Finance Committee on May 18th, 2017

[Greg Fergus, Liberal, Hull—Aylmer, QC]

I'm sorry. It's a welcome addition?

[Brian Kingston]

Right. Yes.

Our hope is that it will used to help bring private capital into projects that would not go ahead without this bank, this megaproject idea. That's our hope. Those could still be done using a P3 model through the infrastructure bank. We think it's a welcome addition to the overall infrastructure financing environment in Canada.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Mr. Hindery, what is your experience in the United States?

[Leo Hindery Jr.]

I would kill off two of the Ps.

I'm completely in the private sector supplying the materials, and I believe in the private sector constructing the infrastructure. I do not believe in the private sector financing the infrastructure. I've just seen too many instances throughout the world where the private financing piece of it, as I explained to your colleague, has left the user community on its knees. I don't believe it's a complement to the P3s and the bank. I think it's a substitute for failed P3s, sir.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Could you just go a bit further on that? You were speaking to Ms. O'Connell about some of the failures of P3s and your experience in the United States. I understand, but what is it about the financing of it that, in particular, in your view, almost automatically leads to a problem?

Mr. Kingston would have a different point of view, that P3 models have worked. Is it because of the structure of the financing, or is it in terms of the endgame of the financing, when it reverts back to public ownership?

[Leo Hindery Jr.]

I think, sir, it's simply the contrast between OMERS and Toronto-Dominion Bank. Toronto-Dominion Bank simply cannot lend to these kinds of projects at 2% and 3% interest rates. They won't. Also, the life of these projects is very long. It tends to outstrip the desired lifetime of the private finance sector.

Yet to Ms. O'Connell's comments and my response, OMERS, on behalf of its fiduciary clients, would be thrilled to get an assured 2% to 3% return on the fixed income portion of its portfolio. OMERS has private equity investments that push 20% return on invested capital. I'm not talking about that world. I'm talking about the world of the fixed income portfolios.

I have not spoken with OMERS, but I have talked to CalPERS, Ohio PERs, NYPERS, Illinois PERS, New Jersey PERS, Kuwait, and as I said, Norway and Japan. All their fiduciary sectors would comfortably engage in a 2% to 3% return in the U.S. infrastructure. I have no doubt that they would find the infrastructure here even more interesting.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Mr. Kingston.

[Brian Kingston]

I would just point to the Canadian track record on P3s. We've been doing these for about 22 years now. We've had over 236 projects and spent nearly $100 billion. There are many examples of very successful P3s, so I think Canada has done a good job here. I don't know about the U.S. experience, so I can't comment on that. I think we've built up a lot of very good knowledge on how to do these projects the right way.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

From both of your perspectives, it would appear that when you are engaging in fixed income portfolios with 2% or 3% returns, the advantage is when you are one of the first entries into the global market seeking out funds that are looking for those opportunities for stable, fixed income potential. Are we at the vanguard, or is there still a market? How soon will it be before other countries clue in to the importance of having their own infrastructure banks?

[Brian Kingston]

I definitely don't believe we're at the vanguard. I think other countries have adopted this model. Australia has a good example of a model that has been quite successful.

That said, there is a lot of capital out there. There is no shortage of capital in the world, so even if we're a few years behind, I don't think we're at risk of not being able to attract this capital into Canada. It's the quality of the project that will determine [Inaudible--Editor].

[Leo Hindery Jr.]

I don't think you're behind at all, sir. I think you're on the cusp.

We're not there yet, but we know we can't afford the alternative. I have been working with the Trump administration, as well as both sides of the aisle in our Senate, and we can't pay for what we want.

[The Chair, Liberal, Wayne Easter]

Okay.

Before I give the floor to Mr. Liepert, I have a question for the Business Council, just spinning off that line of questions related to capital.

You indicated that we should be able to track the capital. You talk in your submission about the foreign direct investment as a share of the GDP. We have now fallen behind four countries that we were ahead of. We don't even rank among the top 15 prospective host economies for multinational enterprise investment. From your perspective, what's the reason for that?

This fall, in pre-budget hearings, we will likely be looking at barriers to economic growth, competitiveness, and productivity. What is the reason we're not attracting that capital?

[Brian Kingston]

For a long time, one thing that the council has called for that we think would really help attract greater investment, and I know this committee has looked at it closely, is comprehensive tax reform, having a tax system that is very clear and concise with a minimal number of taxing points.

Every year we do a survey of our members and we collect data on 68 different taxing points. That's just the beginning of the various places where they're taxed. If you actually streamlined the system and made it simpler, it would be easier to comply with and it would be easier for the government to actually collect revenue. It would make it much more straightforward for foreign investors to come to Canada if we had a clear and concise tax code.

To me, that is one of the main drivers. Of course, though, there are a whole suite of other considerations, including market access into other large markets, talent, and so on. In some of those areas we score very highly; in others we're in the middle of the pack.

[The Chair, Liberal, Wayne Easter]

Thank you.

We'll go to five-minute rounds. Mr. Liepert.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Mr. Kingston, I believe one thing that the finance minister has done very strategically is slipped this idea of the infrastructure agency into the middle of a very thick document called the budget implementation act. As you can see by the discussion today and the witnesses we've had throughout these hearings, it's all focused on the infrastructure initiative. I believe that part of that strategy is to take away the focus on something like part 4, division 2. Let me just read what that is: it is the enactment of the borrowing authority act. This document gives the Canadian government the ability to borrow up to $1.3 trillion, and that covers $691 billion of federal debt, which equates to $7,000 per family of four, $276 billion in crown debt, and interest payments of $25 billion a year.

One thing that I think has happened here is this. Has the Business Council of Canada just simply given up on the idea that we should be focusing on our debt payments and on our significant debt situation, and be totally focused on stuff like the infrastructure bank?

[Brian Kingston]

Sir, absolutely not. In my opening remarks I made the point that one of the things we asked the government for, going into this budget, was a very clear fiscal anchor. We are extremely concerned about the fiscal situation at both the federal and provincial levels. It is absolutely a priority for the council, and it will continue to be. If we have the privilege of being asked to appear here before the next budget, we will make that point again. We think there needs to be a clear path to balance and a very clear debt-to-GDP target.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Yes, because I think we're on a path whereby, infrastructure bank or not, the country's going bankrupt because of uncontrolled spending.

[Brian Kingston]

Our concern is that, particularly at the provincial level, as the aging population drives up health costs, ultimately that will be borne by the federal government. We do think there's a—

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Just to be clear, the numbers I mentioned at the outset are doubled if you add provincial debt to them.

Mr. Hindery, is there an infrastructure bank in the United States, or is that something you're dreaming about?

[Leo Hindery Jr.]

It's something I'm hoping for, Mr. Liepert. No, we don't have one.

What we have is $1.5 trillion of unmet needs. If you've travelled in our country you can see it first-hand. We have our own budget concerns, and I share your concern absolutely, which is why we can't look to our federal government. We have to find, in my opinion, monies elsewhere. There are ready monies elsewhere that would like this kind of investing without burdening our federal government.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Yes, but in this particular model there is substantive federal government money in the infrastructure bank.

[Leo Hindery Jr.]

I would find that objectionable, sir.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

So do we. Not that it's necessarily objectionable; it's that there is a huge risk to the taxpayer.

[Leo Hindery Jr.]

We've done everything we can, from our vantage point, to obviate that, to find an alternative source. Every developed country is in budgetary crisis, in my opinion, because of our payments that we are committed to, and—

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

I just want to get clarity. The proposal that's in front of us is talking about $35 billion of federal money into the infrastructure bank, and I think it's four times the hopeful attractiveness. Is that a sound model?