Policy & Positions Manual

National Issues - Infrastructure Canada

Federal Legislation For The Current Gas Tax Fund Program (2011)

Economic Issue Statement
In the absence of a legislative framework, infrastructure investment in Canada has waned since the 1940s, resulting in lower levels of productivity and reduced economic performance.  Often taking a back seat to entitlement and program spending, the country’s infrastructure is now a major concern for multi-national corporations and detraction to foreign direct investment.  Legislation reinforcing the commitment to infrastructure investment is urgently needed to provide for a predictable and positive business climate.  An environment where businesses and communities can confidently make long-term investment decisions that will propel our country into a new era of prosperity.

Background
Following the Second World War Canada was among the strongest nations in the world  in terms of public infrastructure investment, enabling an environment where Canadian and multinational corporations leveraged additional capital investments and significantly improved the country’s economic growth and productivity of the Canadian economy for the decades to come.  By the late 1960s and into the 1970s, public infrastructure investment had started to slow, as different orders of government deferred maintenance on the country’s infrastructure system and focused on program spending at the cost of new capital investment . 

During the 1980s and 1990s, provincial and federal budget deficits continued to exact a toll on infrastructure investment as the governments of the day sought to balance budget deficits, which had grown to record proportions when measured against the GDP of the country.  During this time the municipal infrastructure gap as a percentage of national GDP grew from 2.7% in 1984 to 5.0% in early 2000s . Starting in 2005, the federal government recognized this challenge, announcing the New Deal for Canadian Cities, pledging to commit funds raised through the national gas tax to infrastructure investment.  This pledge was reaffirmed in 2008, when the federal government committed to extending the program and providing $2 billion annually for investment that supports sustainable municipal infrastructure.  This was an important and welcome decision. Unfortunately, the municipal infrastructure gap is growing by approximately $2 billion per year2.  This funding stabilizes the gap, but does not address the accumulated infrastructure deficit, which stands at roughly $123 billion, and the additional $115 billion in projected demand.

The issue has come to a critical point as much of the country’s infrastructure, the backbone of our economy, has eclipsed over 80% of its life expectancy .  In short, the communities in which our businesses operate can no longer afford any deferral of the issue or any policy reversals if we are to remain competitive in the global market place. More than 80% of foreign multinational executives surveyed indicated that the poor state of business infrastructure has adversely affected Canada as a destination for foreign direct investment. One of the key concerns is the state of the country’s physical infrastructure  when compared to other G7 countries.

While the federal government’s pledge of $2 billion is a step in the right direction, more needs to be done. Progress made in restoring infrastructure investment through the Gas Tax Program is encouraging but efforts must be made to protect the value of the $2 billion allocated from the effects of inflation.  As competition for infrastructure continues to increase in jurisdictions such as China and India, so do the prices of construction materials in Canada.  In the United States, the Construction Cost Index , a gauge of infrastructure expense, grew by 3.5% in 2010 and is projected to grow by an annual rate of 3.3% in 2011, or two and a half times the rate of consumer inflation.  As part of the legislative framework, it is imperative that the appropriate Canadian cost index be identified, with particular consideration paid to those supported by the national Public Sector Accounting Board.   Without a provision to index infrastructure investments through legislation, the current rate of investment will likely fall by half in real terms within 15 years, effectively returning to levels of that prior to 2005. 

In addition, legislation is an imperative to ensure that year over year program/entitlement expenditures no longer compete with and displace critical infrastructure investment, which is required to help set the stage for a new era of prosperity and productivity.  Legislation will provide a more predictable investment climate, the absence of which would incent further deferral of these investments, ultimately adding cost and increasing the burden on taxpayers , in particular, the business community. This legislative framework can further act as a tool to help ensure that the tenants of good tax policy are followed, namely; efficiency, equity, accountability, and ease of administration.  Current provincial agreements vary greatly in their implementation and the framework for accountability in each jurisdiction also varies.


THE CHAMBER RECOMMENDS

That the federal government:

  1. Establish federal legislation to secure the current federal gas tax program;

  2. Index the annual investment in the program to the appropriate infrastructure cost index; and,

  3. Require consistency in the legislative framework that strengthens the program’s efficiency, equity, accountability, and ease of administration.