Politicians, stop cutting ribbons

Dear politicians, I know you like to cut ribbons and promise beautiful, brand-new projects. These gestures appear meaningful to you, make you popular and attract votes. Such is democracy, I understand.

But to avoid Quebec’s financial chaos in the long term, new roads and bridges, like the third link, must be minimized. And focus much more on a less exciting investment, the repair of our old infrastructure.

Five researchers paint a disturbing portrait of our public investment decisions1. Among them are economists Pierre-Carl Michaud, from HEC Montréal, Marcelin Joanis, from Polytechnique Montréal, and Louis Lévesque, consultant.

Without fundamental change, Quebec’s finances will sink, according to the study.

The government must absolutely change its investment strategy now and further reduce its infrastructure asset maintenance deficit.

Pierre-Carl Michaud, economist at HEC Montréal

In Quebec, 61% of buildings in the education network are judged to be in poor condition, according to the Quebec Infrastructure Plan (PQI). This proportion is 44% for the road network and 24% in the health sector.

This lack of love translates into numbers, what we call the “asset maintenance deficit” or DMA. However, this deficit increases every year, because the deterioration of infrastructure is faster than the repair work devoted to it.

Concretely, Quebec invested 2.8 billion dollars in repair work last year to absorb this deficit, which was then 30.6 billion. But as the deterioration during the year reached the equivalent of 7.1 billion, the deficit increased to 34.9 billion.

In short, the problem is getting worse from year to year (the DMA was 20.8 billion in 2019). And each new road that is built will add to the problem, since it will also require investments for its repair. This is without taking into account that construction and repair costs have been increasing faster than basic inflation for some time.

However, Quebec is not neglectful if we compare it to the other large Canadian provinces.

Each year, the Quebec government invests the equivalent of $1,650 per capita in our infrastructure, compared to $1,050 in Ontario, $1,525 in Alberta and $1,750 in British Columbia, according to the study.

Our public investments in infrastructure represent 2.8% of our annual GDP, compared to 1.6% in Ontario, 2.1% in Alberta and 2.4% in British Columbia.

Three reasons explain our greater effort. First, Quebec has a much larger road network than that of Ontario (and more complex, with the bridges on the island of Montreal), which therefore requires more investments.

Then, our population is smaller to absorb these investments. Finally, Quebec has a less wealthy economy than that of Ontario and a similar investment therefore requires a greater effort, all things considered.

It must also be said that our road network has been more neglected in the past. Here, the provincial network asset maintenance deficit is equivalent to $2,257 per capita, compared to only $100 in Ontario.

The researchers ran simulations to check the impact that our growing AMD will have on our collective debt within 25 years (since our investments are financed by debt).

Currently, the asset maintenance deficit of 34.9 billion is equivalent to 6.5% of GDP. At the rate things are going, this DMA will increase to 14.4% of GDP in 15 years, then to 33% in 25 years (in 2048), the authors estimate.

Put simply, leaking roofs and potholes on the roads will be three times as numerous in 15 years and five times as many in 25 years. Oh boy!

This increase will increase our debt. In 2048, the authors predict, Quebec’s net debt will represent 45% of GDP, well beyond the objective of the Debt Reduction Actby 30% of GDP in 2038.

So we have to look at it. And to do this, an increase in public investment is not the solution, since it will worsen our debt without reducing the DMA.

The best would be to increase the share of investments devoted to reducing the AMD. This strategy would stabilize the problem within 15 to 25 years, while maintaining debt at a reasonable level2.

Unfortunately, the government is doing the opposite. For 10 years, 60% of investments have been used to maintain assets, approximately half of which is injected into infrastructure in poor condition. The rest (40%) is invested in new projects.

However, this 60% share will decline to an average of 56% over the next 10 years, according to projections from the most recent PQI.

In other words, we will allocate more money to new projects, less to repairs.

The authors urge the government to change course. And they invite it to be more transparent in its way of measuring the state of infrastructure. In Ontario, an estimate is made with the participation of the Financial Accountability Office, an organization reporting to Parliament, equivalent to the Parliamentary Budget Officer, at the federal level.

Another wish of researchers: we must better estimate the state of municipal infrastructure, as is the case in Ontario.

The decisions will not be easy, dear politicians, given your propensity to want to cut ribbons. And given the enormous labor needs to make such investments, in parallel with the major projects that Hydro-Québec wants to launch to electrify our economy.

2. The debt would remain reasonable assuming that the government chooses to stabilize the DMA at 6.5% of GDP rather than continuing a decline towards 2% of GDP, as proposed by the simulations in the study and the table which is reproduced.

reference: www.lapresse.ca

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