Government Spending, Debt and Taxation
Issue | This overview examines the “infrastructure deficit” in Canada and the Government of Canada’s response to it through shared-cost infrastructure programs.
Synopsis | Many have argued that Canada is facing a significant infrastructure deficit requiring massive investment to replace or rehabilitate aging public infrastructure. Since 1993, the Government of Canada has introduced a series of shared-cost infrastructure programs, but there is no agreement on their impact on the infrastructure deficit.
Timing | The end of many federal infrastructure programs is approaching. For example, the deadline for the completion of projects under the Infrastructure Stimulus Fund is 31 October 2011, while the component programs of the Building Canada plan will end in 2014.
Well-maintained public infrastructure – from roads, public transit systems, environmental and water works, and recreational and cultural assets, to information and connectivity systems such as broadband infrastructure – is essential for economic growth and the well-being of Canadians. However, after decades of continuous use, much of Canada’s public infrastructure is approaching the end of its useful life and will need to be repaired or replaced.
The evidence suggests that all levels of government have been underinvesting in infrastructure for many years. Competing priorities, particularly in health and education, have squeezed federal and provincial budgets, while local governments have faced funding pressures arising from their reliance on revenues generated through property taxes. At the same time, infrastructure projects have become increasingly costly as a result of increases in the prices of raw materials.
Although a growing infrastructure “gap” or deficit is widely recognized, there is little agreement as to whether any progress is being made to address the problem. For example, the Federation of Canadian Municipalities has spoken of a $123 billion municipal infrastructure deficit that persists in spite of nearly two decades of federal infrastructure investment.
Since 1993, the Government of Canada has attempted to address the infrastructure deficit through a series of shared-cost programs. Most are temporary measures that have a fixed budget and predetermined end-date and require the financial participation of all three levels of government. Most of these programs reserve a significant portion of the federal funds for local infrastructure projects such as road improvements, public transit, and water and waste-water projects.1
|Annual Federal Infrastructure Spending|
|Source: Figure prepared by the Library of Parliament using data from Public Accounts of Canada and Canada’s Economic Action Plan.|
Other federal programs target specific infrastructure classes. Examples include improvement programs for border crossings and their approaches, physical infrastructure and security of trade corridors, and public transit infrastructure.2 Other programs, such as the former Canada Infrastructure Works Program and, more recently, the Infrastructure Stimulus Fund, are intended to provide rapid economic stimulus during and after economic downturns through the cost-shared repair, improvement and expansion of public infrastructure.
One program, the Gas Tax Fund, provides stable funding directly to municipalities to support improvements to local infrastructure. In its 2008 budget, the federal government announced that this fund would become permanent beyond 2014, contributing $2 billion annually.
For 2007 through 2014, the federal government has committed nearly $40 billion in funding under the component programs of the Building Canada plan and the Economic Action Plan to support improvements to Canada’s public infrastructure. As most of these programs are cost-shared with other levels of government, they will likely leverage total investments up to three times greater than the amounts contributed by the Government of Canada. However, as noted earlier, there is still uncertainty as to the extent of progress in addressing Canada’s infrastructure gap.
Going forward, it will be difficult for all levels of government to continue to address the infrastructure gap as they wrestle with budget deficits and competing priorities. This situation will be exacerbated by the end of federal stimulus funding in late 2011 and the end of the component programs of the Building Canada plan in 2014. At present, only the Gas Tax Fund is confirmed to continue beyond 2014.
It is also likely that, as governments struggle to balance competing priorities in an era of deficit reduction, other mechanisms such as public-private partnerships (P3) may become increasingly attractive. In its 2008 budget, the Government of Canada introduced a $1.25 billion P3 Canada Fund and a Crown corporation (PPP Canada) to support the development of the P3 sector in Canada. However, few projects arising from these initiatives have been announced to date.
© Library of Parliament 2011