Transport Committee on Nov. 8th, 2018

[Yves Giroux]

That's not a good way to start my seven-year mandate.

Thank you for inviting the Office of the Parliamentary Budget Officer to appear before you today to discuss our latest report on phase 1 of the infrastructure plan, released in August, and to provide you with an update following our March 2018 report.

With me today, I have Jason Jacques, senior director, and Diarra Sourang, a financial analyst in my office.

In May 2018, the PBO sent information requests to the 11 federal departments and agencies responsible for implementing phase 1 of the $14.4 billion investing in Canada plan, also known by its acronym IICP. Federal organizations responded in June and July 2018, identifying total planned spending of $13.7 billion over eight years. The gap of $700 million between the original budget and current planned spending is partially attributable to a recent government decision to transfer $200 million in spending from phase 1 to phase 2 of the investing in Canada plan. It's also due to incomplete reporting by some federal departments, namely, Indigenous Services Canada and Crown-Indigenous Relations and Northern Affairs.

Consistent with our previous findings, federal infrastructure spending continues to be delayed compared to the original Budget 2016 timeline.

In March 2018, my predecessor estimated that planned spending in the first two years of Phase 1 of the Investing in Canada Plan would total $6.2 billion. The actual amount was revised to $6.5 billion, but this compares unfavourably to the original $10.2 billion in Budget 2016.

The spending delays are largely attributable to implementation delays by provincial and municipal governments. The federal government can only spend money as fast as the provincial government and municipal governments.

Monitoring by the Office of the Parliamentary Budget Officer of provincial capital spending indicates that there have been significant downward revisions between what provinces originally said they would spend and what they actually spent. This suggests federal funding, rather than being purely incremental, will at least in part replace provincial and municipal infrastructure funding.

Based on my office's updated monitoring data, we now believe that phase 1 infrastructure investment in 2017-2018 increased gross domestic product by between 0.13% and 0.16% and created between 9,700 and 11,600 jobs.

My colleagues and I will be happy to respond to your questions regarding our report and any other analysis from the PBO.

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

On to Mr. Jeneroux.

[Matt Jeneroux]

Thank you, Madam Chair.

Thanks to all three of you for being here and for recently testifying at the Senate transportation and infrastructure committee. We saw a lot of that testimony and we'd love to get some of it on the record here in the House of Commons as well.

I have just two quick questions for you before we get into some of the bigger questions. You've indicated in your report and in previous testimony that between 9,700 and 11,600 jobs were created. Can you indicate if those are part-time, full-time or temporary jobs that were created?

[Yves Giroux]

These are on a full-time equivalent basis. There might be some part-time jobs in these numbers, but we have converted them into full-time equivalents, so these would be full-time jobs. Of course, if they are part-time jobs, they're converted to a full-time basis.

[Matt Jeneroux]

Okay, like on an hourly basis. Thank you.

Also, this report is about phase 1, and phase 2 is the longer approach. It's the 10-year plan. Is that something you plan to do a yearly update on at your office, as opposed to you, at the end of 10 years, suddenly being facing a bunch of projects and you to try to figure them out? What has been communicated to you, I guess, or what is your intent for phase 2?

[Yves Giroux]

My intent, given the amounts that are at stake, would be to provide regular updates. I haven't decided yet whether it will be semi-annually or once a year. I'm open to suggestions depending on the interest of parliamentarians in that, but given the amount at stake, it would be at the very least an annual update.

We're talking about well over a hundred billion dollars over a 10-year period. Given that these are very significant amounts, personally I think it warrants at least annual updates, but again, depending on parliamentarians' interest, it could be more frequent. Personally, I think Canadians—and parliamentarians, of course—deserve to have regular updates about this plan.

[Matt Jeneroux]

I think that's absolutely appropriate. Anecdotally to you, Mr. Giroux, I'd say that it would be appropriate at least per year.

Your critique of the current phase 1 of the plan, including your opening comments of your Senate testimony, is about how provincial and municipal governments can spend.... Can you go into details on why they aren't investing the money right now? We hear time and time again, particularly from our municipal counterparts, that infrastructure is lagging in this country. I'm curious if in your investigation you've determined why that has happened.

[Yves Giroux]

It varies significantly across jurisdictions. In some instances, there are labour shortages that make it more difficult to invest quickly and promptly. In other instances, it's probably a lack of identified projects that are shovel ready, to use a widely known expression. It also speaks to the fact that some jurisdictions are financially constrained and it's not always easy for them to match dollar for dollar what the federal government is investing, especially when we—

[Matt Jeneroux]

Excuse me, if I could just pause on that point. There are five pillars that the federal government has identified. In terms of not matching dollar for dollar, is it because those pillars aren't necessarily encompassing what the municipalities want to do at the end of the day? Are they not being lined up directly with those pillars of infrastructure investment?

[Yves Giroux]

I wouldn't venture on that specifically, because there are a number of programs. I would keep my remarks probably at a higher level and more general in saying that it's probably a lack of funding. We've seen that through an absence of evidence of any incrementality in the federal funding. As I said in my opening remarks, our data to date suggests that the federal funding has displaced provincial and municipal funding to a large extent, rather than generating additional investment. To me, that speaks to financial constraints at the municipal and provincial levels.

[Matt Jeneroux]

If the program were structured similarly to the gas tax fund, I would note that we haven't heard too much criticism of it. There are 18 criteria for investments under the gas tax fund. If those types of criteria were in place, would that be more helpful to these municipalities and provinces?

[Yves Giroux]

It would certainly be easier for municipalities and provinces if they got some transfers similar to the gas tax fund's, which they wouldn't have to match. In essence, it would be free money for them. The fewer conditions attached—especially with cost matching—the easier it is for other levels of government to spend, obviously.

[The Chair, Liberal, Judy Sgro]

I'm sorry, Mr. Jeneroux. Your time is up.

Mr. Hardie.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

Thank you, Madam Chair.

You noted that the impact in 2017-18 was an increase in GDP of between 0.13% and 0.16%. In an economy of $2 trillion—help me with the math here—what's the actual dollar value of that lift?

[Yves Giroux]

Would that be $20 billion?

[Jason Jacques, Chief Financial Officer and Senior Director, Costing and Budgetary Analysis, Office of the Parliamentary Budget Officer]

No. It would be about $3.5 billion.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

Does that account for the multiplier effect of the dollars going in?

[Yves Giroux]

Yes, and that multiplier effect is relatively small because the economy is running at or slightly above capacity. There's no slack in the economy for these investments to pick up, so the multiplier effect in these instances is quite small.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

It's interesting. If you step back and kind of look at the macroeconomics of this, notwithstanding the fact that we have this enormous infrastructure deficit in the country, it doesn't sound as though the country was actually ready for the magnitude of this kind of investment.

[Yves Giroux]

The fact that provinces and municipalities are not incrementally spending and, to a large extent, not matching dollar for dollar but rather displacing provincial and municipal funding suggests that there might be a lack of shovel-ready projects. More likely, there may be financial constraints at the municipal and federal levels that prevent them from matching this funding or increasing the funding that they would otherwise have devoted. The evidence so far shows that federal funding has displaced provincial and municipal funding to a large extent, so I'm not sure if there's a lack of projects.

As you said, we hear a lot that the infrastructure in this country desperately needs investment, and we see that. For any of us who drive or take public transit, there is more than anecdotal evidence that suggests that roads are in need of repair and public transit needs improvement, yet we don't necessarily see the results fully reflected.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

Being shovel ready means things like preliminary engineering have been done so that they're actually ready to put the money to work. Perhaps it's a capacity issue in many municipalities, that they simply don't have that kind of capability just sitting there waiting for a government program to come along. You also mentioned labour shortages, and again, with record-low unemployment, that has to be a factor as well.

This leads to a couple of thoughts, which may take us beyond where your focus was. Should we, for instance, as a government, look at increasing the percentage of the total project costs that our contribution can cover, expanding what's allowable, or, for the longer term, should we start looking at complementary improvements to the municipal ability to raise money so that they in fact are ready to take advantage of programs like this when they come along?

[Yves Giroux]

That's something that the government could consider. I don't think I'm in the best position to speak on that, but that's a policy decision the government could indeed make.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

Similarly, if we are looking at labour shortages, does that not perhaps speak to a better strategy for getting underemployed people—and I'm thinking particularly of indigenous people—more involved in the economy? Should we be looking very specifically at our immigration strategy to ensure that we are getting the people coming to Canada with the skills that we need to actually fill the jobs?

We've heard a statistic that there are 114,000 jobs going wanting in Quebec right now. That suggests that the immigration strategy should be part of what it takes to balance this engine off so that it's running efficiently, as well as being more inclusive in some underemployed communities.

[Yves Giroux]

Yes, and when I said there are labour shortages, that's something that is well documented. There are not that many ways to solve such a situation. Tapping into under-represented groups, you mentioned one, namely indigenous people, and there are older workers, disabled persons and the immigrant population are the obvious ways to address labour shortages.

You mentioned unemployment being at record lows. That's true. Also, the employment rate is not at record highs but it's quite high, and higher than in the United States. That's the share of the population of working age that has a job. That suggests there is not that much slack in the labour force, which leads to labour shortages.

There is room to do better, especially for under-represented groups that still have employment rates below the average and unemployment rates above the average. There is indeed room for improvement in this area.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Madam Sansoucy, welcome.