Government Operations Committee on April 21st, 2009

[Pat Martin, NDP, Winnipeg Centre, MB]

That's interesting. So if a school were built on a first nation somewhere, for instance, we'd be able to say that school was paid for by a revenue stream that came from the eleven-twelfths, special vote 35, or whatever that was.

[Alister Smith]

You would be able to see in TB vote 35 which particular programs or initiatives were funded from TB vote 35. Where it gets a little more complicated is that, because this is bridge funding, bridge financing, you will get some items that are funded in part through TB vote 35 and in part through supplementary estimates. That makes it a little bit more difficult, but in that universe of the bridge funding and supplementary estimates, as Paul was saying, you will know that those are direct program spending as opposed to statutory spending.

[Pat Martin, NDP, Winnipeg Centre, MB]

That's interesting.

If I can go to the main theme, sometimes we get so entrenched into the project that we forget the original goal was to create jobs. I missed the first round of questioning; I apologize if you were asked this already. I'm interested in the modelling used to come up with the estimates, that $43 billion worth of spending will create 190,000 jobs. It's just such a leap of faith, in my view, to be able to pinpoint that. Who does that kind of modelling? I know you can't go into great detail, but can you tell me anything about how you equate that this billion dollars in this industry will equal x number of jobs?

[Paul Rochon]

Those estimates were done by the Department of Finance using an economic model. Roughly speaking, the general approach...if we're looking at a dollar, for example, of construction spending, we look at how much a typical dollar of construction spending generates in additional output and employment in construction in the first instance. In the second instance, we look at the feedback impacts of that dollar circulating in the economy and the construction sector on other sectors. There's an annex in the budget that sets out our approach.

At a very high level, I guess what one observes from these economic studies is that a dollar spent on direct construction in the first instance generates more economic activity than a dollar related to a personal income tax cut, for example. They both have their roles to play, in that you can deliver personal income tax reductions ahead of infrastructure spending. They can be delivered immediately. However, the impact of a reduction in personal income taxes on the economy is, in the first instance, muted by a desire on behalf of householders who are likely to save part of that.

The general approach is to estimate what we call the “multiplier impact”, which is how much a dollar of spending your tax reduction generates in terms of additional activity and employment, and then using a model to determine the secondary impacts.

I might point out very quickly that when we did this work we compared our approach to the approach and the assumptions used by the U.S. government, and we asked both the Conference Board and the University of Toronto to verify our assumptions. We're comfortable that our approach was reasonably prudent. Having said that, these are estimates, and they are subject to error.

[Pat Martin, NDP, Winnipeg Centre, MB]

We won't complain if you ended up with more jobs than you estimated.

May I ask if anybody did the estimate for a dollar invested in income maintenance for EI? What is the rate of return or economic activity that might yield in comparison to a dollar spent on infrastructure or tax cuts?

[Paul Rochon]

Yes. In fact on page 240 of the budget--not too many people got that far--we see, roughly speaking, that a dollar spent on support for low-income generally, which could include EI and other items such as the WITB, in the first year generates about 80¢ in additional activity. In the second year it generates $1.50 in incremental activity. That is roughly similar to what one finds the impact is for infrastructure.

[Pat Martin, NDP, Winnipeg Centre, MB]

So it is roughly similar.

[Paul Rochon]

Yes, it is.

[Pat Martin, NDP, Winnipeg Centre, MB]

Thank you.

This was just brought to my attention now. I do confess that I didn't read that far into the book.

Thank you. That was very helpful.

One thing that's been raised by our party in the House recently--as a complaint, I suppose--with the rollout of money, as it were, is that some of the mayors have indicated they're unable to take advantage of the situation because they can't come up with the matched dollars. The government's response was to make the $2 billion available to loan to the municipality so they can come up with their share.

We're critical of that idea. We would much rather simply remove the matched dollar requirement, or go back to the old days where we used the Canada Pension Plan money to give low-interest loans to municipalities to do infrastructure instead of losing it on the stock market. But that's another story.

Can you tell me why it took so long to have the application form and the details out? If the idea is to have things happening in April, or at least before June, why were the applications made available only yesterday to mayors and municipalities? There were no such forms even available for municipalities to apply for the $2 billion; they didn't exist. Can you tell me about the route that was taken to arrive at this policy that lending money to the municipalities was in some way a good idea?

[Alister Smith]

I can't comment on the policy route; maybe my colleagues can.

The program you're referring to is the municipal infrastructure lending program at CMHC. It is a $2 billion program over two years that will provide loans to municipalities to reduce the cost of borrowing and help them build building-related infrastructure. This is a Budget Implementation Act initiative, and it became law only in March. The fact that they have made applications available in a month is, to me, pretty outstanding work. It was announced on April 19 that municipalities could start applying right now. For a program of this complexity, that's outstanding.

[The Chair, Liberal, Derek Lee]

That'll be time, Mr. Martin. Thank you for explaining the difference between speed and velocity.

Ms. Hall Findlay.

[Martha Hall Findlay, Liberal, Willowdale, ON]

I appreciate my colleague's enthusiasm for home renovations. I would like to point out that by far the majority of economists, think-tanks, and various other commentators have acknowledged that when you are in a position such as the one we are in, where infrastructure stimulus is a good idea, the stimulus should be focused on infrastructure that we as a country need anyway, infrastructure that can help ensure our future productivity and competitiveness.

I'm not sure that cottage decks qualify, but from a local construction stimulus perspective, municipalities across the country have acknowledged that affordable housing is a key priority, and that those same construction workers and carpenters and suppliers would be equally busy if we were building the affordable housing that many municipalities across the country need so desperately.

On vote 35, $3 billion--my apologies, but this will be a refrain of mine. Of that $3 billion, how much will be going into infrastructure? How much is focused on infrastructure as opposed to other programs?

[Alister Smith]

Maybe I could just make a general observation. Given the orientation of the Budget Implementation Act to infrastructure, you can infer that the bulk of the infrastructure funding will be outside TB vote 35. The Infrastructure Stimulus Fund, the Green Infrastructure Fund, the communities' component of the Building Canada Fund, the municipal infrastructure lending program—these are all statutory. There's a great deal of the infrastructure spending that's outside TB vote 35 or supplementaries (A). The amount of federal funding available to provinces, territories, and municipalities, I think, is more than $18 billion over the next two years. That's a substantial amount.

However, there are other areas of infrastructure that may benefit from TB vote 35. Federal infrastructure is an example, but those are areas that typically are not in the Budget Implementation Act.

[Martha Hall Findlay, Liberal, Willowdale, ON]

I appreciate that, and I would also point out that the length of time it has taken to get infrastructure funding out under the Building Canada Fund over the last couple of years would fit with that description—the $3 billion that's supposedly going out fairly quickly.

To the extent that there is federal infrastructure that would come under vote 35, are we still at a point where we don't know what that would be? I'm looking for specifics. Is there green retrofitting of federal buildings that might come under that? I would like some examples of federal infrastructure. Where is this money going, and is it going at all? Is it going quickly, and where is it going?

[Alister Smith]

As I mentioned, I really do not want to provide a list in advance of tabling that list with Parliament. I think it would be inappropriate for me to do so.

There have been announcements on federal infrastructure. That's one of the areas that's not covered in the Budget Implementation Act, so you can draw some inferences from that. Indeed, work is progressing there and in other areas too.

There are application processes under way for a variety of initiatives, and those will take some time. We're going to gather information ourselves on the rate at which progress has been made at the beginning of May. So we will be assessing that.

Departments themselves are the best place to tell you exactly what has been done. We don't really have that information in detail.

[Martha Hall Findlay, Liberal, Willowdale, ON]

It's a little difficult for us to follow through on that if we don't yet even know which departments we're dealing with. As soon as we have some idea of what departments, we certainly would be asking them those more specific questions.

[Alister Smith]

Well, as I say, it's not just up to $3 billion in the Budget Implementation vote or TB vote 35. You have $7.5 billion, mainly infrastructure, in the Budget Implementation Act. We know what departments are involved in those.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Understood, and I will go back to this refrain probably a lot more after today. The focus that I have specifically is that we were asked to approve vote 35 in unusual circumstances in order to get money out quickly, and I'm focusing on vote 35 and the $3 billion.

You mentioned—

[The Chair, Liberal, Derek Lee]

We've gone over five minutes. We can come back.

[Martha Hall Findlay, Liberal, Willowdale, ON]

Thank you.

[The Chair, Liberal, Derek Lee]

I'll go to Monsieur Roy for five minutes.

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

Thank you, Mr. Chairman.

I must admit I have the opposite problem to the one you're presenting to us this morning. Ultimately, you're making every effort to speed up the work. You're making every effort so that the funding is injected extremely quickly. I don't have any problem in that regard, except that Quebec launched its own roughly $30 billion infrastructure renovation program last year.

I'm going to tell you something. In my riding, there was a municipality that had a roughly $2.3 million or $2.4 million infrastructure project. However, after two requests for proposals, no engineering firm responded. I'll explain to you why.

Currently, with all the infrastructure programs introduced by the Quebec and federal governments, most engineering and architectural firms in our region, and even outside our region—because the request for proposals was issued in the Quebec City region and even in the Montreal region—are extremely busy.

So the problem we'll have at some point, according to what the municipalities tell me, is that this could considerably increase infrastructure costs and make it so that we won't even be able to carry out the projects. Since the engineering and architectural firms are overwhelmed with work, they'll choose the biggest jobs and will obviously try to get the biggest contracts. They won't even take the trouble to bid for work on a $2.8 million contract.

There's also another phenomenon in the construction sector in Quebec right now: we're eventually going to be short of labour. We're already short of it. So if we start out more major infrastructure works, contractors won't even have the trained and skilled labour to do the work.

What could happen is that the work will be significantly delayed because, if we put a lot of money into infrastructure, people who lose their jobs won't necessarily be able to work in the construction sector. That's currently the problem in my region.

I'll give you an example. In the Matane area alone, in my riding, they apparently need 98 welders. They can't find them. If infrastructure programs are launched and steel is used for bridges, we don't even have welders. Have you assessed the impact that can have on increased works costs?

[Paul Rochon]

I'll make a few general comments on that subject. First, if you consider the job cuts in Canada since October 2008, the construction industry is one of the hardest hit. Second, in that case, we expect that there will be enough human resources after all.

There may be problems in certain sectors and occupations. According to the information received when the budget was planned, generally speaking, there now appears to be availability, and that availability should increase.

Your comment also explains in part why it is important to put the emphasis on infrastructure, but not just on that. That explains in part why the budget included a number of tax reduction and income support measures for low- and middle-income people.

Yes, that's a good question, which we have addressed and analyzed during the budget preparation phase. In certain places, or in certain targeted occupations, there may be capacity problems involved in meeting the demand. In general, however, we don't think that will be a problem.

[Jean-Yves Roy, Bloc, Haute-Gaspésie—La Mitis—Matane—Matapédia, QC]

It may not be a problem across Canada, but it's already a problem in the regions right now. In the situation I referred to, the fact is that most engineering firms will choose major works. The small municipalities won't be able to carry out their infrastructure works. A lot of work is indeed involved in preparing plans and specifications for a $2.8 million infrastructure project. Roughly the same amount of work is involved in a $20 million or $25 million infrastructure project. That's what's important.

What all the small municipalities—the communities of 5,000 or 25,000 inhabitants—are telling us is that there is a considerable increase in costs. Has that potential increase been assessed? An infrastructure project that should normally have cost $2.8 million could cost $3 million or even $4 million or $5 million. It can go that far.

[Paul Rochon]

With regard to specific projects, the department of transport, infrastructure and communities would definitely be in a better position than I to answer the question. The larger economy reveals a reduction in employment in the construction sector and a general reduction in pay increases in all sectors of the economy.