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Bill Morneau puts his faith in luring private money

Look beyond the spending and deficit numbers in the economic update and the Liberal strategy starts to emerge


 
Finance Minister Bill Morneau receives applause as he delivers the government's fall economic update in the House of Commons on Parliament Hill in Ottawa on Tuesday, November 1, 2016. (Adrian Wyld/CP)

Finance Minister Bill Morneau receives applause as he delivers the government’s fall economic update in the House of Commons on Parliament Hill in Ottawa on Tuesday, November 1, 2016. (Adrian Wyld/CP)

There’s a strong temptation whenever a federal finance minister gives an important speech to simply listen for the largest number and fixate on it. Not even pretending to resist that lure, I’m thinking about what Bill Morneau’s had to say in his fall economic statement about infrastructure spending on Tuesday.

“Over the next 11 years,” Morneau said, “the government of Canada will invest an additional $81 billion in public transit, green infrastructure, social infrastructure, in transportation that supports trade, and in smart cities.” That sure sounds like a whopping new commitment, even compared with the $60 billion in fresh infrastructure spending, over two phases, that he promised last spring.

Except Tuesday’s “additional” $81 billion doesn’t seem to add much, when you look closely, at least not in the next few years. How did Morneau arrive at that big number? Well, for starters, he took previous federal infrastructure spending projections that went out to 2025-26 and stretched them by two more years—all the way to 2027-28. To give you a sense of how far off that is, in the year 2028, Justin Trudeau will be, well let’s see, he’ll turn… 57 years old.

All right, that’s still not so old. But you get my point: other people will be ancient. Or rather, my point is that projecting out that far takes us beyond what we can reasonably conjecture about. What if we stick mainly with what will happen while Trudeau is still in his forties? A handy table provided (it’s Table 3.2 in Fall Economic Statement 2016, if you’re following along) shows that the “Canada Infrastructure Plan” Morneau touted will be paid for, between 2017-18 and 2021-22, almost dollar for dollar out of funds already set aside, as officials confirmed, for infrastructure.

In other words, Tuesday’s infrastructure plan doesn’t really come with any new short-term infrastructure money attached. However, Morneau did announce a new way to spend a good chunk of it. He said the government will create something called the Canada Infrastructure Bank, acting on a key recommendation that came very recently from his blue-chip Advisory Council on Economic Growth.

The council, headed by global business consultant Dominic Barton, delivered that recommendation formally to Morneau less than two weeks ago, when it was also released, with some fanfare, to the media. Either the finance minister absorbed and accepted the proposal in record time, or the release of the council’s recommendation on Oct. 20 was meant to make the case for the infrastructure bank in advance of Tuesday’s announcement.

And that case is all about using government money to entice private investors into putting their own into the sorts of projects that can turn a profit—like toll highways and bridges, electricity grids and metered water systems, ports and airports. To that end, the infrastructure bank will get $15 billion to deploy, at arm’s length from government, to make those projects attractive to pension fund managers and other institutional investors. It might be by providing loan guarantees, or low-cost lending, or equity investments for which the federal infrastructure bank won’t be demanding the sort of return that private investors will insist upon.

It’s a formula you would expect a Bay Street guy like Morneau to latch onto. He predicts that every dollar in public money will attract four or five in private funding. And he trusts private investors to make better, more far-sighted decisions about infrastructure that helps the economy than governments alone would. This change shouldn’t be exaggerated, though. All told, new projections call for $187 billion in infrastructure spending over 12 years, of which $15 billion will be controlled by the new bank. The politicians haven’t put themselves on the sidelines quite yet.

Still, Morneau’s tone was strongly pro-business on more than just infrastructure. He also touted something called the Invest in Canada Hub, which will “work with global companies to increase investment,” and announced changes to the immigration system designed specifically to make it easier and faster for companies to bring in foreign professionals and skilled workers.

It all had me remembering what must have been the most widely agreed upon bit of analysis about last fall’s election. As you’ll recall, almost everybody said Justin Trudeau’s tactical master stroke was promising that a Liberal government would run deficits, positioning himself to the left of Thomas Mulcair, who alienated voters itching for activist government by vowing that the NDP would, if elected, balance the books.

I was among the many who saw the campaign that way, and I haven’t changed my mind. But there is a problem with the assumptions that tend to flow from the conventional wisdom that Trudeau tacked left. It created the impression that his Liberal government wasn’t much in tune with what has sometimes been called the “Blue Liberal” tradition.

But that business-oriented brand of Liberalism was obviously on full display on Tuesday. It’s not that Morneau has sworn off deficits—far from it. In fact, his update forecasts a $25.1 billion deficit in 2016-17, and it projects the federal government still being $14.6 billion in the red as far out as 2021-22.

Those deficits, however, are now being cast as a problem to be contained. They don’t represent an ongoing inclination on the part of this Liberal government to stimulate the economy. Repeatedly on Tuesday, Morneau said the government’s short-term, deficit-raising, money-in-middle-class-pockets measures have already happened—in the form of the Canada Child Benefit and the middle-income tax cut in his 2016 budget.

What’s ahead now are long-term policies, he said, designed to ensure prosperity for our children and grandchildren decades from now. And as he made clear, this Liberal government is putting its faith in the private sector—in pension funds backing public works, in more foreign direct investment, in companies bringing in fresh talent fast—to secure that future. To see where he’s heading, you don’t so much have to understand the big numbers he tosses around about spending and deficits as try to see past them.


 

Bill Morneau puts his faith in luring private money

  1. liberals applauding themselves again.. i will never forget them denigrating our parliament with the childish chant of “4 more years” when the divisive bigot obama graced us with his omnipotence

  2. The infrastructure bank is a way for the global 1%’ers and banksters to loot Canada using our own money. It is a way to guarantee private profits with rentier streams (user fees and tolls going to the global 1%) where any losses should the projects go awry fall through to the Canadian taxpayer.

    Let the looting of Canada by the globalists begin! -).

    • Oh that is not my impression. There are large pools of investment (pension funds , mutual funds for example) that need to park their money into long term assets at a reasonable return. They are sitting on their cash. Maybe too much of a risk to go into one venture all on their own. Donno. But that is the market I think they are going after. Maybe indeed some 1%’ers will also park their cash but I would think they must be willing to wait for the long term result.

      • And those capital pools expect a long run return on investment above the prevailing risk free rate of return, i.e. the rate of return on government bonds. So you tell me how that math is supposed to work out in our favour.

        As for the incentive a Finance Minister might have to pursue this type of funding? Politicians, much like boards of directors and CEOs, have shorter time horizons. Pension funds and other capital pools on the other hand expect a return for decades. The government gets what it wants now – more investment – and uses some obscure forecast that assumes that the boost to the economy and resulting revenues will more than make up for the added costs to taxpayers. Believe it or not, that’s is now these thingss are justified at the highest level. Multi-billion dollar decisions based on forecasts which are based on regression models which are based on assumptions around future growth and revenue. Still confident we should we tapping those capital pools?

      • If infrastructure is such a great idea, let Canada just borrow the money at low interest rates from the global 1%’ers. Then we own the assets AND pay low interest rates.

        Rather than NOT own the assets and pay higher users fees and tolls to the global 1%’ers than if we just borrowed the money.

        Trudeau plan is just the looting of Canada by the global 1%. Creating rentier streams of income higher than prevailing interest rates for the global 1%. If they have no place for their capital, we can just borrow the money from them, and own the assets we build with the money ourselves.

        • That’s the state of global capitalism today. Just a giant bidding war to attract the biggest rent seekers.

  3. Same old money-laundering strategy, bilking 100000s of new immigrants. Morneau’s innovation is to have a website ‘invest-in-canada hub’.

  4. PM stumblebum is selling this country out to the giant corporations. All in a not so veiled attempt to do his part to globalize the planet. They will soon be jailing liberals in Ontario for corruption soon to followed by PM numbnuts and his gang of incompetents.

    • Weird how Macleans buried that Wynne story so quickly eh? It was briefly o
      n their main page yesterday. Disappeared in minutes, relegated to some secondary page. Every other news outlet in Ontario considered it a big story. This ain’t Kenneth White’s Macleans anymore, that much is certain.

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