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The Liberal government claims its new two-phase infrastructure spending program will boost Canada’s GDP by 0.2 percent this year and 0.4 per cent the coming year.
Phase one consists of $11.9 billion for a mixture of “green,” social and transit projects within the next 2 yrs. Phase two will concentrate on the construction of projects within the next eight years which will go “hand in hand using the transition to some low-carbon economy,” the government said.
It expects phase-one spending to have an immediate effect on Canada’s gdp. Nearly $4 billion in infrastructure spending this fiscal year will match other measures announced Tuesday – such as investments in housing and programs to aid low-income households – to enhance the GDP by 0.5 per cent this season, based on economic impact estimates contained in the budget document.
The government will then roll out a lot more than $7 billion in infrastructure spending in the next fiscal year. That will match other measures announced within the budget to contribute 1.0 per cent to GDP, the federal government claims.
“Studies consistently reveal that when there is slack in the economy and interest rates are low, for each dollar a government spends on infrastructure, substantially more than $1 of economic activity is generated,” Finance Minister Bill Morneau said in the budget speech towards the House of Commons.
Private sector economists say the impacts expected through the government make sense, at least with this year.
Douglas Porter, an economist with BMO, said the $4 billion the government will spend on infrastructure in fiscal 2017 should mean the 0.2-per-cent bump to GDP the federal government expects. “However i think it’s important to emphasize, it’s a one-time lift. It doesn’t permanently set yourself on to higher growth,” Porter said.
The government also claims that for each dollar it spends on infrastructure within the 2017 fiscal year, some 90 cents will percolate with the economy. That “multiplier effect” rises to $1.40 for every dollar spent during fiscal 2018.
Craig Wright, chief economist with RBC, said it’s common for multipliers to start low build as private sector investment tracks the federal government spending.
“Public sector purchase of infrastructure enters place, then some private sector infrastructure (investment) takes over after the fact. It makes sense that it’s a build.”
The promise to invest on infrastructure would be a centrepiece from the Liberals’ 2015 election campaign platform. The party pledged to spend $125 billion over Ten years inside a bid to “kick-start” the Canadian economy. The program unveiled Tuesday expands an existing $65-billion program the Liberals inherited in the previous Conservative government.
