Bill Morneau puts his faith in luring private money

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.

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