Stimulus from infrastructure spending likely delayed, Parliamentary Budget Office says

The Parliamentary Budget Officer says while federal government spending is higher for the first half of 2016, Ottawa is struggling to get its promised infrastructure money out the door, meaning the much-hoped-for related economic activity will be delayed.

The PBO report released Tuesday morning found that government expenditures for the first half of 2016 increased 3.7 per cent over the same period the year before. The Liberals had promised to raise spending and go into deficit to stimulate the economy.

But the report also found that this growth actually lags behind the government’s budgeted spending increase of 5.6 per cent. 

The PBO points specifically to the government’s planned investments in infrastructure not materializing as the main culprit. In fact, it found infrastructure transfers to other levels of government in the first half of 2016 actually fell compared to the previous year by $100 million.

“The money may be there, but they have to sign all the agreements with the provinces and how they will spend that kind of money, and that’s probably what is happening … that the agreements cannot be signed at the same pace as the money has been announced,” Parliamentary Budget Officer Jean-Denis Fréchette said in an interview with CBC News.

Growing risk

The government committed $120 billion over 10 years in last March’s budget, raising that to $186 billion over 11 years in last fall’s fiscal update.

Fréchette warns there is a growing risk that the economic activity hoped for out of the promised infrastructure spending will be delayed.

“All the spin you can expect from these investments will come later than expected,” said Fréchette, adding the beginning of the economic impact could be later in 2017, and then continue into 2018.

But that throws into question government hopes and projections for the economy.

“The problem is to expect something to happen in this current year that will not and that really has to be considered in the picture we are seeing right now,” said Fréchette.

Not new problem

In a written statement, the office for the minister of infrastructure and communities says that more than 1,000 projects have been approved across Canada, with more than 65 per cent of them underway. According to the government, tha tis more than the five previous years combined.

The PBO report also notes that delayed infrastructure spending is not a new problem at the federal level, that the more a government promises in money for infrastructure, the more it seems to leave unspent — or lapse. According to the PBO, Infrastructure Canada has lapsed no less than $400 million each year since 2009.

The report’s finding of an overall increase in government spending for the first half of 2016 is mainly attributed to increases in operating costs, grants and contributions and capital spending.

The operating costs are mostly salaries for the public service as the report notes that for the first time in six years, there is an increase in the overall size of the public service.

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