Image: Financial Times/Flickr
The Trudeau government is gearing up to spend billions on new infrastructure as part of its post-pandemic economic plans.
What a terrific idea! — except that it plans to do so in a way that will massively, needlessly drive up the costs and allow some of our prime national assets to be owned by foreigners.
The story begins with Justin Trudeau’s first bid to become prime minister in 2015.
After years of Stephen Harper’s austerity, one of Trudeau’s most popular election promises was to create a new national infrastructure bank that would take advantage of extremely low interest rates to build public transit, housing and other essentials.
In that election, I ran for the NDP in Toronto Centre and my Liberal opponent, Bill Morneau, was already being hyped as the future finance minister. At our local all-candidates debates, Morneau often touted the infrastructure bank, which I had to admit sounded like a good idea.
What I didn’t know was that the bank Trudeau and Morneau were to create would bear no resemblance to the sensible one they promoted during the campaign.
Instead, within months of becoming prime minister, Trudeau did something he never mentioned during the campaign — he brought in the hotshot Wall Street investment firm BlackRock to advise his government on how to design the new bank.
BlackRock’s involvement was kept secret (until later exposed in the media) because Trudeau no doubt feared it would alarm Canadians.
BlackRock was headed by one of Wall Street’s most powerful players, Larry Fink, who epitomized what had gone wrong with Wall Street. Years earlier, Fink had helped develop the market for mortgage-backed securities — a market that later helped trigger the 2008 financial crash.
The talented Mr. Fink went on to be the U.S. Treasury’s key adviser on the $700 billion Wall Street bailout — widely regarded as a gigantic giveaway to some of the world’s richest people.
In January 2016, Fink met newly elected Canadian PM at the annual billionaires’ retreat in Davos. The conversation quickly turned to infrastructure, which interested them both.
But their interests diverged in a key way. Trudeau had promised Canadians he’d build infrastructure by taking advantage of low interest rates. Fink, who oversaw an investment fund worth $5 trillion, was keen to provide money for Canadian infrastructure but at high rates of return.
Despite his campaign promises, Trudeau quickly came to see things Fink’s way. The BlackRock team recommended a bank that would do infrastructure deals with private investors, like BlackRock clients and large institutional investors. A similar recommendation was made by a team of private sector advisers assembled by Morneau.
But involving private investors dramatically drives up the costs, leaving Canadians paying much more, either through taxes, tolls or user fees, notes Toby Sanger, an economist who now heads the Ottawa-based group Canadians for Tax Fairness.
Sanger points out that, under the low-interest-rate scenario proposed by Trudeau, Ottawa would raise the money itself — by selling government bonds to the public. (Ottawa currently pays only 1.4 per cent on a 30-year bond, allowing it to get the money almost for free.)
On the other hand, Sanger notes, private investors expect high rates of return, typically between seven and nine per cent.
The new bank will also allow investors to end up owning some of the projects they invest in.
This would only be true if the investors were providing their money free or at a discount. Which they aren’t.
Indeed, since their involvement will actually cost us more — way more — this argument is clearly gibberish. Worse, it’s gibberish dressed up in the garb of social justice.
In a recent media interview, federal Infrastructure Minister Catherine McKenna said the government is preparing to rush out billions in infrastructure funds through the new bank, once pandemic restrictions are lifted.
So get ready to hear lots of gibberish, with a dash of social justice.
Linda McQuaig is a journalist and author of The Sport & Prey of Capitalists: How the Rich are Stealing Canada’s Public Wealth. This column originally appeared in the Toronto Star.