Deficit spending touted as way to create growth
Liberals sinking $81 billion into infrastructure projects as economic expectations wane
OTTAWA— The federal Liberals are placing their hopes for economic growth on increased infrastructure spending and wooing foreign investment and talent to Canada.
In an economic update Tuesday afternoon, Finance Minister Bill Morneau revealed the Liberals intend to spend an additional $81 billion over the coming 11 years on federal infrastructure projects.
“This is unprecedented in Canada’s history, and it comes at a time when the need is great,” Morneau told the House of Commons.
“Our communities need to keep people and goods moving. Our most vulnerable citizens need housing ... Our country needs long-term economic growth.”
The Liberals are framing their double-down on infrastructure spending against the backdrop of a sluggish national economy and uncertain international growth.
Since the March budget, private sector forecasters have downgraded their expectations for the Canadian economy, predicting it will grow by 1.2 per cent in 2016-17, down from 1.4 per cent, and just1per cent in 2018-19, down from 2 per cent.
The slowdown is taking its toll on federal revenues, with this year’s budget deficit now expected to come in at $24.7 billion, after drawing on the $6 billion that the Liberals had set aside as a rainy-day fund. Indeed, the Liberals now expect to use that contingency fund in each of the coming five years.
Morneau made no promises Tuesday as to when the federal government will balance the budget, saying only that the deficit spending is “fiscally prudent.”
Private sector estimates expect Canada’s debt-to-GDP ratio to remain relatively stable over the next five years, even with the increased borrowing.
Yet the plan for higher spending and deeper deficits drew the ire of the opposition Conservatives, who accused Prime Minister Justin Trudeau of “doubling down on his failed plan.”
“The nightmare continues for taxpayers,” interim Conservative leader Rona Ambrose told reporters.
“The Canadian economy has not created a single additional full-time job since Justin Trudeau was elected yet the Liberals still think they can solve their problems by spending more money,” Ambrose said.
“They claim, again, that growth can be achieved with just one more billion-dollar spending spree,” she said.
Faced with forecasts of slow growth for years to come, the Liberals are betting that infrastructure spending — and lots of it — is one remedy. The Liberals plan to spend an additional $81 billion on infrastructure, over and above the $14.4 billion announced in their maiden budget earlier this year.
Tabled shortly after they won power, that budget was sold as “phase one” of the government’s infrastructure ambitions.
Tuesday’s update gave the framework for “phase two” and the Liberals’ long-term plans for significant public investment in things such as transit, “green” infrastructure and social infrastructure.
Total spending on new and existing infrastructure projects is expected to rise from $13 billion in 2016-17 to $17.5 billion in 2019-20, the end of the Liberals’ first mandate.
Over the 11-year time frame provided by Morneau on Tuesday, total infrastructure spending is expected to reach $186.7 billion.
The new spending includes $23 billion for public transit, $21.9 billion for green projects such as water and waste water facilities, and $21.9 billion for so-called social infrastructure such as affordable housing, cultural and recreational facilities.
There are two new priority categories for infrastructure funding: $10.1 billion for projects that assist trade, and $2 billion for rural and northern communities.
The Liberals are also attempting to draw in both international talent and investment to Canada through a new set of initiatives.
Morneau said the government will introduce legislation to create a new infrastructure bank, with $35 billion available to try to leverage private sector investment in large infrastructure projects.
The government is also planning a new organization called Invest in Canada, backed by $218 million in funding over five years. The organization is being pitched as a “highimpact sales force” to sell Canada to international investors.
Canada will also loosen the rules around foreign investment.