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Infrastructure spending shouldn’t be held ransom to Ottawa’s deficit phobia

The site of the new station of the Toronto subway extension in Vaughan near the intersection of Highway 407 and Jane Street.

Peter Power/The Globe and Mail

In last month's federal budget, Finance Minister Jim Flaherty trumpeted his government's new infrastructure spending plan as "the largest long-term federal commitment to Canadian infrastructure in our nation's history."

In reality, it's largely maintaining what Ottawa was already spending to address the country's crumbling-infrastructure problems – which is both not enough and, maybe, more than it feels it can afford.

Ottawa's 10-year, $53.5-billion infrastructure plan ($47-billion of it is new commitments) is, indeed, the longest and biggest program the government has ever announced, replacing a seven-year, $33-billion plan it introduced in its 2007 budget. Still, it represents essentially flat spending over what Ottawa is already doing.

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The Parliamentary Budget Officer, Sonia L'Heureux, issued a report Thursday that examined the spending commitments in "constant" (inflation-adjusted) dollars. She concluded that in order to maintain the same "real purchasing power" as the average federal infrastructure spending over the past five budgets, Ottawa would need to spend $4.5-billion a year. The 10-year plan (including the pre-committed funds) works out to $4.8-billion a year in constant 2013 dollars.

That's undoubtedly up considerably from the years before the 2007 budget commitment; in constant-dollar terms, Ottawa's infrastructure spending was just $1.7-billion in fiscal 2007-08. But it's also less than the estimated $5-billion spent in the fiscal year ended March 31, 2013; indeed, in constant dollars, $5-billion represents the planned spending peak over the next decade.

Equally undoubtedly, this barely scratches the surface of the country's infrastructure needs. A 2007 study by the Federation of Canadian Municipalities and McGill University estimated a cost of $123-billion just for necessary upgrades to existing crumbling municipal infrastructure; throw in needs for federal and provincial infrastructure, and for new municipal infrastructure, and the price tag soars above $300-billion. This is where decades of neglect and underinvestment will get you.

Still, even these existing spending commitments present a challenge to a government that is determined to balance its budget by 2015-16. The Conservative government's ramp-up of infrastructure spending since 2007-08 has coincided with an even more dramatic ramp-up in deficit spending. While the infrastructure program could hardly be considered the cause of this (we'll blame that on a global financial crisis and stubbornly stagnant recovery), the entrenched commitment to roughly $3-billion a year in additional infrastructure spending isn't making the balancing act any easier.

Indeed, Ottawa has to date "delayed" roughly $5-billion of the spending to which it committed in 2007 – 15 per cent of its original commitment – and has come in under its budgeted infrastructure spending total every year since the program was announced. If it keeps up that pattern over the course of the new 10-year program, spending in constant-dollar terms will actually shrink.

There's an argument to be made that, despite the desire to rein in the deficit, this is precisely the time Ottawa should be accelerating its investment in infrastructure, not merely re-committing at holding-the-line levels. Borrowing costs in global bond markets are at historically low levels, affording any government the opportunity to lock in funds for long-term infrastructure needs at bare-minimum debt-servicing costs spread over decades. The Alberta government recognized just that in its own recent budget, announcing a $12.7-billion borrowing plan to finance long-term capital projects.

The debt-averse Ottawa Conservatives would no doubt shudder at such a thought. But given the long-term economic drag that inadequate and ill-repaired infrastructure poses, maybe we need to be seeing a bigger picture than simply how quickly we can get the budget balanced.

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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More

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