Build up Canada strategically

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A study by the Canada West Foundation makes a convincing case for a long-term infrastructure investment program, but it may be too late to influence the federal government's upcoming budget, which may make balancing the books and holding the line on taxes a priority before the next election in 2015.

Finance Minister Jim Flaherty said no decision has been made on extending the current program, which ends next year, but he added further stimulus wasn't a priority in Canada at the moment.

That probably means municipal and provincial governments will be out of luck in the budget, particularly since about $6 billion is left to be spent from the Building Canada Plan introduced in 2007.

The Harper government is obviously focused on the next election, but it should use the next year to develop a program along the principles articulated by the Canada West Foundation (CWF).

Canada has had major infrastructure programs for the last 15 years, but they have been all over the road in terms of focus.

Canadians, for example, have witnessed plans to stimulate the economy in general, boost rural infrastructure, recreation spending, transit programs, green initiatives and so on.

The Canada West study, however, says not all infrastructure spending delivers the same bang for the buck. As such, it calls for a more pointed approach, specifically one that focuses on strategic investments to boost the economy and productivity.

Strategic projects would include core services and major roads and bridges that facilitate trade and commerce. The Manitoba Heavy Construction Association, for example, says IKEA would never have located in Winnipeg if it hadn't been for core investments in roads, sewer and water.

It's not a question, therefore, of more infrastructure, but "the right infrastructure in the right places," the CWF says in its report, which tapped 200 studies on the subject. It means making choices, rather than spreading the wealth, and also refurbishing old infrastructure in addition to building new.

Congestion on Toronto's roads, for example, costs the local economy at least $6 billion a year in late deliveries, missed appointments, higher fuel consumption, wear and tear on roads, vehicles and even on human health.

Canada experienced an infrastructure building boom during the 1950s and 1960s, but by the 1970s priorities had shifted to health care, education and social programs. As a result, the country's vast networks of bridges, roads, sewer and water mains and other important facilities, such as community centres and arenas, began a long decline.

While total government spending on infrastructure in the 1960s equalled five per cent of the GDP, it had fallen to just two per cent in 2000.

The CWF acknowledges it is not clear if infrastructure growth follows a strong economy, or if the reverse is true. The relationship is probably "mutually stimulating," something closer to a "push-pull," rather than a single thrust.

The evidence shows, however, a clear correlation between infrastructure, productivity and economic growth, although there is a law of diminishing returns. When lots of modern infrastructure is in place, for example, adding more has a limited impact on the economy, the studies show, while the reverse is true in cases where there is little infrastructure.

The risk of elevated spending on infrastructure is that it reduces the funds available for other needs and priorities, but if strategic investments can elevate productivity, then every sector of society should benefit.

Short-term stimulus may not be needed today, but the government needs to consider a long-term plan -- something in the order of 20 years -- on key infrastructure investments that will provide predictability and sustainability for provinces and municipalities as they struggle to compete in an increasingly competitive global economy.

Republished from the Winnipeg Free Press print edition February 11, 2013 A10