Spending from Trump, Trudeau on infrastructure could drive up costs: documents
July 26, 2017
July 26, 2017
Ottawa – The Trump administration’s fledgling promise to spend $1 trillion on repairing American roads and bridges may have some unintended ripple effects in Canada.
Newly released documents show that top civil servants in Ottawa worried earlier this year that Donald Trump’s ambitious infrastructure program that he talked about on the campaign trail could end up driving up the construction costs in Canada.
Trump has long talked about a massive infrastructure spending program to prod his country’s economy, but the yet-to-be-released program has taken a back seat in a legislative agenda focused on an ongoing fight over health care, the country’s debt levels and tax reform.
The longer it takes to approve a plan, the longer it may put off what a group of deputy ministers worried in February would be an upward pressure on construction prices.
“The U.S. infrastructure plan, coupled with the Investing in Canada Plan, may drive up costs for materials and services in the medium term, thereby increasing the total costs of infrastructure projects in Canada,” read the minutes from the meeting inside the building that houses the Prime Minister’s Office.
The Canadian Press obtained a copy of the document under the Access to Information Act.
The concern was listed as an issue that could affect relations with provinces and territories that were banking on federal financial help to replace and build new roads, bridges, water and transit systems.
Higher costs would mean that planned federal investments in infrastructure wouldn’t be able to buy as much new infrastructure as the Liberals hope, and potentially dampen any economic spin offs.
The Liberals have banked on their infrastructure program to drive economic growth and job creation. The plan calls for $81.2 billion in spending over the next decade, not including some $90 billion in existing legacy funds the Liberals also want to spend.
Most of the spending on the Liberal infrastructure program doesn’t happen until after 2021.
Infrastructure spending was one of Trump’s key talking points on the campaign trail, which he billed as a way to stimulate the American economy and create millions of good-paying jobs and long-term economic growth – language not all that dissimilar from what Justin Trudeau used in promoting his infrastructure plan to Canadians during the 2015 federal election.
Trump has also envisioned having the private sector help pay for his promise, which in reality is envisioned as $200 billion in federal funds to leverage $800 billion in private sector money; again, an idea the Liberals have captured in their soon-to-be launched infrastructure bank.
The White House is reportedly set to give congressional lawmakers the outline of the infrastructure proposal this fall, although it’s unclear if Trump can get a bill passed before the end of the calendar year with divisions within the Republican ranks and opposition from Democrats.
Meanwhile, the Liberals are trying to finalize funding agreements with provinces on their long-term infrastructure program to start moving money for long-term, large scale projects and get their new financing agency up and running by the end of the year.
Why the two programs could drive up costs is chalked up to supply and demand economics.
Industry officials point out that companies can increase the cost of their services if the market is flooded with open contracts. Materials suppliers could also boost rates as demand for their products increases.
A spokesman for Infrastructure Minister Amarjeet Sohi said the roll-out of the infrastructure program over a 12-year timeline should mitigate any concerns about prices rising too fast.
“This will provide jurisdictions and asset managers with greater flexibility to prioritize and phase-in projects to best consider various factors, including the relative availability of particular goods and services, as market conditions evolve over time,” Brook Simpson said.
“In addition, as these investments will be made over a long period, we can expect that the increase in demand for economic sectors contributing to infrastructure will lead to increase in supply, which could mitigate pressures on costs.”