Finance Minister Bill Morneau rose in the House of Commons Tuesday to deliver his fall economic update – kind of a mini-budget – and announced the formal steps towards creating a Canada infrastructure bank to help fund major construction projects across the country.
Morneau said the Liberals will kick in $35-billion and hope to attract private sector dollars at a ratio of $4 to $5 in private funding for every $1 of federal money.
“I’m happy to announce the government of Canada is establishing a new Canada infrastructure bank through which at least $35-billion will flow to help us undertake transformative projects that might not get built,” Morneau said. “This bank will allow us to create thousands of jobs, get more projects built.”
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The Liberals had vowed to create an infrastructure bank during the election campaign, but it did not appear in the spring budget.
What is an infrastructure bank?
Craig Alexander, chief economist at the Conference Board of Canada, said the infrastructure bank would allow different levels of government to borrow money at a cheaper rate.
“What the government is proposing is setting up an institution whereby other levels of government that are doing infrastructure programs can basically borrow, but borrow at the federal government rate,” said Alexander. “The idea here is to reduce the cost of borrowing so larger infrastructure projects can get done.”
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Alexander said part of the goal of an infrastructure bank is to attract investment of foreign dollars into the Canadian economy.
“Being a small economy means there is only so much savings in Canada that can be used for projects,” he said. “One of the ways to get more projects done in Canada is to convince foreign savings to be deployed inside Canada. That is precisely why you would entertain the idea of an infrastructure bank.”
The proposed infrastructure bank would likely launch in 2017 and would operate at arm’s length from government and would compile a list of priority infrastructure projects from across the country.
Conservative leader Rona Ambrose criticized the Liberal plan saying it builds debt over creating jobs.
“Today, we heard a lot of excuses for the failed Liberal plan, and more claims that growth is just around the corner if only they spend a little more of your money,” said Ambrose.
“The reality is that spending more money on a failed plan just means Canadians will be stuck with even more debt and still higher taxes.”
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Morneau also provided an update on the $120-billion infrastructure plan announced in March’s budget, set to roll out over 10 years. The plan now calls for a $186-billion unfolding over 12 years.
The addition of $86-billion is a sign the Liberals see infrastructure spending as their best path forward for economic growth.
READ MORE: 33% of Canadians satisfied with national infrastructure, Ipsos poll finds
Canada is currently facing an “infrastructure gap” said Alexander where aging bridges and roadways are in need of repair or replacing.
“A lot of our infrastructure was put in place in the 1970s and 1980s. A lot of it is aging,” he said. “Plus, we also have a growing economy. And a growing population. And as a consequence, we are running into capacity constraints.”
A new Ipsos poll released Monday found that just 33 per cent of Canadians say they are ‘satisfied’ with the country’s national infrastructure with local roads and highways being a particular concern for respondents.
Other highlights from the economic update:
- The deficit for 2016-17 is expected to be $25.1 billion, but that does not include a rainy day fund. In last spring’s budget, the government projected a $29.4-billion deficit, but that number included a $6-billion reserve.
- The deficit is gradually expected to shrink over the coming five years to $14.6-billion in 2021-2022, not including any provisions set aside for a rainy day. There is no projection to balance the budget.
- The government will adopt a global skills strategy that will speed up work permits and visas for foreign workers.
- The government will create a new Invest in Canada Hub to attract foreign investment. It will also relax foreign investment restrictions somewhat – revising national security rules and moving the threshold for reviewing foreign takeovers to $1-billion starting in 2017, two years ahead of schedule.
*With files from the Canadian Press