Canadian Centre for Economic Analysis

Ontario Infrastructure Investment: Federal and Provincial Risks & Rewards

Public infrastructure investment is crucial to the prosperity of a region – it supports the quality of life of its residents and the productive capacity of industries. Without sufficient investment in public infrastructure, future economic growth and prosperity would be at risk. Therefore it is important to understand the risk and rewards of public infrastructure investment, and have the tools to evaluate policy options effectively.

While public infrastructure investment is critical to support economic growth and prosperity, the current balance of investment and rewards between the Federal Government and other levels of government in Ontario appears to be unfair. The Federal Government is contributing too little relative to the amount of revenue that it generates from infrastructure investment in Ontario. The result is that the Province is in a risky predicament: increasing infrastructure investment (via debt financing) results in continued long-term deficits, but rolling back infrastructure investment would result in greater economic setbacks. At current levels indicates that the economy and Ontario’s fiscal health are very sensitive to Federal Government contributions. A small increase in Federal Government contributions generates significant benefits for the Ontario economy and fiscal health, while small decreases magnify the risks to the Ontario economy and its fiscal health. As such, the current level of federal infrastructure contribution appears to have placed the Ontario economy and Ontario governments on a risky slope

The pledge of the recently-elected federal Liberal government to increase Canada’s public infrastructure investment funding is likely to move infrastructure investment towards a slightly more balanced position, assuming that infrastructure investment from other levels of government remains constant.