Hasty Infrastructure Spending May Waste Tax Dollars

January 19, 2016

Reading Time: 3 Minutes

CANADA – Canada faces serious economic challenges as 2016 unfolds, and key leadership in dealing with the economic fallout of falling oil prices and slow economic growth must come from Bill Morneau, Canada’s federal minister of finance.

During the recent election campaign the Trudeau government promised that it would jump start the economy with $60 billion in new infrastructure spending on public transit, green and social infrastructure in an attempt to stimulate the economy. Last week, Prime Minister Justin Trudeau repeated this mantra, telling reporters in Toronto that infrastructure spending is “the key” to kick-starting Canada’s economy.

As the economic fallout from the resource sector continues, and the Canadian dollar continues its free fall, a sense of urgency appears to have gripped opinion leaders in the country and the call for “shovel-ready” projects has gone out. Indeed, the sense of haste has become so pronounced that there’s even talk of foregoing the customary practice of substantive pre-budget consultations with economists and policy experts.

In times of crisis, a sense of panic is not what leaders should project. The sense of urgency that is currently being dispensed in national debate does a disservice to sound policy formulation and implementation. The last financial crisis and global recession saw Canadian economic policy dealt with by the duo of finance minister Jim Flaherty and Bank of Canada governor Mark Carney. They provided measured words, actions and reassurance in difficult circumstances when it came to dealing with the economy, and helped project calm.

The current Bank of Canada governor has demonstrated what can only be termed as an extroverted role when it comes to making pronouncements on the economy, which might be interpreted as increasing uncertainty amongst the business community. One would hope that the finance minister would not add to this by suddenly trumpeting a sense of urgency that will not help serve Canada’s best economic interests.

Haste is a recipe for disaster for several reasons. First, while the economy has slowed, the sense of crisis is misplaced. The unemployment rate is at 7.1 per cent, and while there is always room for improvement the fact remains that it’s not higher than it was in 2010 in the wake of the 2009 downturn. Moreover, even the most recent labour force numbers show employment is still being generated by the Canadian economy. Canada’s real economic problem is productivity growth – a problem that needs addressing with longer-term measures rather than immediate government spending.

Second, if we are to embark on a program of infrastructure spending it’s important to make sure that projects with the best return are selected and the best balance between public transit projects, green and social infrastructure properly assessed. Moreover, one might want to see other infrastructure needs given consideration in other areas of national interest. It would be unreasonable to see federal infrastructure money flow to community centres rather than roads and sewers simply because “shovel ready” plans exist for the former but not the latter.

In our haste to “stimulate” the economy, we run the risk of wasting tax dollars if we build poorly designed or unnecessary infrastructure as well as bid up the cost of building. Moreover, haste increases the odds of situations such as Ontario’s Nipigon Bridge, where key components on Canada’s vital east-west highway link have failed after only several months of operation and the expenditure of millions of dollars. That such expenditures will be financed by a debt burden to be borne by future generations adds to the problem.

Key to any infrastructure building is the need to develop a list of priorities – no easy task given the federal nature of our system of government with its overlapping jurisdictions. More importantly, there is no consensus on what the actual size of any infrastructure gap is, aside from continual pronouncements that it must be very large.

The only thing worse than embarking on a massive public infrastructure program without firm estimates of what’s needed, and a systematic approach to prioritizing needs, is doing so in a hurry. Haste makes waste.

– Livio Di Matteo is senior fellow at the Fraser Institute and professor of economics at Lakehead University in Thunder Bay.

© 2016 Distributed by Troy Media

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