Provinces cutting back as Ottawa spends more on infrastructure, PBO finds

TheGlobeAndMail.com
Aug. 22, 2018
Bill Curry

The Parliamentary Budget Officer says delays in rolling out the Liberal government’s centrepiece infrastructure program are largely due to provinces reducing their own spending.

In a new report, Parliamentary Budget Officer Jean-Denis Fréchette points the finger at provincial governments for the fact that about $3.6-billion in federal spending that the Liberals had promised to spend by April 1 of 2018 has been pushed out into future years.

Because federal funds are primarily offered to cover a percentage of projects approved by provinces, Ottawa is at the mercy of provincial and municipal governments when it comes to the timing of new spending in areas such as roads, transit and social housing.

The federal Liberal government originally promised a first phase of infrastructure spending worth $14.4-billion, specifying that a little over $10-billion of that amount would be spent during the first two years in power. The 2018 budget announced that $3.6-billion of that $10-billion went unspent and would be transferred to the much larger second phase of spending, which covers 12 years and includes more than $180-billion in new and existing programs.

Wednesday’s PBO report includes an analysis of provincial records that found provinces have scaled back their own funding of infrastructure. The report states that actual provincial spending on infrastructure – or capital spending – was $8.3-billion less over those two years than had been announced as planned spending in provincial budgets.

Deputy Parliamentary Budget Officer Mostafa Askari said that while it is not possible for the PBO to know for sure why the provinces didn’t spend as much as planned, one theory is that they are using the new federal funds to help alleviate their own budget pressures rather than to increase total spending on infrastructure.

“There seems to be a link, but we don’t really know exactly whether they have decided intentionally to reduce their capital spending now that they’re getting more money from the federal government," he said in an interview.

The PBO report notes that U.S. studies have shown state governments tend to reduce their own infrastructure spending plans when federal infrastructure transfers increase.

Previously, the PBO reported that while federal finances are sustainable over the long term, provincial governments face a much more challenging fiscal future as demographic changes will lead to higher health care costs.

Wednesday’s PBO report also notes that because of that reduced provincial spending, as well as updated forecasts that take into account a stronger economy and higher interest rates, the new federal infrastructure spending will not create as many new jobs as expected.

The PBO’s updated estimates state that Ottawa’s first phase of infrastructure spending boosted employment by between 9,700 and 11,600 jobs during the fiscal year that ended March 31, 2018.