Thank you.
Good afternoon. I'm greatly honoured to be asked to appear before this House of Commons standing committee. I'm afraid I probably won't be able to contribute directly to the three key issues the committee has identified, but I will try to address some of the issues around the delay in the spending.
My contribution is really to provide some background on federally funded infrastructure projects based on the project information that's in the database on the Infrastructure Canada website and to provide some comments on the factors that have contributed to the delay in spending on infrastructure programs announced in budget 2016.
I prepared a briefing note that I think has been distributed to members of the committee. At this time I will only summarize a few of the key points.
Comparing federally funded infrastructure projects in the pre-2016 period to the current ones, we see a much larger share of federal contributions to public transit projects, and a notable decline in the share of federal funding for rural and small community projects. The average federal contribution rates are projected to be higher than in the pre-2016 period. The percentage of relatively small projects—that is, projects that are less than $1 million—is higher than in the pre-2016 period. As well, we see from the database that over half of the projects with start dates are projected to have started in 2017, and the projects with start dates in 2018 will account for 38.8% of federal contributions over the period to 2021.
With regard to the issues around the delay in spending, I think it's important to emphasize that, in budget 2016, the government announced a number of measures to provide fiscal stimulus to the economy, including housing investment, measures to support modest and low-income households, and the infrastructure projects.
The fiscal stimulus package arose out of the government's concern about an output gap in the economy in 2015–2016 in light of the decline in investment in the oil and gas industry and concerns about slow growth in the EU, China, and other emerging economies.
The new infrastructure plan was motivated by the desire to provide short-term fiscal stimulus to the Canadian economy in phase one, with a focus on 2016–2018; and in phase two to provide long-term infrastructure projects to increase private sector productivity and improve the quality of life for Canadians.
This was an ambitious—probably overly ambitious—plan. With fiscal stimulus measures, timing is everything. In particular, an increase in infrastructure spending that does not occur when there is deficient aggregate demand in the economy but occurs when the economy is on the upswing would not only be ineffective, but might divert resources—land, labour, and capital—from private sector investments that would have increased the productivity of the economy.
The use of infrastructure spending by the federal government to stimulate the economy is particularly problematic in Canada because 90% of the public infrastructure in Canada is under the control of the provincial and municipal governments.
Increases in infrastructure programs require coordination and agreement with the provincial and municipal governments, and in many cases with aboriginal organizations and governments. Delays are inevitable when plans for projects and funding arrangements have to be made with more than one government. There's also a large number of small projects. That might be a contributing factor for the delays because it is difficult for the federal department to manage a large number of small projects that require agreements with the subnational governments. It would be better, in my view, if the federal government concentrated its efforts on a smaller number of large projects.
For these reasons, I don't think federal funding of infrastructure projects is a useful instrument for short-term fiscal stimulus measures. What we see now is that 38% of the federal contributions are for projects with start dates in 2018, when the Canadian economy as a whole will be experiencing low unemployment rates and there will be little need for additional fiscal stimulus.
With regard to the delay in phase two projects, it should be noted that the Canada Infrastructure Bank is to be involved in financing $35 billion of the $186 billion in spending. Delays in the establishment of the Canada Infrastructure Bank and the appointment of the interim chief financial officer, who was only announced in December 2017, may also account for delays in developmental plans for federal spending on infrastructure.
To summarize, my view is that federal infrastructure spending is not a very effective or reliable instrument for short-term fiscal stimulus in the event of an economic downturn. Long lead times are necessary in negotiating coordinating funding of infrastructure projects with subnational governments, thus making it an ineffective and unreliable fiscal instrument, and these may account for some of the delays in infrastructure projects.
Thank you. I'm happy to take any questions.