Infrastructure plan raises red flags

If a door-to-door salesman pitched you on a “win-win sale,” your first reaction would probably be skepticism.

Unfortunately, a similar level of skepticism is called for whenever a politician declares their latest spending project to be a “win-win.”

That’s exactly what Prime Minister Justin Trudeau affirmed when he announced that the Canada Infrastructure Bank (CIB) would be spending $10 billion over the next three years on a list of things that just happen to align with his government’s own priorities. The plan, he declared, would create 60,000 jobs, all while fighting climate change to boot. What’s not to love?

As it turns out, a lot.

For starters, there is the curious transformation of the CIB from a purportedly arms’-length entity (governed by an independent board of directors) into a de facto government department that co-hosts press conferences with its political masters.

Even stranger, it turns out that the $10 billion in question doesn’t represent new money: it’s simply part of the CIB’s existing budget, which, even more strangely for a government entity, it couldn’t seem to figure out how to spend over the past three years. (Given the state of the country’s finances, perhaps we should thank it.)

Apparently, the Trudeau government has now solved this problem for the CIB by telling it where to spend the money.

Perhaps we needn’t worry because this is not any old spending. It’s infrastructure spending. This, we are often told, is very different than regular spending. It’s big. It’s bold. It’s forward-looking. It’s an “investment.”

The notion that not every “investment” yields a positive return does not seem to occur to politicians. Yet it happens — a lot. Just ask Japan, which embarked on a massive infrastructure spending plan in the 1990s and 2000s. The result: government debt at 180 percent of gross domestic product and anaemic economic growth.

It turns out building bridges to nowhere is a bad idea. Worse, government-led projects can crowd out viable private-sector projects.

Another problem is the nebulous definition of the term “infrastructure.” Ever since the Trudeau government began applying the label to all and sundry, it has been necessary to first establish when it’s proposing to build actual infrastructure and when it’s simply proposing more program spending.

Looking at the government’s recent announcement, there are huge red flags. Retrofitting buildings may lead to reductions in carbon emissions, but there’s no guaranteed long-term economic benefit. Clean power has already been subsidized to the hilt and, in some cases, has inflicted immense economic damage. And blindly splurging on transit such as electric buses when the pandemic may have permanently altered traffic and commuting levels — and therefore the demand for transit in the first place — seems dubious.

All of which brings us to perhaps the greatest danger of ill-advised infrastructure spending: the opportunity cost. Every dollar spent on a white elephant project had an alternative use, either by government or taxpayers. That dollar could have gone into a school or a hospital or remained in the pockets of Canadian families and businesses to direct to their own priorities.

Infrastructure isn’t a magic category of spending that’s immune to waste. Politicians can, and do, screw it up as badly as they do run-of-the-mill programs.

Before the pandemic, the CIB couldn’t identify projects enticing enough to secure private investors. That politicians are now driving the (electric) bus and insisting future investments will be a “win-win” should make Canadians very worried indeed.

Aaron Wudrick is federal director of the Canadian Taxpayers Federation. This op-ed was first published by Troy Media. It has been edited for length.

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