they will spur long-term economic growth.
Since being elected last year, the government has talked a lot about fostering long-term economic growth for Canadians. In reality, the government is digging deeper into debt while investing little in growth-enhancing infrastructure.