All political parties love to make public announcements in support of infrastructure spending, and why not? Canadians know that much of the infrastructure in Canada needs to be improved or replaced. This is true for transportation systems, public utility systems, education infrastructure, health care infrastructure, and senior care infrastructure, to mention only some of the areas where more infrastructure investments are needed. Canadians want to hear what their political parties are proposing to deal with upgrading their infrastructure. Unfortunately they are not hearing much. What they are hearing now is all about fear.

Lots of words by political parties about the need for infrastructure spending, but there have been few commitments to real action.  The reason is simple. Politicians of all three political parties, and most Canadians, have accepted the fiscal “doctrine” that all deficits and all debt are bad.

In other words, Canadians want better highways, better subways, better education and healthcare, but they are not prepared to pay for them through deficits and higher debt, even if this borrowing for new infrastructure doesn’t increase our future debt burden.

We have argued in previous articles that spending by governments on public infrastructure that would provide services to Canadians for many decades in the future is not the same as spending by governments on programs and services that only benefit current generations.  This distinction seems rather obvious to us.

Spending on current programs and services should be paid for by the generation consuming them. In contrast, spending on public infrastructure, such as transportation systems, that benefit not only the current generation but future ones as well, should also be paid for not just by current generation but also by future generations who will also use them.

Infrastructure spending has an economic life that usually lasts 20, 30, 50, years if not longer.  There is no reason why some of these investment costs should not be financed by future generations, who will also be benefiting from such spending.

Moreover, much of this infrastructure spending may actually pay for it self. A new efficient highway system would increase productivity for trucking companies and possibly earn a return of 5% to these companies. This higher income could be taxed at, for example, 40% or 2.0 %. These days the government can issue 20-year bonds at 2.0%. In other words the investment in the highway by the government would pay for itself through higher productivity and higher tax revenue.

Accounting policies, followed by federal and provincial government in Canada, already recognize this special nature of infrastructure spending.  In federal and provincial budgets, infrastructure spending is in fact amortized over its service life rather than recognized when it is put in place.

This means that if the federal government repairs the Champlain Bridge for $5 billion (which could be borrowed in financial markets in the first year of work) there would be no charge to the federal government spending in the federal budget until the bridge is repaired and vehicles are operating on it. At that point, assuming the bridge that lasts 50 years, the government would charge the federal budget $100 million a year for 50 years, along with the annual interest costs associated with the borrowing. Not really a big deal.

So where does the government get the money to pay for the repairs to the bridge. Well in fact it borrows the money by selling 50-year bonds. But under accrual accounting rules this borrowing does not appear on the budget balance. It shows up below the budget line, under the heading of financial requirements.

So why are all political parties afraid of borrowing money at historically low interest rates to pay for needed infrastructure spending that might actually pay for itself through higher productivity and higher income, without any cost to the taxpayer?

The answer is simple. They have a dreaded fear of the words “deficit’ and “debt”.


They believe, perhaps rightly, that Canadians-Conservative, Liberal, or NDP- will never vote for a political party that would run a deficit and incur rising debt. This is not surprising since the concepts of deficit and debt are very hard to understand let alone explain to the “average” Canadian. It is so much easier to say, as the Conservatives do, that all deficits and debt are bad, than to argue that this is not the case. It’s much easier to say it’s someone else’s problem.  No one wants to become like Greece.

So don’t expect a focussed debate in the 2015 election on the need for a new economic growth strategy, one based on a federal-provincial initiative to modernize our infrastructure, and create better economic prospects.

It’s not going to happen.

Expect a lot of “clever” talk and “imaginative” ideas about how to finance new infrastructure spending, without the words deficit and debt.

This is too bad because interest rates will soon start to increase and the opportunity for low cost debt financed infrastructure spending will close.

It’s also too bad because a co-ordinated federal-provincial infrastructure initiative would have helped Canada avoid a long period of economic stagnation.  It could have created jobs; it could have strengthened productivity; and, it could have improved our overall standard of living and quality of life.

Regrettably, this is not likely to be the legacy we will be leaving our grandchildren.

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