Evidence of meeting #98 for Transport, Infrastructure and Communities in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was projects.
A recording is available from Parliament.
NDP
Brigitte Sansoucy NDP Saint-Hyacinthe—Bagot, QC
I would like your opinion on something that was discussed in the first hour.
In his recent analysis, the parliamentary budget officer revealed that, although the Liberal government had promised to stimulate the economy by investing in infrastructure, the GDP has increased by only 0.1%, which is very little.
What is the explanation for the fact that the money that has already been invested in infrastructure hasn't really stimulated the economy?
Chief Economist, Institute of Fiscal Studies and Democracy, University of Ottawa
As the folks at the PBO mentioned, I think there are two parts to that.
The first part is that not as much money has flowed as was expected at the time of budget 2016.
The second is that the economy wasn't at the same stage of the business cycle as it was at the time of budget 2009 when the fiscal multipliers included in budget 2016 were originally released. At that point there was very little risk of seeing a dramatic increase in interest rates on the part of the Bank of Canada.
Also, the gap between Canada's current and trend levels of output was much larger then, so each dollar of infrastructure spending would have had a much larger impact on the economy, because you had a lot of economic slack. You had a lot of resources that were freed up in the construction sector, because people were not investing in housing, were not investing in private infrastructure, and also were not necessarily employed at that time, so it employed a lot of resources that had become available because of the crisis. Had we had as large an output gap, potentially the impact would have been dollar for dollar as significant as it was back then.
Liberal
Liberal
Vance Badawey Liberal Niagara Centre, ON
Thank you, Madam Chair.
I'm going to continue where I left off with the former witnesses.
For the most part we've seen a lot of money being brought to the municipalities. With that, the infrastructure spending has attached itself to offsetting municipal costs when it comes to municipalities' tax levies, taxpayer municipal rates, water, waste water; and each investment that is being made is offsetting the otherwise emphasis and the challenge on the taxpayers, as Mr. Chong outlined earlier, trying to keep up with respect to their costs on a daily basis within their households.
We also see that it has leveraged both reserves, which quite frankly, are very minimal at the municipal level, as well as equity. For example, in Ontario when deregulation of hydro came about, a lot of municipalities ended up either leasing and/or selling their hydro utilities and therefore were receiving annual dividends that they could also leverage with respect to one-third, one-third, one-third contribution with the upper levels of government.
We've also seen that, for a lot of community improvement plans, the financial requirements attached in aligning with community improvement plans were again being augmented by those investments that the federal and provincial governments were making, again offsetting the challenges and/or the need for property taxpayers as well as water and waste water ratepayers to have to supplement those costs.
Finally, this goes to my question for both witnesses. When we look at the lens we have been looking through, quite frankly, in the last two years as it relates to the triple bottom line—environmental, economic, and social investments—as well as ensuring that we work with municipalities to put in place a disciplined asset management plan based on life cycle of repair, maintenance, and of course, ultimately replacement, would you not find it positive that, as well as we always use those words loosely when it comes to economic stimulus, the proper definition of economic stimulus is new jobs, the balancing of budgets so people can have more affordability for expendable income to then put into the marketplace, and so on and so forth? I think there is an obvious contribution that has been created through infrastructure spending that, in fact, has been the case.
Going back to my question, would you find that a triple bottom-line lens, when it comes to economy, environment, and social, and the returns that attach themselves to those three areas, is something the government should continue looking at? That's question number one.
Question number two is whether we should, in fact, create a more sustainable funding envelope to attach itself to proper and disciplined asset management plans at the municipal level.
Chief Economist, Institute of Fiscal Studies and Democracy, University of Ottawa
Starting with your second point, if that's okay, working with municipalities to increase capacity in terms of their infrastructure investments and asset allocation is superb, and the more stable and predictable the funding source is for infrastructure or for any transfer is incredibly beneficial because it allows cities to actually make those three-year, five-year, and 10-year plans and predictably be able to ensure that they're able to make those investments and be able to plan going forward. I definitely am supportive of that, of predictability and good analysis underlying investments, absolutely.
When it comes to the various approaches to investing in infrastructure, or the categories for investment, those may be the best approaches to doing that. The approach we take, looking at best practices globally, instead of predetermining what those are and then saying we'll allocate one-third, one-third, one-third to each of those—because to some degree, it's somewhat arbitrary—is more to work with the lower levels of government. We say here's what you have, here's what your needs are—we have an accepted approach to doing this—and let's prioritize those investments, so we know definitely which ones are going to get the biggest either social or economic benefit going forward. That is really the approach to take because they may not be evenly divided. You might find that on the social side it may be where you want to allocate your resources more because they're larger priorities than, say, transportation, trade and transportation, or something like that.
Liberal
Vance Badawey Liberal Niagara Centre, ON
To that point, you find it advantageous and/or correct that the government has been consulting with the Federation of Canadian Municipalities and the provincial associations to ensure that, quite frankly, “It's your plan we're going to put forward, not our plan”, and in trying to validate and/or come to a conclusion on what those areas of investment should be, such that it should actually be coming from them, not us.
Chief Economist, Institute of Fiscal Studies and Democracy, University of Ottawa
Absolutely.
Liberal
Vance Badawey Liberal Niagara Centre, ON
Second to that, take a look at some of the short-term and long-term projects. For example, here in the city of Ottawa look at the short-term stimulus when it comes to the LRT, the light rail transit, and at some of the other investments that were made in the city of Hamilton and in other parts. I look at the members across here and I think of the millions of dollars that we've outlined here in infrastructure investments in our own ridings. Yes, those could be considered short term; but, ultimately, as well as the long term that was mentioned by Bev, both are advantageous. It all, once again, depends on the planning of the municipalities versus our anticipated expectations that we would impose upon them.
Chief Economist, Institute of Fiscal Studies and Democracy, University of Ottawa
That's right, and that—
Chief Economist, Institute of Fiscal Studies and Democracy, University of Ottawa
Of course.
I think the role that the federal government can play is helping to build capacity to make sure that the planning framework is done well and that those investments will benefit those municipalities as much as they possibly can.
Liberal
Vance Badawey Liberal Niagara Centre, ON
By the way, I'll start talking when you guys are talking as well.
Liberal
Gagan Sikand Liberal Mississauga—Streetsville, ON
Thank you.
Professor Bartlett, I read a blog post of yours entitled, “Is Infrastructure a Public Good? No, Sort Of, and What Role for the Public and Private Sectors”. In this post you suggested that private sector involvement in public infrastructure projects can in theory have many benefits, especially by increasing the likelihood of projects being completed on time and on budget. However, in practice public-private partnerships in Canada frequently fall short of this ideal. As you wrote, “the jury remains out on whether PPPs are actually effective in reaching their stated goals and delivering value for money to taxpayers.”
How much of an influence does private sector investment in infrastructure projects have on meeting project timelines?
Chief Economist, Institute of Fiscal Studies and Democracy, University of Ottawa
Certainly private sector involvement has been found to benefit public sector investment in both being on time and on budget. I would say that on average it's slightly better. But at the end of the day, the benefits are relatively small and the jury is still out on the financing cost, which is always higher because in Canada the federal government obviously has the lowest cost of financing of any jurisdiction, particularly relative to the private sector, which has a comparatively small borrowing capacity. In that regard there are always going to be trade-offs, and I stand by that statement that the jury is still out on whether or not the net benefit to Canadians and taxpayers is really there.
Liberal
Gagan Sikand Liberal Mississauga—Streetsville, ON
Are you able to provide some pros and cons of PPPs?
Chief Economist, Institute of Fiscal Studies and Democracy, University of Ottawa
Ultimately I think it really comes down to the increased likelihood—I would say not dramatically increased, but the increased likelihood—of being on time and on budget with PPPs, offset in part by the higher financing costs. I think it's those two together.
When it comes to broader private sector investment, that's the one that I'm still not 100% sure of in terms of the CIB, for instance, crowding in private sector investment and all the talk about bringing in private sector innovation and that kind of thing. I have worked on the deal side in the private sector. Certainly there are benefits to private sector investors and I think there is more focus on making sure that you're driving the returns that you want out of the investment. But when it comes to actually delivering more benefit to Canadians, both economically and socially, that's something that I think is still up in the air.
Prof. Bev Dahlby
Yes, I probably agree with his assessment of public-private partnerships and their effectiveness.
I think the one thing that hasn't been mentioned, though, is that the cost of public finance is understated, because it doesn't take into account the cost of the tax dollars that have to be raised to finance the government's deficit, or pay for them. Those costs are substantial because higher taxes lead to a slower economic growth, less innovation, etc. When you take those costs into account, it is less clear-cut that PPPs are more costly.
Liberal
Gagan Sikand Liberal Mississauga—Streetsville, ON
Okay.
I'm going to share the remainder of my time with the Honourable Robert Nault.
Kenora, Lib.
Thank you very much.
I come from a riding that's the size of France, and I have 22 first nations that live in isolation. They don't have roads. I'm very interested in this whole concept of what's beneficial, what we used to call, years ago, “nation-building”. Diefenbaker used to call it “roads to resources”. There was an understanding that to build this nation, the federal government had to be directly involved.
About three weeks ago, our government put $1.6 billion into my riding to connect 17 first nations to the power grid. It's fair to say that would never have been done by the private sector, generally, nor would the building of the Trans-Canada Highway, or the roads to resources in northern Alberta and northern Saskatchewan. None of that would have been done.
Why do you think the Government of Canada has gotten away from nation-building as part of the infrastructure development? Is it a fear that somehow we'll be influencing, or that it will be interpreted as the government being involved in, the jurisdictions of the provinces or municipalities? This country is still underdeveloped. If you drive across the nation, as I have a couple of times now, it's totally underdeveloped. It's built in little pieces along the U.S.-Canada border.
We've got a long way to go, and we can be a lot more productive, for sure. I'm just curious as to your analysis of the short term versus the long term, plus our insistence on little municipal projects when there's a lot of nation-building to do.
Prof. Bev Dahlby
I agree with you that there is a large potential for nation-building projects.
My colleagues at the School of Public Policy & Governance have completed a study that showed a huge return from investment in transportation infrastructure in Canada's north. They've documented that very strongly, and there are other proposals for major nation-building infrastructure projects across Canada. Perhaps part of the $186 billion will focus on some of these large nation-building projects. That would be, in my view, a very beneficial outcome.
Kenora, Lib.
The only criticism I would have, Mr. Bartlett, of what you've been saying all day is that you're comparing such small entities of countries that would fit into my riding three or four times over. When you talk about Wales or New Zealand, I can't get my head around how you can compare them to trying to build infrastructure in the 55 communities that I represent in northern Ontario.
I happen to live in the most successful jurisdiction in North America, almost, as far as wealth is concerned, but we still haven't developed northern Ontario. We should have better comparisons of what benefits there would be if we opened up the north, not just the Ring of Fire—which of course Mr. Ford and everybody are all excited about—because that will get done eventually. We first need to develop the infrastructure for the indigenous populations and people who live there.
