Low rates and a surplus of manpower in central Canada make this an ideal time for governments to invest in infrastructure, according to David Dodge, a respected economist and former governor of the Bank of Canada.
“Just as we’re trying to encourage private companies to borrow to make investments to enhance their productive capacity...in order for that to work and for them to be as productive as possible, they need the appropriate infrastructure, whether for sewers or power to be hooked up to the plant or whether it's for roads for people to get to work,” Dodge said in an interview.
Dodge pointed to the “substantial difference” between the economic environment in Canada today and when he was deputy minister of finance in the 1990s. At that time, the Liberal federal government had to make deep cuts to balance the budget.
“Unlike that time, when interest rates were at 10 per cent, they’re now at three or four per cent,” he said.
“At that time, we had government expenditures of debt charges equal to one third of revenue. We’re nowhere near that rate today.”
In a new paper for the Bennett Jones legal firm, where he is now a senior adviser, Dodge analyses the two-speed Canadian economy and has some advice for governments to improve competitiveness and growth.
Without naming any specific governments or politicians, Dodge makes clear that he believes now is not the time to slash and burn to get to a balanced budget.
Instead, the emphasis should be on taking advantage of low interest rates to invest in infrastructure to help improve Canada's lagging productivity, which he says is holding back the economy.
The aim should not be to get deficits to zero as quickly as possible, but to reduce deficits to below nominal growth in the economy so that deficits become an ever-decreasing share of gross domestic product, he says.
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David Dodge says low rates should encourage infrastructure spending - Business - CBC News
“Just as we’re trying to encourage private companies to borrow to make investments to enhance their productive capacity...in order for that to work and for them to be as productive as possible, they need the appropriate infrastructure, whether for sewers or power to be hooked up to the plant or whether it's for roads for people to get to work,” Dodge said in an interview.
Dodge pointed to the “substantial difference” between the economic environment in Canada today and when he was deputy minister of finance in the 1990s. At that time, the Liberal federal government had to make deep cuts to balance the budget.
“Unlike that time, when interest rates were at 10 per cent, they’re now at three or four per cent,” he said.
“At that time, we had government expenditures of debt charges equal to one third of revenue. We’re nowhere near that rate today.”
In a new paper for the Bennett Jones legal firm, where he is now a senior adviser, Dodge analyses the two-speed Canadian economy and has some advice for governments to improve competitiveness and growth.
Without naming any specific governments or politicians, Dodge makes clear that he believes now is not the time to slash and burn to get to a balanced budget.
Instead, the emphasis should be on taking advantage of low interest rates to invest in infrastructure to help improve Canada's lagging productivity, which he says is holding back the economy.
The aim should not be to get deficits to zero as quickly as possible, but to reduce deficits to below nominal growth in the economy so that deficits become an ever-decreasing share of gross domestic product, he says.
video
David Dodge says low rates should encourage infrastructure spending - Business - CBC News