By Fawaz Yusuf
A persistent yet urgent problem
By Fawaz Yusuf
March 7, 2016 – Infrastructure investment is crucial to the prosperity of a region – it supports the quality of life of its residents and the productive capacity of its industries. Federal, provincial and municipal underinvestment in infrastructure over the past few decades is arguably the biggest hindrance to Ontario’s economic competitiveness.
A 2014 study by the Canadian Centre for Economic Analysis (CANCEA), for example, identified that Ontario should ideally invest around five per cent of its GDP on infrastructure. Presently, only 3.1 per cent is invested in infrastructure, which is 38 per cent below what it should be.
CANCEA’s recent study demonstrates that infrastructure investment has been undervalued by most economic models, in which only one-fifth of the benefits are acknowledged. In addition to the usual direct, indirect, and induced impact of infrastructure spending on the economy, CANCEA was able to incorporate the wider systemic benefits of infrastructure, which include how physical assets alter the movement of people, capital and ideas and support population and economic growth over time. A key finding was that a $1 billion investment in infrastructure could help generate 15,000 jobs in the short-term, and in addition potentially support another 70,000 jobs in the province over the next 30 years.
Appreciation of the systemic benefits of infrastructure is especially important when analyzing the effect of investment in transportation infrastructure on overall productivity, growth, and quality of life. Ontario’s cities and communities need modern and well-maintained roads, transit, and public transport systems to attract foreign businesses, stimulate economic activity, and make commuting more convenient. By ignoring the systemic benefits of transportation investment, conventional studies risk underestimating its impact on Ontario’s productivity and growth.
Transportation infrastructure also affects our quality of life. A recent CANCEA report studied shelter affordability and the challenges facing Ontario’s households as they attempt to find suitable and affordable shelter. The report introduced a new index, the Shelter Consumption Affordability Ratio (SCAR), which sidesteps the shortcomings of existing measurements by looking at the cost of consuming shelter relative to discretionary household income after taking into account spending on food, clothing, and healthcare. One of its findings is that more households are finding it difficult to afford shelter, with the rise in transportation costs being a significant contributing factor. Statistics Canada’s data shows that aggregate household expenditure on transportation increased by nearly three times since the early 1980s (in real terms), with adverse ramifications to shelter affordability, business productivity, and economic prosperity.
At present, we as a province face two challenges:
Federal, provincial and municipal governments underinvest in transportation infrastructure, with the province feeling the pressure. Roads and highways suffer from poor quality; a recent Ipsos-Reid poll showed that 43 per cent of respondents were “dissatisfied” with the quality and maintenance of Ontario’s highways, and 86 per cent thought that government should increase spending on highway maintenance. Underinvestment has also led to increased congestion and road wear.
Lack of coordination across different levels of government. CANCEA’s study on the value of infrastructure investment points out that while the provincial and municipal governments collectively devote 2.8 per cent of provincial GDP to infrastructure, the federal government’s contribution is merely 0.3 per cent. Moreover, there are hundreds of transportation agencies in the GTHA alone, with limited coordination between them. Federal, provincial, and municipal governments are responsible for different transport agencies and commissions, each having mandates that do not correspond to a common and effective strategy to solve the issue.
Adding urgency to the situation are the increased pressures due to immigration and population growth: recent CANCEA research shows that more than 630,000 people moved into Ontario over the past decade, and future projections point to similar inflow levels over the next decade. Use of roads, highways, and other modes of transportation is likely to grow, leading to increased transport costs for households and businesses. The seriousness and complexity of the issue require different tiers of government to coordinate, design and implement more effective measures to improve both our economic fortunes and our quality of life.