Advisory council recommends Ottawa spend $200B in infrastructure projects

An expert panel on economic growth is calling on the government to launch an ambitious national infrastructure bank capitalized with $40-billion in federal funds aimed at attracting major institutional investors.

The first report from Finance Minister Bill Morneau’s Advisory Council on Economic Growth estimates that the bank could leverage federal money by a 4-to-1 ratio to deliver more than $200-billion in infrastructure over the coming decade.

Examples of projects listed on Thursday include toll highways and bridges, high-speed rail, port and airport expansions, city infrastructure, national broadband infrastructure, power transmission and natural resource infrastructure.

The report also says the bank could issue infrastructure bonds as a way of raising its own capital to invest.

Another key recommendation is a suggestion that Ottawa should privatize – in full or in part – some of its existing assets as a way of raising money that could be spent on other infrastructure priorities.

That advice comes as the government recently hired Credit Suisse AG to analyze several privatization options for Canadian airports.

Mr. Morneau is scheduled to speak with reporters on Thursday after releasing the first wave of recommendations from his advisory council, a 14-member group of leading economists, business leaders, academics and pension fund managers.

The council is chaired by Dominic Barton, global managing director of the consultancy McKinsey & Co. As The Globe and Mail reported earlier this week, the council’s recommendations include a call to boost immigration by 50 per cent to 450,000 a year, create a new infrastructure bank and launch a new department aimed at enticing foreign direct investment into Canada.

Thursday’s recommendations were released in three separate reports. The first outlines recommendations on infrastructure, the second report outlines the council’s proposal on foreign investment and the third report is focused on the need for more immigration.

Federal Immigration Minister John McCallum, who must announce Canada’s 2017 immigration targets by Nov. 1, made it clear this week that he will not follow through on the council’s call to boost immigration by 50 per cent to 450,000 a year.

“That’s an enormous number,” Mr. McCallum told reporters on Wednesday. He said many stakeholder groups have urged him to increase Canada’s current immigration target of 300,000, but many Canadians have also said they do not support a major increase. He also noted that there is a significant federal expense in accepting more immigrants.

In its white paper “Bringing Foreign Direct Investment [FDI] to Canada,” the council says that while investment by foreign companies has increased to 2.7 per cent of gross domestic product from 0.6 in the 1980s, “we are falling behind” other countries, growing by 2 per cent annually since 2005, less than one-third the rate of the Organization for Economic Co-operation and Development average. The council also points out that Canada ranks 33rd out of 40 countries on the OECD’s “restrictiveness index,” measuring foreign investor perceptions about how easy it is to invest here.

To counter that, the council recommends creating an FDI agency to attract “anchor companies” to invest here, and to develop an accompanying strategy to attract the investment. “These actions would bring much-needed coherence to what is currently a disjointed approach to foreign investment,” the council report says, adding that such a strategy could increase GDP by $43-billion.

“Canada stands to gain enormously by attracting more FDI in a manner consistent” with the government’s growth strategy, the report says.

Edmonton Mayor Don Iveson, who chairs the big city mayors caucus of the Federation of Canadian Municipalities, said cities should be involved in the design of any new infrastructure bank.

“We’d like to be included in the discussion so we can provide the cautionary tales and some of the regulatory limitations that might come into effect, but also explore some of the possibilities,” he said.

“I have to be absolutely crystal clear that infrastructure bank capitalization – new ways to finance things – does not substitute the need to fund, through programs like the green infrastructure fund and the transit fund, the actual infrastructure itself that does not produce a cost recovery. So public good infrastructure is going to be difficult to finance using an infrastructure bank.”

Ottawa Mayor Jim Watson welcomed efforts to bring more private capital to spur on large-scale infrastructure projects, saying that “if we can get them investing in infrastructure to speed up some of the projects that we have, that’s good for the residents of every city.”