PBO report shows Trudeau running out of provincial money in dangerous infrastructure cost-sharing arrangement

Investment in infrastructure has been a signature policy of the Trudeau government for its entire term. Perhaps even more than issues of climate or gender, the government has put a strong emphasis on using infrastructure spending to stimulate the economy and create jobs.

In order to do so, they established the Infrastructure Bank and the Infrastructure Investing in Canada Plan (IICP). Just yesterday, the Parliamentary Budget Officer released a report on how that was going. The results are worrying for (at least) three big reasons.

Reason One: “Infrastructure spending” does not sound as innocent as it did in 2015

The government ought to invest in adequate infrastructure in order to facilitate a better functioning society. Normally in Canada, anyone who was concerned in “infrastructure spending” by the government was concerned about the “spending” part.

Now Canadians have good reason to be worried by the “infrastructure” part as well, since Trudeau has shown the country just how far he and his party are willing to go in order to benefit SNC-Lavalin and fabricate job numbers.

It has been especially troubling that the government still seems to think that the “jobs argument” still holds, as if the conviction of a company would reduce the total amount of government contracts available in the country, and as if that would render each of its capable employees jobless for the rest of their lives.

News flash: SNC-Lavalin was never somewhere that just anyone could get hired, and governments around the country will still be awarding the same amount of contracts, with or without any one particular company. That is not even mentioning the fact that SNC-Lavalin just signed a 20-year lease in Montreal, pledged to keep its main operations in Montreal until at least 2024, and still has no shortage of contract jobs on its plate.

Reason Two: Provinces and municipalities are being pressured to help companies like SNC-Lavalin on the public dollar

The PBO’s report found that provinces and municipalities were not spending nearly as much as the federal government was hoping they would under the cost-sharing program under the IICP.

Offering to partially pay for infrastructure projects might induce some governments to embark on projects that need to get done but there is no room for in the budget. In the cost-benefit analyses of provinces and municipalities, the federal government were trying to take weight off of the “cost” end of the scale.

That means that projects that simply would not provide a huge benefit for society are not going to get done no matter how much the federal government tries to shift the incentives.

These sub-national governments have enough public debt as it is. Exactly half of our ten provinces have a higher debt-to-GDP ratio than the federal government. From highest to lowest, those provinces are Newfoundland & Labrador, Quebec, New Brunswick, Ontario, and Nova Scotia.

By trying to get governments to build projects that they would not otherwise decide to build, they increase the total volume of government work that is available to the engineering and construction industries. That helps the economy indirectly, but it helps big firms like SNC-Lavalin directly.

Some provincial contracts would go specifically to SNC-Lavalin, who would not be barred from continuing to do so even if they are convicted under their current charges. But even those that do not, reduces the competition for the contracts for which SNC-Lavalin does decide to compete. It opens up market space.

That might explain why the Liberals have such a non-sexy issue so high on their priority list.

Reason Three: Infrastructure overspending can create inflated and unsustainable job numbers in the engineering and construction industries

Investing in infrastructure, which, to be clear, is always necessary to a certain extent, pumps money into an industry. That money goes to firms, who will invest that money, including by hiring more people in order to meet both public and private demand.

Every economy has some unknown unascertainable optimal level of public construction work being done. That is determined by how much a society benefits from a project compared to how much it will cost, but it also must take stability and sustainability into account.

When a certain government suddenly starts pouring money in and calls it a 16 year plan, it will boost total investment and create better employment and economic numbers. The problem is that it will create jobs that simply cannot be supported long-term.

The amount of money that Trudeau would have various levels of government spend on infrastructure is simply not a volume of spending that is fiscally sustainable. There is only so much construction work that can be done annually before the benefits start decreasing to below its costs.

What makes the problem even worse is that government projects are not just for anyone. Try to start a business and start bidding on contracts, and you will learn that unionized companies have an enormous advantage. Many jurisdictions have versions of what are known as “fair wage policies.”

These are policies implemented as a result of, what a surprise, lobbying by unions. What this means is that in bids by non-unionized companies, they have to pledge to pay their employees who work on the government project to be paid at least a certain wage, which is often more than what unionized workers get paid even before the deduction of union dues.

In many instances, small businesses simply do not have the capacity to unionize. Having worked in bookkeeping at a small engineering and construction firm, I can attest to that. But not being unionized means that you have to pay workers according to government policy, which essentially turns the government contracts game into one solely for large corporations.

Take a look at Toronto’s fair wage schedule for yourself. How convenient is it that unions and corporations that are powerful enough to lobby governments to set bidding policies are the ones that get to plunder the tax dollars all for themselves?

It gets worse. When government project volumes go up to unsustainable, they must eventually come down. Who do you think will be tasked with making spending cuts in infrastructure? Certainly, not the Liberals who plan to run decades of deficits with no end in sight.

When those spending cuts come, lay-offs will follow. Thanks to Trudeau, those laid off are probably going to be making more than they could demand on the labour market. After all, when you try to artificially increase the supply of workers, you have to pay them more in order to keep attracting candidates.

That would, conveniently, bring us back to the “jobs” argument as an excuse never to bring spending back to a level that at least resembles “normal”.

When workers are laid-off, it not only affects their families, but also their communities and the economy as a whole.

Trudeau’s infrastructure madness will ensure that our society remains addicted to inflated budget deficits to fund SNC-Lavalin and others until, in true socialist fashion, they really do run out of other people’s money.

Unfortunately, the search for “other people’s money” ends at the bottom of our pockets.