POLITICS

Manitoba government's latest job numbers one-sided, say two economists

10/01/2014 03:49 EDT | Updated 12/01/2014 05:59 EST
WINNIPEG - A report that touts the economic benefits of the Manitoba government's infrastructure spending is flawed and tells only one side of the equation, say two economists.

Kevin Milligan, who teaches economics at the University of British Columbia, and Prof. Stephen Gordon from the University of Laval say the report counts the benefits of increased government spending, but ignores any negative economic impact from higher taxes that leave consumers with less money to spend.

"This sort of economic impact assessment is standard fare among think-tanks and is generally given little weight in academia," Gordon wrote in an email Wednesday.

"It looks at the benefits of spending and not the costs of extracting the revenues used to finance that spending."

Milligan called the report an "incomplete analysis."

"The money raised to pay for (the infrastructure) comes out of pockets and also has a negative ... effect, so I would have very little confidence in any such job numbers."

Milligan and Gordon, at the request of The Canadian Press, reviewed the report by the government that said its infrastructure program provided economic benefits of $1 billion last year alone.

The report, prepared by the Conference Board of Canada, said the government spent a total of $844 million on core infrastructure — roads, bridges and the like. It said that spending was helped in part by $190 million brought in by increasing the provincial sales tax to eight per cent from seven last year. All the infrastructure work led to 8,163 direct and indirect jobs and left workers with $388 million in disposable income, the report said.

It did not calculate how much disposable income was lost in the taxes paid to support the program, or how many jobs would have been created had the money been left in taxpayers' pockets.

Pedro Antunes, a director at the Conference Board of Canada, confirmed the group was only asked by the province to look at the benefits of increased government spending and not factor in the negative impact of higher taxes.

"It's not atypical to do that type of analysis," he said.

Theresa Oswald, the province's minister responsible for jobs and the economy, stood by the report Wednesday. She said boosting spending on infrastructure was a good way to help the economy through a global slowdown.

"We don't believe that an austere, do-nothing approach was the right approach. And, in fact, many governments across the world also chose a stimulus, an investment in infrastructure, option."

Antunes was unable to provide an estimate of how many jobs would have been created had the tax money been left in consumer hands. But generally, he said, infrastructure spending has a multiplying effect because the government money goes to contractors who hire employees, who in turn spend more.

Lower taxes tend not to boost spending as much because consumers may save some of the money or spend it out of province, he added.

Gordon said there are sometimes no net benefits to government infrastructure programs over consumer spending.

"To a rough approximation, the two offset each other. For small jurisdictions, the costs (of an infrastructure program) could outweigh the benefits, since some of that spending will be on goods and services produced outside Manitoba."

Milligan said there are benefits to infrastructure spending — bigger roads that let companies move goods to market more quickly, for example — but "the jobs are incidental."