Justin Trudeau’s Liberal government is responding to the sluggish global economy with a fall economic update that puts an even greater focus on infrastructure spending than in its spring budget, while making it easier for private sector investors to add their money to the government’s already considerable funding pot.
The government will also make it easier for foreign investors to expand into Canada, in a further attempt to boost the tepid economy.
But Finance Minister Bill Morneau is still staring at a horizon awash in red ink, with no forecasted return to a balanced budget.
- Highlights of Bill Morneau’s fall economic statement
- Read the full 2016 Fall Economic Statement (pdf)
“What we want to tell Canadians is we believe that we should be focused on making investments for today and for tomorrow that will allow us to have a higher level of economic growth in this country,” he said. “We know we are doing it in a fiscally responsible way.”
And so beyond the economic forecast, the fall update is focused on how to make a “real and measurable impact,” Morneau said, taking the potentially controversial step of allowing private-sector pension funds and institutional investors to “get involved” in public infrastructure.
The finance minister said this would bring private-sector capital, expertise and fiscal discipline to the public policy goals of the current government.
The headline for last March’s budget was a $120-billion infrastructure plan, set to roll out over 10 years. With today’s economic update, the government is now planning for $186 billion worth of programs, unfolding over 11 years.
It’s a clear signal that the Liberals see public infrastructure spending as their best economic growth strategy.
In addition to the longer time frame, the government is expanding its definition of infrastructure spending, adding two new categories to target specific needs: trade and transportation, and rural and northern communities.
The three categories set out in the last budget remain: public transit, green infrastructure and what the Liberals call “social infrastructure,” such as affordable housing or child care facilities.
Downturn eats up $6B contingency
Critics accused Morneau last spring of being too prudent with the $6-billion contingency figure built into his budget balance forecast. In fact, that entire $6 billion has been offset by the effects of the downturn in the Canadian economy experienced since then.
While the projected deficit for 2016-17 has moved down to $25.1 billion from the $29.4 billion forecast in the spring budget, the new figure no longer has any kind of a safety cushion built in. Absent that cushion, the deficit has actually grown thanks to some $1.7 billion in new spending since last spring.
The deficit situation improves toward the end of the government’s five-year horizon, to $16.8 billion in 2020-21.
The projected debt-to-GDP ratio — the key measure of the affordability of a government’s debt — by then returns to the 31 per cent mark, where it was in 2015-16 as the Liberal government took office.
Morneau said his government was prepared for what is happening to the economy.
“We have the most enviable position of all G7 countries in terms of our debt-to-GDP ratio,” he told the House of Commons.
But Interim Conservative leader Rona Ambrose said the Liberals’ massive spending has created no new jobs and has led to a stalled economy.
“They think this failed plan is somehow working, and they’re doubling down on it,” she said.
Repeating the party’s line that the Conservatives are the voice of taxpayers, Ambrose accused the government of “making lives more expensive for Canadians.”
“Canadians are worse off today than they were a year ago,” Ambrose said. “But instead of action, we hear excuses.”
The new infrastructure funding allocated in this update is modest for the current and next fiscal years, but it ramps up substantially in 2018-19. That happens to be the period heading into the next scheduled federal election.
But the biggest infrastructure move is the much-anticipated Canada Infrastructure Bank.
While legislation won’t be ready until next spring’s federal budget, Morneau revealed the scope of the investment the new bank will oversee: at least $15 billion will come from the public purse, while an estimated $20 billion would come from private investors.
The public money is intended to fund things that wouldn’t normally be able to provide a return for private investors. For other projects, the bank may attract “as much as four or five dollars in private capital for every tax dollar invested,” Morneau said in his speech.
NDP Leader Tom Mulcair said Trudeau had promised municipalities a “big shot in the arm” for infrastructure, but now he is delivering a “privatization bank.”
That marks a big shift in economic strategy, Mulcair said.
“The money promised to municipalities is being taken away and it’s going to come back on taxpayers’ shoulders in the form of higher tolls and user fees. That’s the reality of what’s being announced today,” he said.
Attracting foreign investment
In a separate move that would also be implemented with legislation next year, the federal government is creating an “Invest in Canada” sales force to attract new foreign investment and encourage companies to expand further into Canada.
Plans unveiled Thursday are also aimed at making things easier for large foreign investors in two ways:
- Starting in 2017, the threshold for triggering a review under the so-called “net benefit test” in the Investment Canada Act rises to $1 billion from its current $600-million level. That meets a World Trade Organization obligation two years ahead of schedule.
- New guidelines to be published by the end of 2016 will set out which investments will trigger national security provisions, making it easier for foreign companies to navigate security reviews.
And building on Monday’s announcement of new immigration targets, the fall economic update includes a global skills strategy that aims to:
- Set a two-week standard for processing visas and work permits for low-risk, high-skill talent, targeting companies that demonstrate labour market benefits for Canada and make large investments in new or expanded production in Canada.
- Introduce a new work permit exemption for short-duration work terms, applying to terms of less than 30 days in a year, or brief academic stays.
While not strictly fiscal measures, Thursday’s statement also announced moves to strengthen the parliamentary budget office and reinforce the independence of Statistics Canada through legislation.
And the meetings and decisions of Parliament’s previously-secret board of internal economy, which governs how the House of Commons and the Senate spend their respective budgets, will now be open by default.
“It’s not just what we are doing, it’s also how we are doing it,” Morneau said in the Commons. “We listen. We partner. We collaborate.”
Fiscal update: CBCnews.ca coverage