Fraser Forum

Provincial and local governments should make infrastructure decisions, not Ottawa

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Last week, and as part of Ottawa’s multi-billion infrastructure spending plan, Amarjeet Sohi, federal minister of infrastructure and communities, wrote letters to his ministerial counterparts in each province and territory laying out broad conditions for receiving federal money for infrastructure projects.

Such federal stipulations raise important concerns about Ottawa imposing “national objectives” on what should primarily be provincial and local issues.

Ottawa often provides conditional grants to provincial or local governments to fund a portion of an approved infrastructure project. In exchange for adhering to certain conditions, the recipient government receives additional revenue that does not have to be taxed by that government.

However, gaining access to the additional revenues offered by conditional grants means that the federal government has greater sway over which projects are undertaken by recipient governments and how they are managed. Indeed, these arrangements give the federal government considerable influence. Through increased conditional grants, the federal government effectively takes on a greater role in setting priorities for projects undertaken at the provincial and local levels.

There are a number of reasons why this is problematic.

For starters, some of the benefits of decentralized policymaking are lost when Ottawa has more influence in setting priorities. With conditional infrastructure grants, the federal government imposes its own priorities, which may not reflect the particular needs of every region.

For example, the federal government may view public transit as a priority, but some regions lack the population density to support more public transit or they may be adequately served by existing transit infrastructure. Still, if the federal government offers conditional grants for transit infrastructure, the local government may undertake a transit project to capture the additional revenue at the expense of a more pressing local priority. In the end, the wrong projects might be undertaken. This raises an important concern about how conditional transfers from other levels of government could distort local decision-making in counterproductive ways.

In addition, federal infrastructure grants lead to a deterioration of accountability by the recipient government to taxpayers. Receiving a transfer from another level of government means that government leaders do not have to face a political cost of raising that revenue directly and therefore have less incentive to spend it responsibly. It also means that governments have less incentive to control other government spending if they know they can lobby higher levels of government for more funding.

The very concept of Canadian federalism is based on the principle that government functions best when its decisions are made as close as possible to the people affected by those decisions. Provincial and local governments are much more aware of the transportation needs of their community than bureaucrats in Ottawa. As much as possible, infrastructure decisions should be made locally.


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