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Whatever else Finance Minister Joe Oliver’s budget managed to accomplish, it did manage to set the pool rules for party platforms going into the coming election. The theme is taxes; the platforms all seem to offer variations on the theme.

And so we have the Liberals competing with the Conservatives’ ‘family tax package’ with a broad-based income tax cut of their own; the policy is the same, only the targets have changed. Justin Trudeau wants to jack up taxes on the ‘one per cent’, while Tom Mulcair sees an opening to raise corporate taxes to finance his own platform. All three parties are vowing balanced budgets — the Conservatives’ balance is based on some rather sunny forecasts for the price of oil in the coming years, but that’s another issue.

Nowhere in the noise about tax policy will you hear anyone talking about a program for growing the economy and adding jobs — things which the polling tells us are far more important to the average Canadian than who gets taxed how much. We don’t have a tax problem, or a deficit problem — we have a growth problem. What do the parties propose to do about it?

We already know the Conservatives’ strategy, such as it is: Eliminate the deficit and pray the private sector will step in to drive growth; hope that oil prices rise and remain high; and hope that the U.S. forgets this austerity nonsense and primes the pump. So far, only the third factor seems to be working in Canada’s favour. In his budget, Mr. Oliver allocated only about $9 billion for jobs and growth over the next five years. Most of this money won’t appear before 2019-20 — if ever.

The Liberals say they plan to announce a jobs and growth strategy built around new investment in education and research and initiatives to modernize Canada’s social and physical infrastructure. Good idea. But given their commitment to a balanced budget in the short term, how do they plan to pay for it?

They have three options: reallocations from other spending programs or tax revenues; raising taxes; or introducing new innovative financing mechanisms.

Reallocation is probably a non-starter. The government has been to that well once too often. Since 2010, departmental budgets have been subject to ongoing restraint. The Department of Finance reports direct program expenses have dropped by about $14.5 billion per year since the 2010 budget — a reduction of about 11 per cent, most of it achieved through freezes on operating budgets and cuts to defence and international assistance.

Broadly-based tax hikes are, politically, the kiss of death right now. A more promising option would be to clean up the tax code. The current corporate and personal income tax systems are far too complex, unfair and burdensome. The code is shot through with tax expenditures designed to woo voting blocs — a very bad way of running a tax system. The last auditor general’s report said the Finance Department has no idea whether these tax credits are doing what they’re supposed to do, or how much they cost. They’re distorting economic decisions, misallocating resources and reducing market efficiency and productivity.

A root-and-branch review of the code could save Ottawa billions of dollars a year — money that could be spent on infrastructure and broad-based tax cuts, both of which would boost employment and growth. The proposal by Rachel Notley, Alberta’s new premier, to review the province’s energy royalty regime is a step in the right direction.

And there are innovative funding mechanisms available to support infrastructure spending while maintaining the bottom line. Spending on current goods and services should be paid for by the generation consuming them. Infrastructure spending is different; money spent on infrastructure benefits future generations as well. So it’s fair to expect those future generations to pay for it.

The best thing the federal government could do to support the restoration of Canada’s infrastructure is to provide the provinces with something it can access in vast amounts: cheap debt. The best thing the federal government could do to support the restoration of Canada’s infrastructure is to provide the provinces with something it can access in vast amounts: cheap debt.

Budgets tend to reflect this fact by amortizing the cost of infrastructure work over its service life, rather than solely in the year it’s done. A $50 million bridge, with an economic life of 50 years, would have an impact of $1 million per year for the next 50 years on the budgetary balance, along with the annual borrowing costs.

Alberta and British Columbia have recognized this separation between operating and capital spending by splitting their budgets into two parts: a current goods and services budget and a capital budget. Some countries have also adopted a budgetary “golden rule” — long term borrowing allowed for capital spending, while spending on current goods and services must be balanced over the economic cycle.

It’s a good rule — as long as governments play by it. The risk here is that governments could abuse the capital spending portion of the budget while keeping the operating side ‘balanced’ — so it would be important to establish additional controls on capital spending to keep politicians from playing games with the math.

Part of the problem with pursuing a national infrastructure policy is that the federal government tends to be a bystander. Over 95 per cent of Canada’s infrastructure is controlled by the provinces, territories and municipalities. The federal government already allocates significant amounts of funding through its New Building Canada Plan — a $53 billion plan spread over ten years. These amounts directly affect the federal government’s budgetary balance, as it has no ongoing liability with respect to any of the projects financed through this plan.

In Mr. Oliver’s recent budget, the government announced that it would explore providing a predictable stream of payments for infrastructure projects over a 20 to 30 year period — the useful life of most projects — rather than up-front lump sums. This would minimize the impact on Ottawa’s budgetary balance in any one year.

It’s hard to say how well this would work; it’s clear that it won’t be enough. In fact, the best thing the federal government could do to support the restoration of Canada’s infrastructure is to provide the provinces with something it can access in vast amounts: cheap debt.

The federal government has a low and declining debt burden and sustainable fiscal structure; most of the provinces and territories don’t. So the federal government can borrow at a much lower rate than the provinces. So here’s an idea:

Set up a federal Crown corporation, modelled along the lines of the Export Development Corporation, to manage infrastructure borrowing. The federal government would borrow on behalf of this Crown Corporation by issuing long-term debt (30 years). Right now, the federal 30-year bond is yielding around 2 to 2.3 per cent — at least a point cheaper than the price Ontario and Quebec would have to pay.

So provinces could borrow from this new Crown corporation for specific infrastructure projects at rates below what they’d pay on their own. As long as the Crown corporation recoups its borrowing and administrative costs, there would be no incremental impact on the federal government’s budgetary balance.

Under this plan, the difference between the rate Ottawa borrows at and the rate the provinces have to pay would amount to a federal government subsidy of provincial government infrastructure projects. Ottawa could even increase the subsidy by lending money to the provinces at a rate lower than the federal government pays to borrow; that would affect the federal budget balance, but not by much.

The best thing about this plan is that it’s easy. It funnels something Ottawa has in abundance — access to cheap debt — to the governments that need it, turning it into something the entire national economy badly needs: renewed infrastructure and the economic and employment benefits that come with it.

It doesn’t depend on optimistic predictions of commodity prices that soar or sink week by week. It doesn’t depend on forecasts of revenue or surpluses five or ten years into the future. It’s based on a number we already know: the cost of borrowing.

And it could be put in place tomorrow. It’s not as sexy as tax cuts. But if the next federal government really wants to boost growth and put more Canadians to work, this is one way to do it.

Scott Clark is president of C.S. Clark Consulting. Together with Peter DeVries he writes the public policy blog 3DPolicy. Prior to that he held a number of senior positions in the Canadian government dealing with both domestic and international policy issues, including deputy minister of finance and senior adviser to the prime minister. He has an honours BA in economics and mathematics from Queen’s University and a PhD in economics from the University of California at Berkeley.

Peter DeVries is a consultant in fiscal policy and public management issues, primarily on an international basis. From 1984 to 2005, he held a number of senior positions in the Department of Finance, including director of the Fiscal Policy Division, responsible for overall preparation of the federal budget. Mr. DeVries holds an MA in economics from McMaster University.

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