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Austerity Through Infrastructure Cuts: Budget 2013

March 21, 2013

3-minute read

One of the most amazing things about this budget is that one of its three focuses is actually the opposite of what it’s touting. You’ll likely hear that $14 billion will be spent on infrastructure over the next 10 years (actually, you may hear much bigger numbers, but they're just re-announcing existing programs like the gas tax transfer). What you won’t hear is that 75% of that money is going to be spent in or after 2020. In fact, there will be an effective $1 billion cut to infrastructure transfers to the cities in 2014-15.

The Building Infrastructure Fund is one of the foundations for federal-municipal infrastructure spending. It is currently spending $1.25 billion a year and expires in 2013-14. The Federation of Canadian Municipalities (and the Alternative Federal Budget) was looking to have this fund renewed and significantly increased. Instead, spending in 2014-15 has gone from $1.25 billion to only $210 million—a significant drop.

Now, the government is saying that this infrastructure plan is worth $14 billion over 10 years—however, 75% of that money is scheduled for in or after 2020, making the plan heavily back-end loaded. Canada doesn’t need strong growth and lower unemployment in 2020, it needs strong growth and lower unemployment today.

Also, the P3 fund is being renewed at $1.25 billion over 5 years—but the cities hate this fund and don’t use it. It requires them to give away control to their corporate partners and pay more in interest on long term projects. The previous incarnation of this P3 fund has only spent about 30% of its total, with only 50% of funds allocated. There are currently no plans for the other half. To make a bad situation worse, the fund is being renewed—so there is even more money that the cities can’t use.

There is also a large change in how unemployment training is provided. The federal government devolved the unemployment training to the provinces in 2007. Now they are taking $500 million of that back through a new “Canada Job Grants” program. The feds, the provinces and employers will each contribute a third of funds to provide training to unemployed or “under-employed” Canadians. The requirements are few and the control is in the hands of employers. Basically, if employers are running any training programs right now, they’ll be able to claim them through this program and get funding for what they were already doing. The dead-weight loss will be significant.

We already know that Canadian employers spend much less on training than other countries, like the US. Canadian CEOs love to complain about the so-called ‘skills gap’ while at the same time doing little to train their own employees to fill it, or hire new ones and train them. Given this lack of interest from employers, this program will provide at most $500 million, but if provinces or employers don’t buy-in, it could provide substantially less than that. All of this funding, or lack thereof, will be taken out of current training programs for the unemployed.

This year, the budget also provides a handy guide to the damage that austerity has already had on the Canadian economy (on page 298). From there, we learn that austerity measures in 2014-15 will have reduced federal spending by $11.8 billion due to cuts in this and the two previous budgets. Using the economic multipliers handily provided in the 2009 stimulus budget, it is possible to calculate the economic and job impact of this austerity. In 2014-15 then, government austerity has reduced real GDP by 0.84%. Now that may not seem like a lot, but since growth in 2014-15 is expected to only be 1.6%, it’s a pretty big deal. The total employment impact is approximately 90,000 fewer positions in the public and private sector due to austerity. When it came to the fast track to balancing the books, 75% of it came from the expenditures side with only 25% from the revenue side.

I did want to make a point about the deficit projections going forward and how it connects to stagnant growth in Canada. Last year at this time, the government estimated that the deficit in 2013-14 would be only $10.2 billion. Now, the deficit estimate for 2013-14 is almost twice that at $18.7 billion. This is the danger of slow growth. We keep expecting that three years out everything will be great again—unemployment will be low, growth will be robust—but once we get to three years from now, the economy is still stagnant. The continued revision of the deficit figures are a great example of this reversion to stagnation in action.

Now, the budget isn’t all bad. The gas tax transfer to the municipalities will be indexed to inflation, something the AFB has called-for for many years.  There is a new paid internship program for youth that mirrors some AFB efforts in that same area. There is some focus on tax evaders, although there is no movement on closing some of the most egregious loopholes like stock options deductions and meals and entertainment deduction.

Unfortunately, in the aggregate, this budget is on austerity auto-pilot. We need job creating programs like infrastructure investments—but what we got was cuts in infrastructure spending. The paradox of thrift continues in Canada with all sectors, consumers, business and government mired in stagnation.

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