Liberals' Stimulus Spending So Small It's A Drag On Economy: BMO

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Canada’s economy grew at the fastest pace in more than two years in the third quarter of 2016, but Prime Minister Justin Trudeau can take very little credit for the turnaround — at least so far.

According to numbers crunched by Doug Porter, the chief economist at BMO Capital Markets, government capital spending (spending on new projects and investments) is up just 0.8 per cent in the past year.

That means government stimulus spending grew at a slower pace than Canada’s economy as a whole (which is up 1.8 per cent over the past year).

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Prime Minister Justin Trudeau shakes hands with Finance Minister Bill Morneau after delivering the federal budget in the House of Commons on Parliament Hill in Ottawa, Canada March 22, 2016. (Photo: Reuters/Chris Wattie)

“In other words, infrastructure spending has actually acted as a small drag on the overall economy over the past four quarters, and not a big boost,” Porter concluded in a client note Thursday.

“The great Canadian infrastructure boom is still keeping itself well hidden.”

Read more:
Liberals' Deficit Is Tiny Compared To What Canada Used To Have

Capital spending was actually lower in the second quarter of this year than it was at the same time last year under the Harper Conservatives.

Porter noted that when the previous Harper government launched a stimulus package in 2009 to boost the economy during the global financial crisis, it resulted in a much larger increase in spending on new projects and investments — up 20 per cent in a year.

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Capital spending by government jumped 20 per cent after the Conservatives' stimulus package in 2009. The Liberals' infrastructure spending plan hasn't had the same effect, at least so far. (Chart: BMO)

Harper's Conservatives launched a $35-billion stimulus plan in 2009, which included infrastructure spending, tax breaks and a one-time home renovation credit. The plan contributed to the Conservatives running a $55-billion deficit, the largest federal shortfall since the 1990s.

But it’s still early days for Liberal spending.

Though Porter isn’t the only observer wondering where the stimulus spending is these days, it’s worth remembering that it’s still very early in the federal Liberals' stimulus spending program.

Their inaugural budget was only implemented in June, albeit without the full $10 billion in stimulus spending the Liberals promised in the 2015 campaign.

But the launch has been going slowly. According to an analysis by Bloomberg News, as of last month the federal government had approved 860 infrastructure projects, but only one had broken ground.

The Liberals decided to ramp things up with their fall fiscal update, announcing further stimulus spending including the launch of a Canada Infrastructure Bank with $35 billion in federal money.

The bank would bring private-sector money to public projects, something the Liberals say could more than quadruple the amount of money available for infrastructure projects.

Critics of the idea say it would effectively be a sale of Canada’s public infrastructure, and could result in user fees, a possibility that Finance Minister Bill Morneau would not rule out.

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