To fix Canada's infrastructure, billions are just drops in the bucket

Over the years, governments at all levels have been reluctant to take on debt and to run deficits in order to put money into projects that sometimes take years, if not decades to complete. But it hasn’t always been this way.

Interest rates are very low, which makes borrowing attractive, but governments reluctant to get squeezed

Liberal Leader Justin Trudeau says a Liberal government won't balance the books for three straight years but will double spending on infrastructure to jump-start economic growth. (Paul Chiasson/The Canadian Press)

There's an old saying in government: a billion here, a billion there and pretty soon you're talking real money. When it comes to Canada infrastructure needs, some say a billion is a mere drop in the bucket.

The Federation of Canadian Municipalities, which represents Canadian mayors, estimates the country has fallen behind in infrastructure spending by $123 billion since the 1950s. In some years, it would argue, there hasn't been enough invested to maintain what already exists, let alone build for the future.

That has led to what some economists call Canada's infrastructure deficit or infrastructure gap.

The three main parties have pledged to increase infrastructure spending in the coming years, with Liberal Leader Justin Trudeau saying on Thursday he would run deficits over the next three years in order to double the funding already promised by the Conservative government.

Justin Trudeau on his infrastructure plan

8 years ago
Duration 1:06
Liberal leader Justin Trudeau says the time is now for his party's multi-billion dollar infrastructure investment plan.

Over the years, governments at all levels — municipal, provincial and federal — have been reluctant to take on debt and to run deficits in order to put money into projects that sometimes take years, if not decades to complete.

But it hasn't always been this way.

In the 1950s, Canada was spending just over three per cent of Gross Domestic Product on infrastructure like roads, water systems, public buildings and ports. By 1979, that figure had dropped to 0.4 per cent. There have been moments when the trend changed briefly: in 2008, spending started rising again as the Conservative government and provinces used infrastructure projects to bolster an economy battered by the global economic crisis.

One thing that has changed is which level of government is paying.

The federal government used to own much of Canadian public capital stock, with the provinces and local governments owning less. But these days, the situations are reversed. It is local governments who are responsible for almost half of roads and other infrastructure. The federal government now owns only 13 per cent, according to a 2013 study by the Canadian Centre for Policy Alternatives.

'Not surprising that we're behind'

But the ability to pay the bills hasn't shifted with the responsibilities. While the federal government has the most economic power, local governments have to rely on property taxes. Recent agreements have also given those municipalities a larger portion of gas tax revenues, but it's not enough to cover the costs of all the infrastructure needs.

Stephen Harper on Trudeau's deficit plan

8 years ago
Duration 1:19
Conservative leader Stephen Harper reacts to Liberal leader Justin Trudeau's plan to run deficits.

There are some strong arguments for greater federal spending on infrastructure. Interest rates are very low, which makes borrowing attractive. The Conference Board of Canada estimates that for every $1 billion in infrastructure spending, 16,700 jobs are created for one year and the GDP is boosted by $1.14 billion.

Better infrastructure also improves productivity. Roads, transportation, communication infrastructure, utilities and water systems result in lower business costs and increased profits. Increased economic activity results in more tax revenues. The Conference Board estimates governments recover about 30-35 per cent of every dollar spent on infrastructure.

Tom Mulcair says he's committed to balancing the budget

8 years ago
Duration 1:14
Tom Mulcair says and NDP government would balance the budget in part by eliminating Conservative programs.

Former Bank of Canada governor David Dodge says the link between investment in infrastructure and improved productivity is clear, but he understands why governments are still sometimes reluctant to commit to such huge amounts.

"It's natural when you're squeezed or feel squeezed, you postpone that which can be postponed and that's maintenance and that is building the new infrastructure," said Dodge.

"So it's not surprising that we're behind, it's the natural thing that governments at every level do."

But politicians also have to contend with a public that may not be thrilled with the dust and congestion caused by construction sites.

"That's why I say it's quite natural and it takes a lot of political leadership out there to convince people that it's worth paying the price now in order to have a benefit down the road," Dodge added.

"It's a benefit that you may not actually receive — you may have moved away, you may be dead. But is absolutely necessary for the future of your city, your province or your country."