VANCOUVER — A major public infrastructure spending initiative from the next provincial government would generate a return on investment to British Columbians over the long term as high as $2.09 per dollar spent, trigger significant private sector investment, and stimulate wage increases, according to a new study by an independent economic modelling firm.
The Economic Benefits of Public Infrastructure Spending in British Columbia, authored by statistician Robin Somerville at the Centre for Spatial Economics, examines the economic benefits of three possible public infrastructure spending plans in British Columbia. The three plans involve 5-year cumulative spending commitments by the provincial government of $5, $7 and $10 billion respectively. The benefits from a public infrastructure program arise from the direct program spending but then extend beyond this direct impact with public capital promoting long-term economic growth and productivity as productive public infrastructure reduces costs for private businesses; providing a compelling case for public funding of this capital.
The study, commissioned by the Broadbent Institute, found that in the short term the infrastructure program boosts GDP by $1.78 per $1 spent due to the multiplier impact. Within the five-year construction phase, the government also recoup $0.29 of every dollar spent through additional provincial tax revenues.
The public infrastructure spending confers permanent benefits to private business as well. Private sector investment rises, businesses are more productive and competitive in international markets, and real wages rise, providing a higher standard of living -- and all are achieved without significant long-term fiscal consequences to the provincial government.
“These results show why robust public infrastructure investment in British Columbia makes sense,” says Jonathan Sas, Director of Policy at the Broadbent Institute. “This is about British Columbia’s long-term prosperity. These numbers clearly make the case for why the next provincial government should make a bold commitment to this scale of investment, and has the fiscal room to do so.”
In all three spending scenarios, the report shows significant return on investment (ROI) and GDP growth for the province. “Even if the province runs some short term deficits to finance these investments, the long-term impacts on the province’s finances will be positive,” added Sas.
“There’s also a cautionary tale in here,” warns the study’s author, economist Robin Somerville. “The costs of neglecting our public infrastructure are not zero. Allowing our public infrastructure to continue to decay imposes costs at least equal but opposite to the benefits estimated in this study. The competitiveness of private businesses in British Columbia are tied to the quality of public assets, so a significant and sustained public infrastructure spending initiative is required.”
Other key findings include:
In the short term, the spending program boosts employment by between 9,200 and 19,600 jobs, depending on the spending commitment;
In terms of person-years of work, the $5 billion infrastructure spending program generates between 46 and 49 thousand over the 5 years of program spending;
The benefits of the infrastructure spending accrue principally to the construction sector, with positive short-term impacts on output and jobs in manufacturing and the business service sector providing inputs to construction;
Benefits accrue to a number of other sectors including Finance, IT, and Food services
Infrastructure spending also achieves other social objectives that have not been quantified in this analysis, including societal gains from education, health care, and other public assets. Added author Robin Somerville, “The report makes clear the economic benefits of this investment. These are in addition to the benefits of lower congestion costs, improved business networking opportunities, and reductions in pollution and greenhouse gases.”
The report is available online at http://www.broadbentinstitute.ca/bc_public_infrastructure.
Maria Dobrinskaya, Acting BC Director, Broadbent Institute