Canada, much like its more-populous neighbor to the south, is betting big that public infrastructure spending will jolt its flat-lining economy back to life.
The ruling Conservative party has set aside Canadian $11.8 billion ($9.61 billion) to modernize bridges, roads and rail lines and improve water-treatment facilities. To help pay for the projects and other measures, it plans to run a budgetary deficit totaling nearly C$85 billion ($69.24 billion) over the next five years.
It's a remarkable about-face for the country's prime minister, Stephen Harper, who in the fall was still viewing the global economic crisis through rose-colored glasses and insisting that the government could continue to run budgetary surpluses.
As the world's major economies were skidding out of control, Harper in late November issued an update to the government's annual budget that offered little hope for new spending to stimulate the economy. It also outlined intentions for some controversial measures, such as suspending government workers' right to strike and—perhaps most notably—reducing public funding for political parties. Opposition groups rely on this funding more than the Conservatives, and the action sparked a political backlash.
Canada is known for its political stability, but the current Parliament is a fragile form of democracy. While the Conservative party holds the highest number of seats, it is a minority government. The main opposition parties—the Liberals, New Democrats and Bloc Quebecois—together control a majority of Parliament's 308 seats, so the Conservatives need their support to push through legislation.
Harper quickly backtracked on the proposed cuts to political party funding to calm opposition cries of foul play. But the anger didn't subside. Opposition parties publicly focused their attacks on the budget update's lack of stated measures to immediately stimulate the economy. They soon announced plans to form a coalition government to uproot the Conservatives, an action that led to Parliament being shut down for nearly two months until the new budget was revealed at the end of January. In the end, the spurt of spending in Harper's January budget to get the economy moving again—not to mention opinion polls showing little support for a coalition government—was adequate to keep the Conservatives in power for now.
The steel and metals industries were forced to watch from the sidelines as the nation's politicians embarrassingly fumbled their way through the early days of the economic downturn. In the end, though, the infrastructure spending outlined in the January budget was welcome news. Bridges, after all, can take between 10,000 and 30,000 tons of steel in various shapes and forms, and repairs to an existing bridge can use 5,000 to 10,000 tons, according to industry estimates. Concrete reinforcing bar is used in roads and highways, and steel rail is used for infrastructure supporting train traffic.
But the key for infrastructure spending to benefit both the ailing economy and the steel industry is to get the projects off the ground as soon as possible. Ottawa has identified certain ones that it describes as "shovel ready," but it also has attached some strings provinces and municipalities must pony up C$8.8 billion ($7.17 billion) in matching funds. If they don't, the spigots allowing the money to flow to many projects will be turned off.
This could set the scene for considerable bickering between the varying levels of government. Before the latest budget, municipalities were already frustrated by delays in tapping Ottawa's existing seven-year, C$33-billion ($26.88-billion) infrastructure program. Program details were taking a long time to be negotiated and red tape was preventing speedy environmental approvals. Now, cash-strapped provinces and municipalities also have to contend with the faltering economy.
What's generally agreed is that the spending is long overdue. According to some estimates, the gap in Canada between the funds that have been funneled into infrastructure over the past several years and what should have been spent—known as the infrastructure debt—runs as high as C$130 billion ($105.9 billion).
While Ottawa has identified a shortlist of projects—ranging from renewing a major bridge in Montreal to restoring federal buildings—there are many others that will be vying for funding. The Federation of Canadian Municipalities, for instance, has released a list of more than 1,000 infrastructure projects that could be ready to start as early as spring.
Governments appear to recognize the need to start projects as soon as possible, but they must not forget to consult with industry leaders to ensure they follow the best and fastest route to completion. That may require governments going it alone instead of waiting for complex and difficult-to-finance private-public partnerships to be formed, an approach still favored by Harper.
It is unfortunate that the leaders of Canada let infighting and career-enhancement get in the way of sound planning at a time when prudent, decisive and non-partisan leadership is what the country and its industrial sector needed the most. Political power plays within a dysfunctional Parliament should have waited for another day. But with a new budget, Canada's leaders can redeem themselves by recognizing a crisis is best solved through cooperation and swift action.