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EDITORIAL: The many shades of stimulus

March 9th, 2016 · No Comments

The key to any stimulus plan that the Liberals adopt is to realize two objectives at the same time — immediacy and economic sustainability.

The previous Conservative government ran repeated deficits though it liked to pretend it didn’t, and the federal Liberals now inherit not only that fiscal reality but also an economy in recession, and something must be done. The relative price of the Canadian dollar does nothing to assuage one’s worry. Notwithstanding the overheated residential real estate market in Toronto and Vancouver, the economy is stalled.

The Liberals are poised to make significant investments in infrastructure projects as a way of stimulating the economy in the short term and raising productivity, such as in Mayor John Tory’s Smart Track transit investments, in the long term. This will require deficit spending, that part is not news. But what form the spending takes is important to consider and the Liberals seem intent on getting it right, though the right path is by no means clear.

Stimulus spending is not a new government tool in response to sputtering economic conditions. And since the Liberals campaigned quite openly on their spending plan they can take these steps with considerable democratic approval. Let’s hope it bears no resemblance to a specific one previously enacted by their predecessors. It’s worth recalling that then Industry Minister Tony Clement commanded a $50 million stimulus program which he sold to Parliament as a infrastructure fund to reduce border congestion, but which instead was used to spruce up his Muskoka riding including, infamously, a $100,000 gazebo in Orrville (about 300 km from the U.S. border).

As far as we know, there are no gazebos in the Liberal plan, but Mr. Clement, who now sits as an opposition MP and critic of the government, will be able to recognize any lack of spending integrity with some personal authority.

Rookie Liberal MP Ahmed Hussen will introduce a private member’s bill at the beginning of March aimed at coupling community-benefit agreements (CBA) with public works contracts. This, if approved, would require contractors carrying out federally funded building or maintenance work to hire local workers and to run training and apprenticeship programs. CBAs were pioneered south of the border and also set targets around procurement and the improvement of public spaces. This caveat to spending might be difficult to bring to fruition since rarely does the federal government fund that many infrastructure projects directly. Acceptance of this strings-attached offer to other levels of government would be necessary. Also, negotiating these agreements with contractors would prove time consuming at a moment when time is the most precious commodity. On the other hand, just about any project will require approvals and local support, and with the CBA element bringing direct local benefit that support may come more quickly. Hussen’s bill is a trial balloon, and the government may just let it die, but then co-opt elements of it for its overall strategy.

At a recent town hall meeting, Carolyn Bennett (MP, Toronto-St. Paul’s) tested some waters of her own. She reminded attendees of the Liberal campaign platform that broadly defined infrastructure spending was not only for things like subways and bridges, but also for green and social initiatives. According to Bennett, green infrastructure projects may include freshwater protection through spending on watershed improvements and improved waste water treatment. Social infrastructure could involve investing in affordable housing and facilities for seniors, as well as enhancing child care facilities.

The key to any stimulus plan that the Liberals adopt is to realize two objectives at the same time — immediacy and economic sustainability. Investment is needed in projects now that produce an immediate economic benefit but only those projects that also have a sustainable economic benefit in terms of productivity. Increasing the gross domestic product, relative to overall debt, is within the government’s sights. Realizing community, green, and social benefits too are laudable aspirations that will pay broad dividends.

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