By Charles Lammam
and Hugh MacIntyre
The Fraser Institute
In 2015, Prime Minster Justin Trudeau’s government came into office on the promise of running small annual budget deficits of no more than $10 billion for three years. The intent was to finance new spending on infrastructure projects that would help improve the economy. That’s not how things turned out. The promise was broken and the infrastructure plan has become a mess.Charles
The actual budget deficits are more than double the promised amount. The cumulative budget deficits from 2016-17 to 2018-19 total $55.3 billion, compared to the $25.1 billion in the Liberal Party’s campaign platform.
Deficits during periods of economic growth are problematic because if the economy slows, government finances take a beating as tax revenues fall while spending on programs such as employment insurance skyrocket.
Moreover, despite the government’s rhetoric that deficits will finance investments in growth-enhancing infrastructure, in reality they have largely financed more spending on current expenses such as government transfers to certain households. For instance, according to estimates from the Parliamentary Budget Officer (PBO), only 10.7 per cent of the deficit in 2016-17 was for infrastructure. In other words, virtually the entire deficit is borrowed money (which will be serviced and repaid by future taxpayers) to finance increases in current spending.
Part of the reason that only a fraction of Ottawa’s deficit spending is being spent on infrastructure is that the infrastructure spending plan has been plagued with delays.
According to the most recent PBO report, Phase 1 of the plan, introduced in the 2016 budget, was intended to spend $14.4 billion on infrastructure projects, mostly in 2016-17 and 2017-18. But the government hasn’t identified where half of the $14.4 billion is being allocated. The government promised infrastructure spending to spur economic growth, but two years into its mandate it still doesn’t know how it will spend a significant portion of its Phase 1 budget – despite the fact that most of this spending was planned to be completed by now.
But there’s a deeper problem with the government’s entire infrastructure plan, which is supposed to be rolled out over 11 years: the bulk of spending is on projects unlikely to spur economic growth.
Core infrastructure – roads, bridges, railways and ports – can improve the economy’s productive capacity by helping move people, goods and resources more efficiently within Canada and to international markets.
Crucially, however, little of the government’s new “infrastructure” spending over the next decade is earmarked for projects that will actually improve Canada’s core infrastructure. In fact, a mere 10.6 per cent of the nearly $100 billion in new infrastructure spending is for trade and transportation.
Most of the spending will pay for projects many Canadians would never call “infrastructure.” For example, 56.8 per cent of the nearly $100-billion spending is for “green” and “social” infrastructure. These loosely-defined categories amount to spending on pet projects such as parks, cultural institutions and recreational centres.
Although some communities may appreciate these initiatives, they won’t help move people or products. And there’s certainly no robust evidence that such spending will increase the economy’s long-term potential.
The infrastructure spending plan has been the cornerstone of the government’s effort to improve economic growth. But it’s a plan likely doomed to fail due to chronic delays and spending on the wrong projects, that will do little – or nothing – to improve economic growth.
Charles Lammam is director of fiscal studies and Hugh MacIntyre is a senior policy analyst at the Fraser Institute.
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