Fall Economic Update

Top Points

Finance Minister Bill Morneau delivered his Fall Economic Statement 2016 today as the Government of Canada confronts continued economic softness. This slow growth resulted in revised deficit projections with no return to balance until 2021-22. All of the available $6 billion in contingencies in the March budget are allocated because of economic growth reducing revenues.

These lower financial expectations were placing increasing pressure on the federal government to deliver on their earlier infrastructure pledges. Just yesterday, the Ontario and Toronto governments appeared to be adding political pressure on the federal government to commit to key transit projects in the GTA. Municipalities across Canada are worried that previous promises of investment in infrastructure will be reduced or reallocated.

Facing this challenge, the government is looking to a recommendation of their Advisory Council on Economic Growth to amplify their infrastructure spending despite the continued softness in the economy. This does double duty by also increasing counter-cyclical infrastructure spending without pushing far past their existing deficit projections.


Infrastructure Bank

The federal government will establish a new Infrastructure Bank. This new arms-length entity will be capitalized with $35 billion from the federal government, $15 billion in cash coming from previously announced “Phase 2” money. The remainder is new capital available for investments “which will result in the Bank holding assets – in the form of equity or debt.” The government is then hoping to attract four to five times that amount in private-sector financing from global pension funds and private equity.

The government expects that private sector multiplier to apply to the entire $35 billion, resulting in $140 billion or more in private capital over the next 11 years. That is over and above the $11.9 billion announced in the budget, the new infrastructure announced in the Fall Economic Statement and long-standing infrastructure investments.

The government lays out several baskets of investment:


Public Transit – $25.3 billion over 11 years.

The government states they want to fund “new, transformative construction and expansion projects,” which could limit the ability of municipalities and provinces to use federal money for pre-announced projects.


Green Infrastructure – $21.9 billion over 11 years.

This includes inter-provincial electricity transmission lines, new low-carbon power projects, smart grid expansion, and the management of floods and wildfires.


Social Infrastructure – $21.9 billion over 11 years.

The focus here is affordable housing, child care, and cultural and recreation facilities.


Global Markets – $10.1 billion over 11 years.

This is for more efficient transportation corridors to international markets and transportation needs in the North. There is potential for an expanded federal role on the Detroit River International Crossing.


Rural and Northern Communities – $2 billion over 11 years.

This is a tailored fund for smaller infrastructure opportunities with distinct eligibility criteria. Examples include reducing reliance on diesel generation or providing road access in remote communities.


Other Elements

  •  The Government also announced a new Invest in Canada Hub to increase the trade commissioners assigned to bring in foreign investment with $218 million in funding.
  • A “Global Skills Strategy” is designed to help companies find it easier to bring in skilled labour from international markets on a temporary basis, addressing some of the challenges in the Temporary Foreign Worker program.
  • The Parliamentary Budget Officer is being made fully independent from government, rather than operate as a part of the Library of Parliament under the auspices of MPs.


What Does This Mean?

The federal government is focusing on infrastructure as the cornerstone of its economic program. This is intended as both counter-cyclical spending to drive medium-term economic growth and a long-term economic development and competitiveness opportunity.

If you have large infrastructure projects, this is good news. If you have a revenue-stream attached, this is great news. The Infrastructure Bank appears designed to help derisk these large projects and make sure they happen quickly.

Smaller projects below the interest level of the Infrastructure Bank appear to be eligible for the $45 billion in traditional public financing over 11 years that is also available.

Watch for continued tension between the federal government and their partners in the provinces and municipalities over eligibility criteria, especially for pre-announced projects. The federal government wants their infrastructure dollars to go toward “new” projects, whereas provinces and municipalities have long lists of under-funded or unfunded transit, energy and transportation projects that they believe need federal support.

Beyond infrastructure, this government seems to be as committed to trade and foreign invest as the previous government, perhaps even more so. Prime Minister Trudeau has been vocal about getting Canadian products to market and attracting investment in Canada.  With this government’s strength in attention-grabbing marketing, utilizing the current global view of Canada to push for more access is a strategic and welcome move by most in the Canadian business sector.

Despite the lower growth forecasts and the spending plans, the Finance Department says debt-to-GDP will decline from 31.8% in 2016-17 to 30.4% in 2021-22.

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