Azfar Ali Khan

Budget 2018 deferred approximately $5.0 billion in infrastructure spending from fiscal 2017-2018 and 2018-2019 to later fiscal years. These delays are systemic and reflect a capacity problem in the timely delivery of infrastructure in the Canadian federation. Moreover, there is a lack of accountability to Canadians on the actual performance impacts and societal benefits of past infrastructure investments. An independent review of the process of planning, delivering and reporting on Canadian infrastructure investments is needed.

Budget 2018 did not contain any new announcements with respect to Canada’s infrastructure investment program, maintaining the existing $180 billion in planned infrastructure spending through fiscal year 2027-28. Budget 2018 is extremely light with respect to the progress made on infrastructure investments and their performance impacts. Canadians can be forgiven for feeling like they are part of a Seinfeld episode when it comes to the management of our infrastructure investments—economic growth, strong communities, new jobs—yada, yada, yada—$180 Billion!

The government continued its pattern of reprofiling infrastructure spending from the current and next fiscal year to later years. This is a practice that is symptomatic of inefficiencies that reflect the inability to get infrastructure money out the door to match the expected project spending by municipal, provincial and territorial governments. Budget 2018 re-profiled (i.e. deferred) $2.7 billion of infrastructure spending in 2017-2018 and $2.2 billion in 2018-2019 to later years from the spending plan that was outlined in the 2017 Fall Economic Statement.

In addition, it is impossible to get a sense of the progress that has actually been made on the much touted $180 billion Investing in Canada Plan. Page 349 of 367 of the 2018 budget disclosed that over 7,800 projects with combined investments of over $32 billion have been approved for communities across the country.  However, in the budget lockup, Finance officials noted that this was the total of infrastructure investments across all three orders of government and it would be inaccurate to try and use this figure as an indicator of actual progress made against the $180 billion Investing in Canada Plan.

In fact, there is no reconciliation anywhere that tracks in a straightforward and transparent manner the progress that has been made against the $180 billion plan. The Investing in Canada Plan is one of the signature policy measures of this Parliament and come Election 2019 Canadians will not have evidence on the performance of one of the most significant spending measures of the government’s fiscal plan.

Infrastructure is without a doubt one of the key enablers of a modern and successful economy and we should be able to have our finger on the pulse of our infrastructure investments. However, it is impossible to get a snapshot of the true state of Canadian infrastructure performance given the complexity of three orders of government having different funding, financing, taxation and infrastructure delivery responsibilities.

The fiscal context in which these infrastructure investments are being made further exacerbates this situation. The government’s election platform infrastructure commitment was justified within the context of historically low interest rates, deficits no greater than $10 billion and a return to balance by the time of the 2019 election.

By contrast, the 2018 fiscal plan does not have a plan to return to balance, rather the plan is to maintain a gradually declining net debt-to-GDP ratio from the 30.4 per cent figure of 2017-2018. It is accurate and very good news that the economy is currently firing on all cylinders and as my colleague, Randall Bartlett, has quite rightly pointed out “it doesn’t get any better than this” with respect to Canada’s economic performance. Yet we are forecasting budgetary deficits for the foreseeable future and thus by definition we must now be in a structural deficit position. Interest rates are rising and given the delays in getting the infrastructure spending out the door (the reprofiling touched upon earlier) it now appears likely that infrastructure investments will be made during a time of rising interest rates although they remain at historically low levels.

The key takeaway is that we are guilty of a “democratic disservice” to the Canadian voter by not providing a fair and transparent accounting of infrastructure investments and performance come election time. Yet we will be asking for his/her approval to continue making these investments without evidence on what benefits future investments will generate, let alone the return on investment that has been generated by past infrastructure investments.

The UK is an interesting comparative data point with respect to the accountability of infrastructure investments. They diagnosed challenges at the very front-end of their investment cycle on clearly articulating the why, what, how and when to build infrastructure. As a result, the UK commissioned the Armitt Review to conduct an independent review of the country’s long-term infrastructure planning.

The Armitt Review reported back in September 2013 with conclusions that are relevant for Canada. In particular, the following quote from the Armitt Review should give us pause, “The annual National Infrastructure Plan produced by Infrastructure UK is not strategic. It is essentially a list of projects which is not built up from an evidence-based assessment of the UK’s long-term needs.” In Canada, not only do we not have an evidence-based assessment of our long-term needs we don’t even have a National Infrastructure Plan. On the bright side, we do have a wish list of infrastructure projects.

The central recommendation of the Armitt Review to address decades of poor strategic planning in the UK was the creation of a statutorily independent National Infrastructure Commission (NIC) whose mandate would be to perform a National Infrastructure Assessment (NIA) that would include an evidence-based assessment of their long-term infrastructure needs. A key underpinning of this recommendation was the governance framework. The NIC must table the NIA once a Parliament and the government is required to respond to the NIA within one calendar year of tabling. The NIC is then responsible to perform a monitoring and ongoing challenge role on the performance of the UK government’s infrastructure investments.

Of course, the Canadian context is different than that of the UK.  Specifically, the increased complexity of three orders of government having differing roles and responsibilities in the planning, financing and delivery of infrastructure is a big difference relative to the UK.

However, the systemic repro filing delays (lapsing of monies) and the absence of a straightforward and transparent accounting of Canada’s holistic infrastructure performance suggest that Canada could also benefit from a review of the planning and delivery of infrastructure across our three orders of government.

There are some good reasons to have a hard look at lapses. Previous governments have used lapsed funding from infrastructure and/or defence as a source of funds for other spending or deficit reduction. There is always a risk that funding re-profiled to later years may not materialize. All of a sudden, provinces and municipalities might find themselves with unfunded infrastructure project or plans.  Further, there may be some structural issues within the program. For example, other jurisdictions may not have matching funds available or there may be policy or instrument considerations such as P3s or the Canada Infrastructure Bank, that may result in delays, temporary or permanent. A review of the planning and delivery of infrastructure would help to identify the root cause(s) of lapsed funding.

Canada has been making significant infrastructure investments for the last 10 years. These investments are always touted as “building strong communities, creating jobs and growing the economy.”  Canadians deserve an answer on whether these benefits have been realized but the system is either incapable or unwilling to provide one.

In fairness, the Government of Canada quite rightly committed in Budget 2017 to the development of a data initiative that will provide a national picture on the state and performance of public infrastructure across asset classes. This initiative promised to “deliver high-quality data analytics and to track the impacts of infrastructure investments so that governments can report back to Canadians on what has been achieved.” However, as of Budget 2018, Canadians cannot even see a simple reconciliation of what has been spent and not spent on the $180 billion Investing in Canada Plan let alone data analytics and an accounting of what has been achieved with respect to the impacts of infrastructure investments.

Budget 2017 stated that the details on this data initiative would be announced in the coming months and since then Statistics Canada has undertaken a survey on the inventory, condition, performance and asset management strategies of core public infrastructure assets. This is a very good start but more work needs to be done as the survey will not provide insights on performance impacts with respect to creating jobs, growing the economy and other outcomes and benefits that are used as the basis to justify infrastructure investments. The performance elements in the survey are specific to the asset classes.

That said, the challenges facing infrastructure delivery in Canada will not be solved by data alone, although data is certainly a critical element in providing the evidence on infrastructure performance. The delays in getting money out the door and the lack of accountability on the actual performance impacts and benefits of our existing infrastructure investments suggest that Canada is ripe for a review of the process by which our infrastructure is planned and delivered across the three orders of government.  The time is right particularly with the introduction of a new actor, the Canada Infrastructure Bank, and the role it will be playing in infrastructure financing and delivery.

Otherwise, Canadians will say to the Government what Jerry said to Elaine in the Seinfeld episode “You yada yada’d the best part!”

Azfar Ali Khan is the Director of Performance with the Institute of Fiscal Studies and Democracy. Azfar has both private sector and public-sector experience and specializes in public finance and expenditure management practices.

azfar.alkhan@ifsd.ca