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Case for Canada Infrastructure Bank ‘not compelling,’ researchers warn

The Peace Tower is seen through the front gates of Parliament Hill in Ottawa on May 2, 2017.

Sean Kilpatrick/THE CANADIAN PRESS

A new report questions the need for a Canada Infrastructure Bank as debate heats up in the House of Commons over a government bill to launch the $35-billion federal entity.

The University of Ottawa's Institute of Fiscal Studies and Democracy argues that the Liberal government has yet to make a compelling case for why it would be better to work with private investors seeking higher returns when Ottawa has the ability to finance projects itself at much lower rates.

Authors Azfar Ali Khan and Randall Bartlett argue that with yields on 30-year Government of Canada bonds currently sitting at 2.2 per cent, Ottawa can borrow at much lower rates than what is available in the private sector.

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The authors challenge the argument that more government borrowing would raise concerns of rating agencies over a rise in public debt.

"This argument doesn't hold up. Borrowing money is largely a balance sheet transaction, and if it's used to invest in infrastructure there will be assets to match these liabilities for many years to come," the report states. Further, they note that Canada has the lowest net debt-to-GDP ratio of the Group of Seven countries by far.

"The case for establishing the CIB is not compelling, as it has the potential to increase overall costs to taxpayers while privatizing the most high-return, low-risk infrastructure assets. So, why the CIB? We don't know, and 'just because innovation' is not a good enough answer," the report states.

Meanwhile in the House of Commons, MPs are debating Bill C-44, the government's budget bill, which includes legislation to create the Canada Infrastructure Bank. The infrastructure bank section is emerging as one of the most contentious aspects of the bill. Both Conservative and NDP MPs have expressed several concerns with the bank concept during the debate.

The government has promised to launch the bank before the end of the calendar year. It estimates that it will be able to attract private capital at a four-to-one ratio, allowing more projects to move ahead than if they were all publicly funded. The government envisions the bank as a centre of expertise that governments at all levels in Canada could rely on for assistance when negotiating large infrastructure projects with private partners.

The bank is primarily aimed at convincing large institutional investors, such as pension funds, to invest in infrastructure projects in Canada. Many Canadian pension funds are already invested in projects such as airports in other countries but have been reluctant to make similar moves in Canada.

Proponents argue that an infrastructure bank would allow governments to transfer risks – such as debt, cost overruns and long-term maintenance – on to the private sector in exchange for a negotiated rate of return.

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Conservative MP and deputy finance critic Dan Albas told the House Thursday the idea of the bank "scares the heck out of me," because he said it will likely only fund projects in Canada's largest cities.

"The Liberal government is borrowing money it does not have, at reduced rates, so that Canadian taxpayers can finance and subsidize high rates of return for private international investors," he said.

Finance Minister Bill Morneau responded to criticism of the bank during Wednesday's debate, arguing that the bank will only be receiving a small fraction of the $180-billion Ottawa is setting aside for infrastructure over the next decade.

"We believe that it is very important to do more with our investments. If interest rates are very low, then it is a good idea to include pension funds and institutional funds in our investments," he said. "We will try to find even more money for more investments, so as to help Canadians all across the country."

NDP finance critic Alexandre Boulerice said his party agreed with the view – as expressed in the Liberal Party election campaign – that it was a good time to borrow money for infrastructure spending given the historically low interest rates.

But he questioned why the government is now looking to reach infrastructure deals with private partners at higher rates.

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About the Author
Parliamentary reporter

A member of the Parliamentary Press Gallery since 1999, Bill Curry worked for The Hill Times and the National Post prior to joining The Globe in Feb. 2005. Originally from North Bay, Ont., Bill reports on a wide range of topics on Parliament Hill, with a focus on finance. More

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