Morneau’s economic growth council calls for national infrastructure bank

theglobeandmail.com
By Bill Curry and Sean Silcoff
Oct. 20, 2016

An expert panel on economic growth is calling on the government to launch an ambitious national infrastructure bank capitalized with $40-billion in federal funds aimed at attracting major institutional investors.

The proposal to entice global pension funds into major Canadian investments goes far beyond anything promised to date by the federal Liberals, but Finance Minister Bill Morneau - who worked directly with the panel over the past several months - signalled a strong openness to the recommendations announced Thursday.

The Advisory Council on Economic Growth released three reports calling for the national infrastructure bank, a greater effort to attract foreign investment and a major boost to immigration.

Mr. Morneau said he’s prepared to act on some of the ideas as soon as Nov. 1, when he will release the fall fiscal update; Nov. 1 is also the deadline for Ottawa to announce its 2017 immigration targets.

The goal of the recommendations is to increase economic growth at a time when the Bank of Canada has once again lowered its expectations to 1.1 per cent this year and 2 per cent in 2017.

The council predicts an infrastructure bank could raise private capital at a four-to-one ratio to deliver more than $200-billion in infrastructure over the coming decade with a focus on projects worth at least $100-million.

Ottawa’s previous efforts to attract private infrastructure investment - including through an agency focused on public-private partnerships - have had limited success. Pension fund managers say Canadian projects to date have simply not been big enough.

However, the panel’s 14 members include leaders of some of those institutional investors, including Mark Wiseman, senior managing director of BlackRock Inc., and Michael Sabia, CEO of the Caisse de depot et placement du Quebec pension fund.

Examples of potential projects listed on Thursday include toll highways and bridges, high-speed rail, port and airport expansions, city infrastructure, national broadband infrastructure, power transmission and natural resource infrastructure.

The report also says the bank could issue infrastructure bonds as a way of raising its own capital to invest. Another key recommendation is a suggestion that Ottawa should privatize - in full or in part - some of its existing assets as a way of raising money that could be spent on other infrastructure priorities.

That advice comes as the government recently hired Credit Suisse AG to analyze several privatization options for Canadian airports.

Mr. Morneau said the airports study is preliminary work and indicated Ottawa is not yet committing to any asset sales.

“As we think about how best to amplify our impact on infrastructure investment in this country, we need to create ways for institutional investors to invest in our country,” he said. “So we’ll move forward in a way that will allow us to attract institutional money and it’s not conditional on any other government activity around government assets.”

The council is chaired by Dominic Barton, global managing director of the consultancy McKinsey & Co. As The Globe and Mail reported earlier this week, the council’s recommendations also include a call to boost immigration by 50 per cent to 450,000 a year and to launch a department aimed at enticing foreign direct investment into Canada.

“Now’s the time when we have to take very bold actions,” said Mr. Barton, explaining that demographic changes will produce a period of prolonged slower growth that requires a policy response. “They may not be new. These [ideas] have been talked about before, but they haven’t been done. And so what we’re keen to do is to jolt it.”

Federal Immigration Minister John McCallum made it clear this week that he will not follow through on the council’s call to boost immigration by 50 per cent to 450,000 a year.

“That’s an enormous number,” Mr. McCallum told reporters Wednesday. He said many stakeholder groups have urged him to increase Canada’s current immigration target of 300,000, but many Canadians have also said they do not support a major increase. He also said there is a significant federal expense in accepting more immigrants.

In its white paper titled “Bringing Foreign Direct Investment to Canada,” the council recommends creating an FDI agency to attract “anchor companies” to invest here, and to develop an accompanying strategy to attract the investment. “These actions would bring much-needed coherence to what is currently a disjointed approach to foreign investment,” the council report says, adding that such a strategy could increase GDP by $43-billion.

In addition to recommending increased immigration levels, the council also called on government to make it easier for skilled foreigners to immigrate to Canada. Foreign executives, programmers and other science-based professionals typically now wait between six and 12 months to have their work permits approved. The council called for wide-ranging exemptions for those recruits from a cumbersome, time-consuming immigration process that requires employers to prove they can’t find a Canadian to fill the job before offering it to a non-Canadian. The council also said foreign students studying in Canada should have an easier time applying for permanent residency after their studies are complete.

Edmonton Mayor Don Iveson, who chairs the big city mayors caucus of the Federation of Canadian Municipalities, said cities should be involved in the design of any new infrastructure bank. He also noted that many types of municipal infrastructure are not likely to attract investors.

“Public good infrastructure is going to be difficult to finance using an infrastructure bank,” he said.

Canadian Union of Public Employees president Mark Hancock said in a statement that he strongly opposes the call for an infrastructure bank and asset privatization, calling it “a recipe for the cannibalization of Canada’s public infrastructure.”

“Nowhere in the report does it mention that investors in these schemes demand a much higher rate of return than the government can borrow at,” he said, warning it will lead to new user fees on Canadians.

Doug Porter, chief economist at Bank of Montreal, said the proposals, if implemented, would not have much impact on the economy in the short term, but they could improve Canada’s outlook over a longer period.

“We are dealing with a relatively sluggish global economy that is impeding exports, and there is very little we can do about that,” he said. “Here in Canada we are dealing with fundamentally sluggish productivity growth and changing demographics, which are leading to slower labour force growth. Those two things are very difficult to turn around.”