OTTAWA – The federal government’s fiscal position has deteriorated by billions of dollars since the budget, at the same time it’s ratcheting up capital spending and creating a new Canada Infrastructure Bank to dramatically overhaul how large projects are planned, funded and delivered across the country.
As the federal financial picture continues to erode – and spending increases – the Liberal government said Tuesday in its fall economic update it has no timetable for balancing the budget and acknowledges it doesn’t know when the gusher of red ink will end.
The new Canada Infrastructure Bank is one of the federal government’s centerpiece items announced in an economic update that – once again – downgrades projected growth and forecasts that a worsening financial situation will soon gobble up all of the billions of dollars in fiscal contingency that was included in the spring budget.
Finance Minister Bill Morneau also announced in the economic update the government is committing $81 billion in new infrastructure spending over the next 11 years on public transit, green projects, and social infrastructure. However, most of the funding is earmarked for several years down the road, beyond the government’s current four-year mandate.
“Today is about the long term,” Morneau told reporters prior to delivering the economic update in the House of Commons.
“We know that the economic situation that we’re in is challenging.”
The Liberal government projects its budgetary balance will be $1.7 billion worse in the current 2016-17 fiscal year than it forecast in the budget, when factoring in economic developments, new spending and announcements.
Add it up, and the government’s fiscal position is $31.8 billion worse over the next five years than it forecast in the March budget, completely devouring within two years the $6 billion in annual contingency that was built into the forecast to absorb unexpected economic shocks.
Between 2016-17 and 2021-22, the government is expecting to run approximately $130 billion worth of combined deficits.
The government now projects the deficit will hit $25.1 billion in 2016-17, but it will only hit that target after using all of the $6 billion contingency that had been included in the budget. The budgetary shortfall is expected to increase to $27.8 billion in 2017-18 after using the $6 billion contingency next year.
By 2021-2022, the government believes the deficit could still be nearly $15 billion, and there’s no timeline or apparent plan for getting finances back into balance.
“We lost the contingency… Now it’s gone, we spent it. And we have this $130 billion of additional debt,” said former parliamentary budget officer Kevin Page, now the head of the Institute of Fiscal Studies and Democracy at the University of Ottawa.
“Hopefully in the budget we’ll see a stronger fiscal planning framework, more fiscal rules, more deficit targets, maybe spending rule targets.”
The government, at this point, is no longer planning a contingency for future years amid a fragile economy. It is instead using the $6 billion that was allocated as contingency each year to lower its deficit projections in future years.
Starting in the upcoming 2017-18 fiscal year, the Liberals will start rolling out the next phase of its infrastructure funding, promising $81 billion more over 11 years.
The funding will include: $25.3 billion for public transit projects such as subways and light rail; $21.9 billion for green infrastructure like interprovincial transmission lines, renewable power projects, and water treatment facilities; and $21.9 billion for social infrastructure such as affordable housing, early learning and childcare, and cultural and recreational infrastructure.
As well, $10.1 billion will be allocated to a trade and transportation fund for more efficient corridors to international markets, and $2 billion for rural and remote communities for projects like building roads and expanding Internet connectivity.
“We’re talking about big, bold, historic investments in infrastructure,” Morneau said.
The Liberals will table legislation in 2017 to create the Canada Infrastructure Bank, a Crown Corporation the government says will provide “innovative funding and financing” to help get more infrastructure projects built in Canada, in partnership with municipal, provincial and Indigenous partners.
The infrastructure bank will target large institutional investors to help finance “transformational” projects in Canada and get them built more quickly and at less of a financial risk to taxpayers. The government hopes to leverage potentially $4 or $5 of private sector investment for every $1 in federal, provincial and municipal funding for a project.
For example, a major $500-million infrastructure project that would traditionally be equally funded between three levels of government could instead see municipal, provincial and federal governments contribute $100 million combined, while private investors would cover the other $400 million.
The infrastructure bank will invest at least $35 billion from the federal government into large projects that boost economic growth, through loans, loan guarantees and equity investments.
Roughly $15 billion of the federal funds will come from funding already announced for transit, green projects and social infrastructure, with another $20 billion available for investments that result in the bank holding assets, either in equity or debt.
“The Canada Infrastructure Bank, governments and investors will work together to identify a pipeline of potential projects and identify investment opportunities that provide the biggest economic, social and environmental returns,” says the economic update.
Other initiatives announced in the economic update include:
The government will create a new Global Skills Strategy that seeks to implement a two-week standard for processing visas and work permits for low-risk, high-skill talent for companies doing business in Canada;
The Liberals are planning to spend $218 million over five years to create an Invest in Canada Hub, which it calls a “high impact sales force” to promote the country globally and convince companies to invest in Canada;
Introduce new legislation to make the Parliamentary Budget Officer an independent officer of Parliament, giving it more autonomy and greater access to information held by government departments and Crown corporations. The PBO’s new mandate will also include costing of political party platform proposals; and
New legislation for Statistics Canada to give the Chief Statistician of Canada greater powers over the production and release of official statistics, and appoint the chief statistician to fixed five-year terms based on merit. The National Statistics Council will also be replaced with a newly created Canadian Statistics Advisory Council to improve independence, relevance and transparency for national statistics.
The Liberals are also promising to open up the doors to the ultra-secretive Board of Internal Economy, the multi-party committee that makes spending and administrative decisions for the House of Commons and members of Parliament.
Federal financial picture eroding, as government announces new capital spending, infrastructure bank
