Federal Budget 2016: Liberals to Spend $11.9 Billion on Infrastructure Over Two Years

The Liberal government claims its new two-phase infrastructure spending program will boost Canada’s GDP by 0.2 per cent this year and 0.4 per cent next year.

Phase one consists of $11.9 billion for a mix of “green,” social and transit projects over the next two years. Phase two will focus on the construction of projects over the next eight years that will go “hand in hand with the transition to a low-carbon economy,” the government said.

It expects phase-one spending to have an immediate impact on Canada’s gross domestic product. Nearly $4 billion in infrastructure spending this fiscal year will combine with other measures announced Tuesday — such as investments in housing and programs to support low-income households — to boost the GDP by 0.5 per cent this year, according to economic impact estimates contained in the budget document.

The government will then roll out more than $7 billion in infrastructure spending in the next fiscal year. That will combine with other measures announced in the budget to contribute 1.0 per cent to GDP, the government claims.

THE CANADIAN PRESS/Adrian Wyld
THE CANADIAN PRESS/Adrian Wyld

“Studies consistently show that when there is slack in the economy and interest rates are low, for every dollar a government spends on infrastructure, substantially more than $1 of economic activity is generated,” Finance Minister Bill Morneau said in his budget speech to the House of Commons.

Private sector economists say the impacts expected by the government make sense, at least for this year.

Douglas Porter, an economist with BMO, said the $4 billion the government will spend on infrastructure in fiscal 2017 should translate to the 0.2-per-cent bump to GDP the government expects. “But I think it’s important to emphasize, it’s a one-time lift. It doesn’t permanently set you on to higher growth,” Porter said.

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