December 3, 2008
Opinion
Why infrastructure spending may be Canada’s best shot at beating the economic crisis
Recession is coming to Canada, but to what degree and depth is largely unknown.
We do know that Canada is about to embark on an economic journey that will be both unpleasant and personal. For individuals in particular, the prospect of a job loss is either an immediate threat to one’s own security or to that of someone close.
The following are some suggestions about what needs to be done to limit the damage.
First, our political masters in Ottawa should stop their clowning around.
Threats by the Liberals, NDP and Bloc Québécois to form a coalition government to take over from the Tories are an unwelcome prospect at a time of great global economic uncertainty.
Mr. Harper brought this on himself, of course, with his partisan political proposals in last-week’s economic statement and rose-coloured-glasses approach to the economy.
Since then, he has backtracked on two key issues that brought the three opposing parties together in the first place: (1) eliminating public funding for political parties; and (2) forbidding public sector unions to go on strike.
The third major issue, the lack of adequate stimulus for the economy, is likely to be addressed in the next federal budget, which is being brought forward to January 27th, 2009.
In light of Harper’s backtracking, the opposition parties should reconsider their plans. They do have the right to bring down the Conservatives and attempt to set up a coalition government; however, bringing together such a disparate group of ideologies and alliances suggests a relatively short shelf life for any coalition.
The fact is, Canadians do not want another general election so close to the last one.
However, Ottawa is insular. All that counts is infighting and career enhancement — in other words, the game of politics at its worst.
Few cast a vote in mid-October for Mr. Dion or Mr. Layton to become Canada’s next Prime Minister and nobody cast a vote in favour of Mr. Ignatieff or Mr. Rae taking over the reins of government. As for Mr. Duceppe, a vote for him was a vote against attempts to provide good governance at the federal level.
What is needed is a whole lot more co-operation and a common goal of preparing for our coming economic problems. That is the approach that is being adopted by President-elect Obama in the United States as he assigns cabinet positions and prepares to govern.
Second, Canada has to be a full participant in the world-wide initiative to right the financial system.
This means assuring liquidity through further cuts in the overnight rate by the Bank of Canada. It means unlimited guarantees on bank deposits as have been adopted by governments in many other countries. And it means a ready willingness to step up with equity infusions from the public purse for the private-sector banks, if needed.
Third, Canada needs more fiscal stimulus.
One can easily be an advocate of tax cuts of almost all stripes — personal, corporate, sales, etc. — but it is a matter of what will be most effective. The chief benefit of a GST cut (or a sales tax cut provincially) is that it can become effective immediately. However, it is not clear that in the present circumstances, consumer spending stimulus will have the desired result. Also, governments will eventually need the money again and then it becomes painful to re-install tax levies.
Tax cuts also have another deleterious aspect. They are not 100% effective as a stimulus tool. In this particular brand of recession, defined by the financial crisis, the experience elsewhere has been that people are trying to pay down their debts. Therefore, any extra income is being siphoned off from stimulus into savings. And even when spent, there is a leakage factor as the goods purchased often come from outside the country.
In short, Canada needs more spending on infrastructure.
Often referred to as the “made at home” solution, infrastructure spending is money spent primarily on local goods and local labour. It is also highly visible, which has a positive psychological aspect.
All of our governments have a ready wish list of infrastructure projects. The major downside is that there is a time lag (e.g., the bidding process) before spending can get underway. That is why an action plan should be set in motion as quickly as possible.
Bridges, roads, highways, water treatment facilities and sewer systems are all past middle age in most provinces. Now would be an excellent time to get on with upgrades and expansions. The safety of public structures and the need for better services are both looming issues.
Also important are any measures to improve this nation’s ability to trade with the United States and the rest of the world. This category includes improvements to border approaches and crossings and port expansions.
When it comes to trans-shipment facilities, we need to keep up with the rest of the world, especially in emerging nations. Electric power projects are another area where major investments need to be made sooner rather than later.
There is one more project that needs special consideration: Canada needs an oil pipeline from the Tar Sands to the West Coast, in order to offer at least the potential of sales to China and Southeast Asia.
A number of major pipelines to supply Albertan oil to the refineries of Texas and the U.S. Gulf Coast are already under construction. Exclusive agreements can be risky for suppliers, so Canada needs the leverage of another market where it can sell its oil.
Alex Carrick is Chief Economist for CanaData, Reed Construction Data’s Canadian economic forecasting and statistical service.
