The Liberal government claims its new two-phase infrastructure spending program will boost Canada’s GDP by 0.2 percent this year and 0.4 percent next year.
Phase one includes $11.9 billion for a mix of “green,” social and transit projects over the next two years. Phase two will focus on the construction of projects within the next eight years that will go “hand in hand using the transition to some low-carbon economy,” the government said.
It expects phase-one spending with an immediate effect on Canada’s gross domestic product. Nearly $4 billion in infrastructure spending this fiscal year will match other measures announced Tuesday – for example investments in housing and programs to support low-income households – to enhance the GDP by 0.5 per cent this season, based on economic impact estimates within the budget document.
The government will then roll out more than $7 billion in infrastructure spending in the next fiscal year. Which will combine with other measures announced within the budget to contribute 1.0 percent to GDP, the government claims.
“Studies consistently show that when there is slack in the economy and interest rates are low, for every dollar a government spends on infrastructure, substantially a lot more than $1 of economic activity is generated,” Finance Minister Bill Morneau said in the budget speech towards the House of Commons.
Private sector economists the impacts expected through the government make sense, at least for this year.
Douglas Porter, an economist with BMO, said the $4 billion the federal government will spend on infrastructure in fiscal 2017 should mean the 0.2-per-cent bump to GDP the federal government expects. “However i think it’s important to emphasize, it’s a one-time lift. It doesn’t permanently set yourself on to higher growth,” Porter said.
The government also claims that for each dollar it spends on infrastructure within the 2017 fiscal year, some 90 cents will percolate with the economy. That “multiplier effect” rises to $1.40 for every dollar spent during fiscal 2018.
Craig Wright, chief economist with RBC, said it’s common for multipliers to start low then build as private sector investment tracks the federal government spending.
“Public sector investment in infrastructure gets into place, then some private sector infrastructure (investment) kicks in after the fact. It makes sense that it’s a build.”
The promise to spend on infrastructure would be a centrepiece from the Liberals’ 2015 election campaign platform. The party pledged to spend $125 billion over Ten years inside a bid to “kick-start” the Canadian economy. The program unveiled Tuesday expands an existing $65-billion program the Liberals inherited in the previous Conservative government.
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In recent weeks Pm Justin Trudeau has gone to live in lower expectations, saying the government’s initial spending on infrastructure would concentrate on less-exotic maintenance projects – such things as upgrading the signalling in subway systems – rather than the construction of shiny new big-ticket projects.
The infrastructure plans laid out Tuesday are mostly consistent with those campaign commitments. Even though many from the projects named in the budget are targeted for spending within the next 2 yrs, it also includes projects the federal government will spend on over extended period frames.
The Liberals will expend some $3.4 billion over the next 3 years to upgrade and improve riding on the bus across the country, money that will be doled to provinces and territories according to their share of national public transit ridership.
Another $5 billion over the next five years will go to water, wastewater and so-called “green” projects made to react to climate change. That includes $2.2 billion for clean water, waste water and waste management in First Nations communities.
And $3.44 billion continues to be set aside to build social projects, for example subsidized housing, recreation centres and daycares.
On top of the $11.9 billion plan unveiled within this budget, the Liberal government said hello will spend another $3.4 billion over 5 years to upgrade and keep harbours, airports and border installations, and to clean up federal properties contaminated with hazardous waste.
Financial Post
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