March 10, 2010

Eastern, central focus of federal budget a concern to industry

RICHARD GILBERT

staff writer

Construction leaders in Western Canada believe the 2010 federal budget is focused on stimulus spending in Eastern Canada, despite a need for a long-term plan to address infrastructure needs across the country.

“From a western Canadian perspective, it seems the budget is heavily concentrated in central and Eastern Canada,” said Bill Stewart, vice president of the Merit Contractors Association in Alberta.

“Our recovery in B.C. and Alberta is very fragile, so the federal government could do more to cushion the industry.

“The west needs infrastructure spending as well, and it doesn’t seem like there is much evidence of this in the budget.”

As part of the Conservative government’s two-year economic action plan, Finance Minister Jim Flaherty delivered the second year of accelerated stimulus spending. The plan aims to rebuild Canada’s aging infrastructure by making investments in the transportation sector.

However, only a single project from Western Canada is mentioned in a section of the budget designed to address the modernization of the country’s infrastructure.

The Coast Guard’s Sea Island base near Vancouver will receive $27.3 million over five years to replace a hovercraft.

Stewart said he believes this is a major omission in the budget because the construction industry in B.C. and Alberta led the whole country through the last boom bust cycle.

On the positive side, Stewart said he likes the government plan to provide $1 billion to support deferred maintenance, repair and construction at Canada’s colleges and universities in 2010-11.

Other measures in the plan Stewart likes are the freeze of the EI premium rate at $1.73 per $100 of insurable earnings to the end of 2010 and the reduction of the general corporate income tax rate from 22.12 per cent in 2007 to 15 per cent in 2012.

Others also like some of what they see.

“What we like about the budget is that we continue to see the $7 billion in infrastructure spending that is being moved forward to create jobs,” said Building Trades Alberta executive director Ron Harry.

“This money will put people to work building bridges and other infrastructure across the country.”

The new stimulus measures for 2010–11 include $7.7 billion in infrastructure stimulus to create jobs.

Fraser Institute senior economist Niels Veldhuis agrees that one of the core functions of government is to facilitate the construction of infrastructure and stimulate economic growth.

However, he said there are problems with accelerated infrastructure spending.

“With accelerated stimulus spending, the goal is to push money out the door as fast as possible,” he said.

“But, the most important projects are not prioritized.”

According to Veldhuis, accelerated stimulus spending can become a constraint on a recovery led by the private sector.

“The risk for 2010 and 2011 is that government stimulus spending, and particularly infrastructure spending, will hit the economy as it naturally moves out of recession,” he said.

“As a result, the government will compete with the private sector for scarce resources resulting in increased costs and fewer private sector projects.”

The rush to qualify for accelerated stimulus funding can also have a detrimental effect on the procurement process.

“Municipalities that have to get their projects into the market as fast as possible can justify all sorts of things that don’t meet the requirements of a proper procurement process,” said B.C. Construction Association president Manley McLachlan.

The timing of stimulus spending is becoming a critical issue.

The $19 billion in stimulus spending, which began with the 2009 Budget, is due to come to an end in March 2011.

According to McLachlan, there are financial risks for contractors associated with bidding for work on infrastructure stimulus projects.

The federal and provincial governments are going to meet their financial obligations on stimulus projects only up to and including March 31, 2011.

“If the project does not complete on time or goes beyond this funding deadline, the contractor could be responsible for paying liquidated damages,” said McLachlan. “

Given these problems with accelerated spending, Veldhuis and McLachlan would like to see a more thought out plan for the development of the country’s infrastructure.

“After 2011, the push will be on for the development of a longer term infrastructure plan in the country, rather than infrastructure needs being addressed as an economic stimulator” said McLachlan.

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