Keep borrowing money, so long as it’s for infrastructure: Canada’s top banker
Inadequate infrastructure is among the top inhibitors to economic growth, which is why spending money to fix it — even if it puts you in the red — is a good economic move, says Bank of Canada Governor Stephen Poloz.
“There is a balance somewhere, but I can tell you we’re pretty far away from that point,” the country’s top banker to The West Block’s Tom Clark. “Canada is in a very good fiscal situation, so we shouldn’t be worrying about [going into greater deficit or debt] at this time.”
Poloz’s position lends support to the almost $30-billion deficit Prime Minister Justin Trudeau is set to run in 2016-17, with much of the budget going toward infrastructure investments.
Late last week, the Bank of Canada said the country’s economic growth is slower than expected, and Poloz admitted he found that fact perplexing. As a result, the Bank briefly considered lowering interest rates to help give the economy a push, but given uncertainties such as the U.S. election, they left the rates unchanged at 0.5 per cent.
“Uncertainty is something you can’t really go out and address,” Poloz said. “But you can do things that instill extra confidence. One thing we can do is lower interest rates. But our bigger picture is we’re trying to make sure our economy is stable and growing.“
One of the biggest factors causing the Canadian economy to stagnate is the aging population, Poloz said Sunday.
“The Baby Boom generation has boosted labour force participation, and therefore has fundamentally boosted growth — for the world — for about 50 years,” he said. “Anything in the past 50 years feels normal to us, but it’s actually been 50 years of abnormal.”
The period we’re now heading toward is a phase where, with retiring Boomers, the rate of growth of the labour force will be much lower than we’ve become accustomed, he said.
“[Labour force growth] your main ingredient to economic growth, so economic growth will average, we think, for Canada about 1.5 per cent in real terms for the foreseeable future, given those terms,” Poloz said.
While an aging population might be an uncontrollable factor, we can control productivity — an area where plenty of impediments are slowing down growth, the governor said.
There are plenty of opportunities for more infrastructure investment that can help boost the economy — even if that means increasing national debt or deficit levels, Poloz said.
“In the case of a targeted investment by government, which is identified in such a way that it will be growth enabling, is very likely to pay off very well,” he said. “That is, it creates more economic growth for all those who use that infrastructure, and that of course creates tax revenues and the system keeps turning.”
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