Thank you very much.
My name is Benjamin Dachis. I'm associate director of research at the C.D. Howe Institute. We're a national non-partisan public policy think tank.
I'll be summarizing some of my recently published research that's available on the C.D. Howe Institute website. I've brought copies for anyone interested, and also some work that we're going to be publishing by Steve Robins of Harvard University next month.
The key message from our work is that the government's move to create an infrastructure bank is very much a step in the right direction, and it's now time to get the details right. We think the bank requires independent governance, a deep commitment to evidence-based decision-making, and less political involvement in negotiating with potential private sector and local and provincial government partners.
First of all, it's really important to remember the benefits of using private investment in place of taxpayer-supported debt. Government funding for infrastructure has two hidden costs on the economy. The first is greater risk on the taxpayers, and the second is the economic harm of taxation.
One of the common arguments that you're going to hear favouring government infrastructure investment is a lower borrowing rate compared to pretty much everyone else. It sounds like the government should do the borrowing, right? Well, not so fast. All this lower borrowing rate is a result of lenders viewing taxpayers as the guarantors of any cost overrun or late delivery. Sharing risk with institutional investors instead can be a better deal for everyone.
Second, every taxpayer dollar the government uses for infrastructure has to come from someone's taxes, and those taxes mean some businesses don't make an investment, and some people work less. Governments can reduce the economic harm of this by relying on users instead to pay for infrastructure rather than taxpayers, with institutional investors providing the financing in place of governments. That is the case for private investment infrastructure.
The question now is how we do it right. First of all, where necessary, Ottawa and the provinces should be creating independent regulatory bodies overseeing infrastructure assets to ensure that their owners, either governments or private institutional investors, act in the public interest and for long-term sustainability. Importantly, that should not be the role of the bank.
Our forthcoming work is going to point to a number of key design elements of the proposed infrastructure bank. First, on governance, the bank should have a single objective in its mandate clearly defining what projects the bank should pursue. Its independence should be enshrined in the legislation in a way that protects it from day-to-day political influence, and it should have an independent board with fixed terms.
Second, the federal government is going to need to create standardized project planning and create consistent cost, benefit, and risk metrics. It should also require the collection of this data receiving federal funding and having more than, say, $100 million in capital costs. Budget 2017's commitment to better data collection in infrastructure is definitely a positive step in this direction.
Finally, for the bank's analysis to be viewed as credible, rigorous, and fact based, it must be seen as independent of the political needs of the government of the day. Australia's experience with Infrastructure Australia is very instructive. When it was first established, it operated with a board with limited independence and even had members from government departments on the board. That discouraged states and municipalities there from participating. They saw the bank as being insufficiently independent. In 2014 the Australian federal government amended this mandate to create a truly independent board to address the concerns of states and municipalities. Board members now can only be replaced for cause, and one-quarter are appointed on advice of other levels of government.
Statutory independence means that the minister may not give direction to the bank on the content of any analysis nor require the bank to proceed with projects with negative net benefits. Any initial deployment of public resources should be approved by the Minister of Infrastructure and Communities or together with cabinet. That's absolutely needed to have the appropriate level of democratic oversight, but that kind of ministerial approval should happen at the very beginning of the process. Once the bank begins to procure with private or other government partners, the bank should have the ability to proceed to close the transaction without further ministerial approvals, and that will ensure market confidence in the procurement process.
In sum, the government's proposal for an infrastructure bank is an excellent idea if done correctly, and the broad strokes of a good proposal are in the legislation. More institutional safeguards are necessary. The best way to do so is an important question for this committee to consider as it investigates this bill.
With that, I look forward to your questions.