Deficient Infrastructure Hurts Economic Growth, Productivity

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By Ralph Goodale
Member of Parliament for Wascana

It was during the 2011 federal election that Stephen Harper started pledging certain expensive tax cuts that would overwhelmingly favour the wealthy. 

He called it "income-splitting" and it sounded politically attractive.  But what he didn't reveal was that only a small fraction of Canadians would qualify -- 85% of all families (i.e., most of those at middle and lower income levels) would get little or nothing from Mr. Harper's scheme.

That was the problem that caused the late Jim Flaherty to openly question both the cost and the fairness of income-splitting.

And there was another problem too.  According to Mr. Harper, before income-splitting could be implemented, the big new deficit that he himself created had to be eliminated by 2015.  There's not a credible economist in this country who agreed with that artificial deadline -- only Mr. Harper, and entirely for his own election campaign purposes.

Here again, Mr. Flaherty tried to give himself some wiggle room, talking about a balanced budget "in the medium term", meaning 2015 or 16 or 17.  But Mr. Harper quickly and publicly insisted on the earlier deadline.  And that set off a flurry of ill-conceived cuts to front-line programs and services -- search-and-rescue, food inspection, immigration, trade, EI and veterans offices, emergency preparedness, military procurement, community pastures, an historic tree farm ... the list goes on.

Among the most serious cuts were those affecting community-based public infrastructure across the country.  While popular programs like the GST rebate to municipalities and the sharing of federal gas tax revenues -- initiated in previous Liberal budgets in 2004 and 05 -- were continued, the government's flagship infrastructure investment (known as the "Building Canada Fund" (BCF)) was slashed by 87%.

To camouflage the impact of that cut, the Harper government has gone to extraordinary lengths to obscure the BCF and make it harder to access.

It was supposed to be fully functional by April 1st, but two months later local communities are still not permitted to file their applications, with the 2014 construction season slipping by.  Some high priority municipal projects have been excluded from eligibility, and there are other new limitations on how local governments can use BCF dollars.

Perhaps most problematic, provincial governments and others "government entities" are now in direct competition with municipalities for whatever lesser amounts of money eventually become available under the BCF.  Mr. Harper refuses to provide a clear commitment on what share of that funding local municipalities can expect.

Cutting and complicating federal support for public infrastructure is not good public policy.

At a time when Canada's economic growth rate is just barely mediocre -- trailing as many as 140 other countries -- with unemployment stubbornly stuck close to 7% and youth joblessness twice that high, Mr. Harper is impairing what his own Finance department says is the most cost-effective way to help drive more jobs and growth.

Moreover, Statistics Canada has produced a valuable analysis of the connection between infrastructure and productivity.

Over the past half-century, about half of the productivity gains in Canada's private sector can be attributed to investments in public infrastructure.  Since the 1960's, our best overall improvements in productivity have been recorded during those periods of greatest expansion in public infrastructure.

To get what he thinks will be the political sizzle of a future tax cut for the most wealthy, Stephen Harper is apparently prepared to compromise jobs, growth and productivity gains for the vast majority of Canadians -- especially the middle-class.

JULY 2018

Vol. 12 - No. 12


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