With such meagre government largesse early on, the Fraser Institute argues the stimulus did almost nothing to prompt the recovery. In a March report, the conservative think tank analyzed StatsCan data and determined government consumption and spending made a negligible contribution to GDP growth in the last two quarters of 2009. Instead, it attributed the rebound to rising exports. While other economists questioned the institute’s analysis, Prime Minister Harper was livid. He slammed the report as “shabby,” and said economic theory shows governments must ensure funds are put to good use to create jobs. (Never mind that in his 1991 University of Calgary master’s thesis, Harper took a swipe at the Keynesian economic policy of deficit spending to fight recessions.)
In the eyes of conservative economists like Mark Milke, director of research at the Frontier Centre for Public Policy, every taxpayer dollar now going to jump-start the economy is being wasted. “It takes great gall to claim credit for ending a recession by spending stimulus money when that money was spent after the recession had already ended,” he says. “It’s kind of an Alice in Wonderland approach to finance, which one rarely saw under [former finance minister] Paul Martin.”
Yet the government’s position on the question of timing is simple—the recession never ended. “Statisticians may think the recession is over but the recovery remains very fragile, and ultimately people getting their jobs back is a key factor in determining when the recession is over,” says Soudas from the PMO. On this point, the government enjoys some support from Kevin Page, the parliamentary budget chief who has criticized the lack of transparency surrounding the stimulus plan. In an interview, Page said the Canadian economy is still operating well below potential.
Soudas also points out infrastructure was not the only part of the stimulus plan. At the federal level it includes tax breaks for individuals and businesses, reforms to Employment Insurance, a home-renovation tax credit and incentives for home buyers. Those non-infrastructure measures, worth roughly $30 billion—including $9.7 billion to bail out the auto sector—were put in place right away, says Soudas, and contributed to the rebound.
“There’s something to be said for that argument, given the stunning rebound in house prices over the last year. On the other hand, government intervention and record low interest rates from the Bank of Canada prompted Canadian households to gorge themselves on mortgage and consumer debt, setting themselves up for trouble. This week the Bank of Canada raised rates again in order to cool down the economy. Now there’s a very real risk the flood of infrastructure money being pumped into the economy this summer could fuel the fire, forcing the bank to tighten even further and squeeze over-leveraged households.”
Questionable infrastructure spending isn’t the only part of the stimulus plan critics have serious problems with. Ottawa has also used the opportunity to pump millions into private businesses and industries through grants and loans. When in opposition, the Conservatives accused the Liberals of trying to pick winners and losers in the private sector. Yet that is exactly what the Harper government is doing now, with almost no disclosure about the terms of the funding arrangements.
Scan through the action-plan website, and taxpayers might wonder whether Ottawa fancies itself a bank or even a venture capital fund. In one transaction, Ottawa provided $2 million in funding to Canada Bread Company Ltd., to “engineer and design” a new plant—even though the company generates $1.7 billion in revenue and has $60 million in cash.
Meanwhile, several stimulus projects involve “start-up” companies, such as $199,000 for a new organic health-food company in Quebec, $120,000 for another Quebec company that plans to make work clothes, and $450,000 for HD Petroleum, a company launched by a former cellphone salesman near Winnipeg to convert waste oil and plastic bags to diesel fuel. (In a recent newspaper interview, company president Todd Habicht boasted HD has attracted 25 inquiries from investors in Africa and the Middle East, which begs the question why government funding was needed in the first place.)
In fact, Ottawa is intent on promoting particular industries, even when there’s already too much capacity to keep existing businesses busy. Consider the market for wood pellets, which are burned to produce power. Under the stimulus plan, at least $7.5 million has gone to build or convert four wood-pellet plants in struggling forestry communities across the country. Yet in May, an industry official told a Senate committee there is already excess supply, while the collapse of the euro has decimated wood-pellet exports to the crucial European market. It’s a similar story in the slaughterhouse industry, where Ottawa is spending $50 million over three years to expand capacity.
For Kevin Grier, a senior market analyst at the George Morris Centre, an agri-food think tank, the rush of money for slaughterhouses smacks of the interventionist spending policies seen during the Trudeau era. “This government money gets [companies] into a market when they wouldn’t be there any other way, because nobody in their right mind would give them the money,” he says. Nobody, that is, except the government of Canada.
In the end what the Great Stimulus Spending Spree of 2009 and 2010 will be remembered for is its legacy of infrastructure projects. The truth is no one knows for sure what, if any, impact these projects have had, says Page. That’s why his office is currently surveying 1,000 Infrastructure Stimulus Fund recipients about whether the money actually stimulated output and created jobs, with the report due out in the fall. “This is an opportunity to promote transparency,” he says. More importantly, if there is another recession, at least there will be some solid, independent analysis about which types of projects are worth pursuing. And which ones equate to shovelling taxpayer money down a deep, dark hole.
