Public Infrastructure in Canada

Jed Chong
Allison Padova

Social Affairs, Health and Infrastructure Section

 

Public infrastructure is vital to all Canadians, every day.

Public infrastructure can include common-use structures, such as roads, airports and ports, as well as vehicles, for instance, those used for public transit and commercial air, rail, and marine transportation services. Other kinds of public infrastructure, such as recreation, water and wastewater facilities, contribute to quality of life in all communities.

Massive public infrastructure investments with a negative rate of return – at least initially – require public funding to build, and possibly, operate. In times of economic constraint, governments may turn to innovative funding sources and/or procurement models to spread expenditure over time.

Public infrastructure that makes the economy more productive is generally regarded as a sound investment; every dollar spent can be expected to generate more than one dollar in domestic economic activity.

Federal share of public infrastructure is small

In 2013, the federal government owned less than 2% of roads, bridges, public transit, water, wastewater, culture, recreation and communications infrastructure in Canada. Provincial/territorial governments held 41% of this “core” public infrastructure and municipal governments the remaining 57%.

Over the past 50 years, the federal government scaled back its holdings of road, water and wastewater stock by 70%-80%. This is consistent with its division of powers with provincial governments in sections 91 and 92 of the Constitution Act, 1867. The federal government privatized its air and rail freight services during the 1980s and 1990s.

Today, the federal government’s core public infrastructure includes a number of international and interprovincial bridges, and sections of highway inside national parks. It also owns many ports and airports, as well as Canada’s national rail passenger service and a ferry service between Nova Scotia and Newfoundland and Labrador.

Renewal is in progress but asset management is lacking

According to Infrastructure Canada, as a result of recent investments by all levels of government, core public infrastructure on average in 2013 was as “young” as it had been since 1961, with nearly half of its useful life still ahead. Nonetheless, the 2012 Canadian Infrastructure Report Card, identified that about one-third of municipal roads, drinking water, wastewater and storm water facilities ranged between fair and very poor condition and needed significant investment immediately.

Assessing assets regularly allows infrastructure owners to initiate timely repairs and rehabilitation, which maximizes the asset’s useful life and helps owners determine when to replace it.

Municipalities own the majority of public infrastructure. Yet, a House of Commons Committee noted in June 2015 that most of them “lack the capacity and resources to effectively track the status of their infrastructure and make informed investment decisions.”

Funding infrastructure can be a challenge

Public infrastructure that serves a large market accustomed to paying for its use may require little or no public funding. For example, Canadian communications networks, and air and rail transportation infrastructure now generally operate on a commercial basis.

Governments must fund other kinds of public infrastructure with tax revenues (particularly excise taxes on fuels), user charges and debt.

Federal contributions to other jurisdictions

Infrastructure Canada administers the 10-year, $53-billion New Building Canada Plan introduced in the 2013 Budget. Most components of the plan contribute 25%-33% of the capital costs of a wide range of infrastructure projects. The plan also contains:

Subnational fiscal limitations

The ability of provincial and territorial governments to invest in infrastructure may be constrained by projected increases in education and health care costs and potential declines in gas-tax revenue. Furthermore, provincial debt funding may be limited since seven provinces currently have a higher debt-to-GDP ratio than the federal government.

Municipal tax revenue – mostly from property taxes – is limited. Municipalities reportedly collect only 8% of total taxes paid in Canada. Municipalities can also use tax increment financing, dedicated infrastructure taxes, parking and development charges, and municipal fuel taxes to fund public infrastructure.

Alternative financing models

Infrastructure banks, which are arm’s-length corporations with infrastructure expertise, raise capital from public and private sources to finance long-term projects. Infrastructure banks already exist in most U.S. states, the European Union and Asia.

Green bonds, which are debt instruments tied to projects with environmental benefits, have also been issued in Ontario to fund “environmentally friendly” infrastructure projects, such as public transit in Toronto.

The Minister of Infrastructure and Communities has received a mandate to create a Canada Infrastructure Bank and a Canadian Green Bond.

Governments can reduce the upfront cost of some infrastructure projects by contracting with the private sector to design, build, finance and maintain them. The government and/or users re-pay the private sector partner for the infrastructure over the life of the project.

The public-private partnership (P3) model is not as transparent as conventional procurement and is not suitable for every project. However, P3s have increasingly been used around the world as an alternative procurement model since the 1990s.

How much investment is enough?

Few deny that more investment is needed to restore public infrastructure and to add more capacity. There is, however, no consensus on the amount needed; most estimates are dated and the most recent vary between $125 billion and $238 billion.

Some observers have proposed that governments invest about 5% of GDP to return to the historic level of public infrastructure in Canada. Others suggest such a target is misguided. They say investment should focus on infrastructure that users are willing to pay for and that is supported by arm’s-length, cost-benefit evaluations.

Related resources

Brian Flemming, Catching Up: The Case for Infrastructure Banks in Canada, Van Horne Institute, February 2014.

Canadian Centre for Policy Alternatives, “Canada’s Infrastructure Gap: Where It Came From and Why It Will Cost So Much To Close,” Alternative Federal Budget Technical Paper, 2013.

Casey G. Vander Ploeg, and Mike Holden. At the Intersection: The Case for Sustained and Strategic Public Infrastructure Investment, Canada West Foundation, 2013.

Glenn Hodgson, “Canada’s public infrastructure gap will require a creative solution,” The Conference Board of Canada, 2015.

John Brodhead, Jesse Darling and Sean Mullin. Crisis and Opportunity: Time for a National Infrastructure Plan for Canada, Canada 2020, October 2014.

Lindsay McGlashan, Public-Private Partnerships: Are Canadians Getting the Full Picture?, Publication No. 2015-50-E, Parliamentary Information and Research Service, Library of Parliament, Ottawa, 26 June 2015.

Office of the Parliamentary Budget Officer, Fiscal Sustainability Report 2015, 21 July 2015.