Canada’s In­vest­ing in Canada In­fra­struc­ture Plan… Yada Yada… Yada…

Policy - - In This Issue - Az­far Ali Khan

Bud­get 2018 de­ferred ap­prox­i­mately $5.0 bil­lion in in­fra­struc­ture spend­ing from fis­cal 2017-2018 and 2018-2019 to later fis­cal years. These de­lays are sys­temic and re­flect a ca­pac­ity prob­lem in the timely de­liv­ery of in­fra­struc­ture in the Cana­dian fed­er­a­tion. More­over, there is a lack of ac­count­abil­ity to Cana­di­ans on the ac­tual per­for­mance im­pacts and so­ci­etal ben­e­fits of past in­fra­struc­ture in­vest­ments. An in­de­pen­dent re­view of the process of plan­ning, de­liv­er­ing and re­port­ing on Cana­dian in­fra­struc­ture in­vest­ments is needed.

Bud­get 2018 did not con­tain any new an­nounce­ments with re­spect to Canada’s in­fra­struc­ture in­vest­ment pro­gram, main­tain­ing the ex­ist­ing $180 bil­lion in planned in­fra­struc­ture spend­ing through fis­cal year 2027-28. Bud­get 2018 is ex­tremely light with re­spect to the progress made on in­fra­struc­ture in­vest­ments and their per­for­mance im­pacts. Cana­di­ans can be for­given for feel­ing like they are part of a Se­in­feld episode when it comes to the man­age­ment of our in­fra­struc­ture in­vest­ments—eco­nomic growth,

strong com­mu­ni­ties, new jobs—yada, yada, yada—$180 Bil­lion!

The gov­ern­ment con­tin­ued its pat­tern of reprofiling in­fra­struc­ture spend­ing from the cur­rent and next fis­cal year to later years. This is a prac­tice that is symp­to­matic of in­ef­fi­cien­cies that re­flect the in­abil­ity to get in­fra­struc­ture money out the door to match the ex­pected project spend­ing by mu­nic­i­pal, pro­vin­cial and ter­ri­to­rial gov­ern­ments. Bud­get 2018 re-pro­filed (i.e. de­ferred) $2.7 bil­lion of in­fra­struc­ture spend­ing in 2017-2018 and $2.2 bil­lion in 20182019 to later years from the spend­ing plan that was out­lined in the 2017 Fall Eco­nomic State­ment.

Bud­get 2018 re-pro­filed (i.e. de­ferred)

$2.7 bil­lion of in­fra­struc­ture spend­ing in 2017-2018 and $2.2 bil­lion in 2018-2019 to later years from the spend­ing plan that was out­lined in the 2017 Fall Eco­nomic State­ment.

In ad­di­tion, it is im­pos­si­ble to get a sense of the progress that has ac­tu­ally been made on the much touted $180 bil­lion In­vest­ing in Canada Plan. Page 349 of 367 of the 2018 bud­get dis­closed that over 7,800 projects with com­bined in­vest­ments of over $32 bil­lion have been ap­proved for com­mu­ni­ties across the coun­try. How­ever, in the bud­get lockup, Fi­nance of­fi­cials noted that this was the to­tal of in­fra­struc­ture in­vest­ments across all three or­ders of gov­ern­ment and it would be in­ac­cu­rate to try and use this fig­ure as an in­di­ca­tor of ac­tual progress made against the $180 bil­lion In­vest­ing in Canada Plan.

In fact, there is no rec­on­cil­i­a­tion any­where that tracks in a straight­for­ward and trans­par­ent man­ner the progress that has been made against the $180 bil­lion plan. The In­vest­ing in Canada Plan is one of the sig­na­ture pol­icy mea­sures of this Par­lia­ment and come Elec­tion 2019 Cana­di­ans will not have ev­i­dence on the per­for­mance of one of the most sig­nif­i­cant spend­ing mea­sures of the gov­ern­ment’s fis­cal plan.

In­fra­struc­ture is with­out a doubt one of the key en­ablers of a mod­ern and suc­cess­ful econ­omy and we should be able to have our fin­ger on the pulse of our in­fra­struc­ture in­vest­ments. How­ever, it is im­pos­si­ble to get a snap­shot of the true state of Cana­dian in­fra­struc­ture per­for­mance given the com­plex­ity of three or­ders of gov­ern­ment hav­ing dif­fer­ent fund­ing, fi­nanc­ing, tax­a­tion and in­fra­struc­ture de­liv­ery re­spon­si­bil­i­ties.

The fis­cal con­text in which these in­fra­struc­ture in­vest­ments are be­ing made fur­ther ex­ac­er­bates this sit­u­a­tion. The gov­ern­ment’s elec­tion plat­form in­fra­struc­ture com­mit­ment was jus­ti­fied within the con­text of his­tor­i­cally low in­ter­est rates, deficits no greater than $10 bil­lion and a re­turn to bal­ance by the time of the 2019 elec­tion.

By con­trast, the 2018 fis­cal plan does not have a plan to re­turn to bal­ance, rather the plan is to main­tain a grad­u­ally de­clin­ing net debt-to-GDP ra­tio from the 30.4 per cent fig­ure of 20172018. It is ac­cu­rate and very good news that the econ­omy is cur­rently fir­ing on all cylin­ders and as my col­league, Ran­dall Bartlett, has quite rightly pointed out “it doesn’t get any bet­ter than this” with re­spect to Canada’s eco­nomic per­for­mance. Yet we are fore­cast­ing bud­getary deficits for the fore­see­able fu­ture and thus by def­i­ni­tion we must now be in a struc­tural deficit po­si­tion. In­ter­est rates are ris­ing and given the de­lays in get­ting the in­fra­struc­ture spend­ing out the door (the reprofiling touched upon ear­lier) it now ap­pears likely that in­fra­struc­ture in­vest­ments will be made dur­ing a time of ris­ing in­ter­est rates al­though they re­main at his­tor­i­cally low lev­els.

The key take­away is that we are guilty of a “demo­cratic dis­ser­vice” to the Cana­dian voter by not pro­vid­ing a fair and trans­par­ent ac­count­ing of in­fra­struc­ture in­vest­ments and per­for­mance come elec­tion time. Yet we will be ask­ing for his/her ap­proval to con­tinue mak­ing these in­vest­ments with­out ev­i­dence on what ben­e­fits fu­ture in­vest­ments will gen­er­ate, let alone the re­turn on in­vest­ment that has been gen­er­ated by past in­fra­struc­ture in­vest­ments.

The UK is an in­ter­est­ing com­par­a­tive data point with re­spect to the ac­count­abil­ity of in­fra­struc­ture in­vest­ments. They di­ag­nosed chal­lenges at the very front-end of their in­vest­ment cy­cle on clearly ar­tic­u­lat­ing the why, what, how and when to build in­fra­struc­ture. As a re­sult, the UK com­mis­sioned the Ar­mitt Re­view to con­duct an in­de­pen­dent re­view of the coun­try’s long-term in­fra­struc­ture plan­ning.

The Ar­mitt Re­view re­ported back in Septem­ber 2013 with con­clu­sions that are rel­e­vant for Canada. In par­tic­u­lar, the fol­low­ing quote from the Ar­mitt Re­view should give us pause, “The an­nual Na­tional In­fra­struc­ture Plan pro­duced by In­fra­struc­ture UK is not strate­gic. It is es­sen­tially a list of projects which is not built up from an ev­i­dence-based as­sess­ment of the UK’s long-term needs.” In Canada, not only do we not have an ev­i­dence­based as­sess­ment of our long-term needs we don’t even have a Na­tional In­fra­struc­ture Plan. On the bright side, we do have a wish list of in­fra­struc­ture projects.

The cen­tral rec­om­men­da­tion of the Ar­mitt Re­view to ad­dress decades of poor strate­gic plan­ning in the UK was the cre­ation of a statu­to­rily in­de­pen­dent Na­tional In­fra­struc­ture Com­mis­sion (NIC) whose man­date would be to per­form a Na­tional In­fra­struc­ture As­sess­ment (NIA) that would in­clude an ev­i­dence-based

as­sess­ment of their long-term in­fra­struc­ture needs. A key un­der­pin­ning of this rec­om­men­da­tion was the gov­er­nance frame­work. The NIC must ta­ble the NIA once a Par­lia­ment and the gov­ern­ment is re­quired to re­spond to the NIA within one cal­en­dar year of tabling. The NIC is then re­spon­si­ble to per­form a mon­i­tor­ing and on­go­ing chal­lenge role on the per­for­mance of the UK gov­ern­ment’s in­fra­struc­ture in­vest­ments.

It is im­pos­si­ble to get a snap­shot of the true state of Cana­dian in­fra­struc­ture per­for­mance given the com­plex­ity of three or­ders of gov­ern­ment hav­ing dif­fer­ent fund­ing, fi­nanc­ing, tax­a­tion and in­fra­struc­ture de­liv­ery re­spon­si­bil­i­ties.

Of course, the Cana­dian con­text is dif­fer­ent than that of the UK. Specif­i­cally, the in­creased com­plex­ity of three or­ders of gov­ern­ment hav­ing dif­fer­ing roles and re­spon­si­bil­i­ties in the plan­ning, fi­nanc­ing and de­liv­ery of in­fra­struc­ture is a big dif­fer­ence rel­a­tive to the UK.

How­ever, the sys­temic reprofiling de­lays (laps­ing of monies) and the ab­sence of a straight­for­ward and trans­par­ent ac­count­ing of Canada’s holis­tic in­fra­struc­ture per­for­mance sug­gest that Canada could also ben­e­fit from a re­view of the plan­ning and de­liv­ery of in­fra­struc­ture across our three or­ders of gov­ern­ment.

There are some good rea­sons to have a hard look at lapses. Pre­vi­ous gov­ern­ments have used lapsed fund­ing from in­fra­struc­ture and/ or de­fence as a source of funds for other spend­ing or deficit re­duc­tion. There is al­ways a risk that fund­ing re-pro­filed to later years may not ma­te­ri­al­ize. All of a sud­den, prov­inces and mu­nic­i­pal­i­ties might find them­selves with un­funded in­fra­struc­ture project or plans. Fur­ther, there may be some struc­tural is­sues within the pro­gram. For ex­am­ple, other ju­ris­dic­tions may not have match­ing funds avail­able or there may be pol­icy or in­stru­ment con­sid­er­a­tions such as P3s or the Canada In­fra­struc­ture Bank, that may re­sult in de­lays, tem­po­rary or per­ma­nent. A re­view of the plan­ning and de­liv­ery of in­fra­struc­ture would help to iden­tify the root cause(s) of lapsed fund­ing.

Canada has been mak­ing sig­nif­i­cant in­fra­struc­ture in­vest­ments for the last 10 years. These in­vest­ments are al­ways touted as “build­ing strong com­mu­ni­ties, cre­at­ing jobs and grow­ing the econ­omy.” Cana­di­ans de­serve an an­swer on whether these ben­e­fits have been re­al­ized but the sys­tem is ei­ther in­ca­pable or un­will­ing to pro­vide one.

In fair­ness, the Gov­ern­ment of Canada quite rightly com­mit­ted in Bud­get 2017 to the de­vel­op­ment of a data ini­tia­tive that will pro­vide a na­tional pic­ture on the state and per­for­mance of pub­lic in­fra­struc­ture across as­set classes. This ini­tia­tive promised to “de­liver high­qual­ity data an­a­lyt­ics and to track the im­pacts of in­fra­struc­ture in­vest­ments so that gov­ern­ments can re­port back to Cana­di­ans on what has been achieved.” How­ever, as of Bud­get 2018, Cana­di­ans can­not even see a sim­ple rec­on­cil­i­a­tion of what has been spent and not spent on the $180 bil­lion In­vest­ing in Canada Plan let alone data an­a­lyt­ics and an ac­count­ing of what has been achieved with re­spect to the im­pacts of in­fra­struc­ture in­vest­ments.

Bud­get 2017 stated that the de­tails on this data ini­tia­tive would be an­nounced in the com­ing months and since then Statis­tics Canada has un­der­taken a sur­vey on the in­ven­tory, con­di­tion, per­for­mance and as­set man­age­ment strate­gies of core pub­lic in­fra­struc­ture as­sets. This is a very good start but more work needs to be done as the sur­vey will not pro­vide in­sights on per­for­mance im­pacts with re­spect to cre­at­ing jobs, grow­ing the econ­omy and other out­comes and ben­e­fits that are used as the ba­sis to jus­tify in­fra­struc­ture in­vest­ments. The per­for­mance el­e­ments in the sur­vey are spe­cific to the as­set classes.

That said, the chal­lenges fac­ing in­fra­struc­ture de­liv­ery in Canada will not be solved by data alone, al­though data is cer­tainly a crit­i­cal el­e­ment in pro­vid­ing the ev­i­dence on in­fra­struc­ture per­for­mance. The de­lays in get­ting money out the door and the lack of ac­count­abil­ity on the ac­tual per­for­mance im­pacts and ben­e­fits of our ex­ist­ing in­fra­struc­ture in­vest­ments sug­gest that Canada is ripe for a re­view of the process by which our in­fra­struc­ture is planned and de­liv­ered across the three or­ders of gov­ern­ment. The time is right par­tic­u­larly with the in­tro­duc­tion of a new ac­tor, the Canada In­fra­struc­ture Bank, and the role it will be play­ing in in­fra­struc­ture fi­nanc­ing and de­liv­ery.

Other­wise, Cana­di­ans will say to the Gov­ern­ment what Jerry said to Elaine in the Se­in­feld episode “You yada yada’d the best part!”

Az­far Ali Khan is the Di­rec­tor of Per­for­mance with the In­sti­tute of Fis­cal Stud­ies and Democ­racy. Az­far has both pri­vate sec­tor and public­sec­tor ex­pe­ri­ence and spe­cial­izes in pub­lic fi­nance and ex­pen­di­ture man­age­ment prac­tices. az­far.alkhan@ifsd.ca

IStock photo

The ex­press­way on the Toronto wa­ter­front, one of many roads in need of re­newal.

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