A report released in late August says that about $200 billion will be necessary to address the “infrastructure gap” in Canada.
James Brox, author of the report “Infrastructure Investment: The Foundation of Canadian Competitiveness,” says that investment in public infrastructure – including highways, port facilities, water treatment and distribution systems, sewage treatment and other public utilities – has fallen to just over one-half of its average value in the 1960s, measured as a percentage of GDP, and that key facilities are crumbling. Brox, a professor in the Department of Economics at the University of Waterloo, estimates that $72 billion for new projects and $123 billion for maintenance of existing facilities will be necessary over the coming years to close the gap. Major infrastructure initiatives recently announced by the federal, Ontario and Quebec governments commit up to $65 billion over the next five to ten years, but it is clear that this financial commitment will need to be sustained (and even increased) over an even longer period of time to close the infrastructure gap fully. “Political leaders at various levels of government have recognized the importance of public infrastructure,” Brox writes in his report. “In 2007 the Harper government dedicated $33 billion (to be spent over seven years) to infrastructure improvements. Likewise, on February 15, 2008, in a speech to the Federation of Canadian Municipalities, Liberal leader Stéphane Dion said, “We need to guard against the possibility that our children will inherit a crippling infrastructure deficit that includes crumbling bridges, leaking water pipes and insufficient public transit.” Dion said that a Liberal government would allocate the first $3 billion of any surplus to debt service and the rest to infrastructure. Dion’s message was well received by municipalities. The federation had previously indicated in a report released on November 20, 2007, that an investment of $123 billion was required to prevent a collapse of Canadian infrastructure.” The infrastructure gap has an adverse impact on Canadian manufacturing costs and productivity, Brox reports. Manufacturing productivity levels were almost identical in Canada and the United States in the mid-1990s, but by 2006 the U.S. level was over 20 percent higher. Over the same period, infrastructure investment in Canada declined by 3.5 percent, compared with a 24 percent increase in the United States.
These relationships are not coincidental, says Brox. Firms need water, power, transportation facilities, etc. to manufacture and deliver their goods. For example, a newly constructed controlled-access highway could increase a manufacturer’s competitiveness by reducing transport costs (with regard to both the number of trucks required and vehicle maintenance costs). Brox found that a sustained 10 percent annual increase in infrastructure investment (which is approximately the amount promised in recent federal and provincial infrastructure initiatives) could reduce manufacturing unit production costs by nearly five percent per year – a welcome development in the context of the strong Canadian dollar. A five percent improvement in unit production costs is equivalent to a five percent increase in productivity. This would help narrow the Canada-U.S. manufacturing productivity gap and enhance the sector’s competitive profile.
Public infrastructure has built Canada, and the author concludes that if federal, provincial and municipal governments do not start shoring up our infrastructure deficit now, the future costs may be more than we can bear either physically or financially. Canadian competitiveness and our status as a developed country depend on a modern, efficient, well-maintained public infrastructure stock. The full report can be downloaded free of charge from www.irpp.org.