Former Bank of Canada governor stands by Alberta's capital investment plan
David Dodge recommends province reconsider toll roads
The former Bank of Canada governor says he supports the Alberta government's plan to invest in long overdue capital projects — despite oil prices continuing to decline and record low interest rates.
"This is absolutely the right time to make that (capital) investment," said David Dodge, reflecting on recommendations he made in his economic report commissioned by the province's NDP government leading up to its first budget in November.
The budget contained plans to spend $34 billion on capital projects over the next five years to spur the economy. That was a 15-per-cent increase, or additional $4.5 billion hike from what the former Conservative government had promised in their last budget in March.
At the time of the NDP budget, the government said that by speeding up construction on roads, schools and hospitals, up to 10,000 jobs would be created.
But Dodge cautions it's important investment in capital projects be geared to future growth needs, not just responding to what people want.
"The use of public infrastructure really needs to be priced," said Dodge, adding that can guard against building for the wrong reasons while providing future revenue.
"It also provides a really good signal as to whether the investment is likely to bring an economic payoff," Dodge added.
It can also flag whether a project is merely aimed at providing jobs "without thinking very hard about the long run goal of greater growth."
NDP rejected toll roads
In the provincial budget, the government rejected a recommendation from Dodge to consider adopting a consumption tax, such as introducing tolls on new provincial roads.
Now Dodge is encouraging the government to reconsider, even though he admits it would be an unpopular move with the public.
"We're used to paying for electricity and water," he said.
"It's just for a long time we've not had a simple way to pay for our use of roads. We're now used to paying for our use of airports, and of course all private infrastructure we pay for, whether it's pipelines, whether it's railroads."
But Dodge cautions if oil prices remain low, Alberta's debt load will continue to increase, putting it in the same league as more heavily indebted provinces such as Ontario.
"If you follow the current tax plan, and current expenditure plan, and oil prices continue to stay low, by the middle of next decade Alberta would have net debt in the 25 to 30 per cent range of Alberta GDP (gross domestic product)," he said.
The official Opposition Wildrose is calling on the government to "scale back" what it calls the "dramatic pace of borrowing."
The Wildrose cites a recent report by the conservative think tank Fraser Institute that says Alberta will see the fastest growth in its debt-to-GDP ratio across Canada.
The current debt to GDP ratio in Alberta is 3.5 per cent, according to Leah Holoiday, spokesperson for Finance Minister Joe Ceci.
However that number will be updated before the end of February, she said.
But Dodge refutes the Wildrose position, arguing it doesn't take into consideration the impact of much lower oil prices on the budget.
"If indeed oil prices turn out to be more like we thought they were going to be two years ago, then Alberta will be in a net debt position by the middle of the next decade, but just barely," Dodge said.
As the Alberta government prepares its next budget, it faces choices of raising taxes and cutting costs.
"Cutting expenses, let's be very clear," said Dodge, " means reducing services."
Since taking office the NDP government has strenuously opposed budget restraints that would mean reduced public services and job losses. The next budget is expected in March.