Only 10.6% of Ottawa's nearly $100 billion in new infrastructure spending is for trade and transportation
Charles Lammam, director of Fiscal Studies at the Fraser Institute, recently provided testimony to the Senate Standing Committee on National Finance about the federal government’s infrastructure plan. Here’s a transcript of his testimony.
Thank you chairman and committee members for the opportunity to contribute my thoughts on the federal government’s infrastructure plan. I hope you find my comments helpful and informative as you deliberate this important public policy issue.
Much of my remarks today will draw on the finding of a recent study I co-authored entitled Myths of Infrastructure Spending in Canada. My comments today reflect my own opinions and observations of the research we have conducted. I do not speak on behalf of anyone else at the Fraser Institute.
The current federal government has explicitly said the goal of its 12-year infrastructure spending plan is to help grow the economy and increase the prosperity of Canadians, particularly middle-class Canadians. The fundamental problem, however, is that only a small fraction of the nearly $100 billion in new infrastructure spending proposed by the current government is earmarked for projects that have the potential to actually improve the economy.
In principle, sound infrastructure projects can improve our productive capacity by allowing us to produce more and to reduce the costs of delivering goods and services to market. A needed road, bridge, railway or port that helps move people, goods and resources more efficiently—and at a lower cost—can indeed help build a more prosperous economy.
In practice, however, not all of the federal government’s infrastructure spending fits this bill. In fact, a mere 10.6 per cent of the nearly $100 billion in new infrastructure spending is earmarked for trade and transportation. In other words, the government plans to spend at most 11 cents of each infrastructure dollar on the type of projects most likely to improve the productive capacity of our country.
So where’s the rest of the money going?
Most of it is going to so-called “green” and “social” infrastructure including projects such as parks, cultural institutions and recreational centres. Although these initiatives may be appreciated by the communities in which they are built, there’s no robust evidence such spending will increase the economy’s long-term potential.
In fact, the federal government may end up hurting the economy by focusing on such projects, especially if the productivity gains of the infrastructure projects are less than the economic costs imposed by the taxes required to fund them.
Simply calling a project “infrastructure” does not automatically make it an economically worthwhile endeavor.
When ordinary citizens think about infrastructure spending, they tend to think about roads and bridges—the country’s core infrastructure. According to reputable organizations such as Infrastructure Canada, Statistics Canada, and the International Monetary Fund, a reasonable definition of infrastructure at the very least requires it to be a physical asset. But the federal government has broadened the term to include many services and activities, rendering the definition of “infrastructure” unclear.
For instance, the government is calling the $7 billion set aside over 10 years for subsidizing daycare “infrastructure.” Putting aside the merits and demerits of daycare subsidies, it’s a stretch to call such spending “infrastructure.”
Or consider the $2.1 billion in spending over 10 years to reduce homelessness by tackling addiction and mental illness. This is a laudable goal no doubt, but by most reasonable standards, this is spending on social services—not infrastructure.
In addition, the government’s infrastructure spending plan also includes $77 million to develop regulations and establish pilot programs related to the adoption of driverless cars and unmanned air vehicles.
Even data collection and research is now considered infrastructure spending by the federal government, including $241 million over 11 years for a government agency to improve data collection and analytics related to housing. Another $50 million of supposed “infrastructure” spending is earmarked for a new government centre to collect and publically provide data on transportation in Canada.
And the list of spending items cloaked as infrastructure goes on.
To sum up, the federal government’s infrastructure plan is unlikely to achieve its goal of improving long-term economic growth because only a small portion of the spending is earmarked for projects that have the potential to increase the country’s productive capacity.
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