The following is an article written by Clinton Halladay for the Citizens Democracy Forum (CDF). It, as well as other articles and information, is available on the CDF website: https://citizensdemocracyforum.org
Attention Citizens of Canada September 9, 2020,
2015 promised an exciting fiscally responsible undertaking with the announcement of a Canada Infrastructure Bank “to provide low-cost financing for new infrastructure projects”. This was welcome and exciting news given that Canada’s aging infrastructure, i.e. roads, bridges, etc, have either reached, or are fast approaching, their end-of-life. The design and construction of decades ago cannot meet the demands of today. The potential of such a positive commitment cannot be overstated. Investment in Canada’s infrastructure has been gravely neglected, and the decline and fragility of public services, transit and transportation systems, power grids, a vigorous economy and sustainable environment are sufficient proof.
The promise and the anticipated plan seemed too good to be true. And so it was! It soon became clear that what was hoped, what was believed, to be, apparently too naively, a government initiative drawing on the Bank of Canada was an hallucination. The Canada Infrastructure Bank sharply turned from providing public financing to finding private capital. The possibility of providing low-cost financing in the public interest evaporated through the heat of corporate pressure, leaving only the sludge of high-cost private and investment capital.
Not only did the funding (the source) of these public projects change from public to private, the very oversight, the board of directors, was given to finance professionals with nary a government representative in sight. Some of these professionals forming the bank’s advisory council to “protect the public interest” were:
- Dominic Barton (Chair): Global Head of McKinsey & Company;
- Larry Fink: CEO Blackrock Inc;
- Michael Sabia: CEO Caisse de dépôt et placement (Québec’s largest pension fund)
- Mark Wiseman: CEO of CPP Investment Board before being appointed global head of an active equities unit at Blackrock.
The private-populated advisory council took over the bank’s policy-making and transformed the promise of fiscal independence and responsibility to private profit based reality. Control of the most basic framework, the underlying structure of Canada and its economy, the fixed installations that it needs in order to function, are in complete control of the corporate machine. The cost of this control far exceeds any benefit that can possibly be achieved for the public good. Canadians, with little or no choice must fund the investment returns of the fiscal elite through interest repayments, user fees, tolls, etc.
Repayment costs born by the public are the profits of the corporate and private investors. The following chart highlights the magnitude of this disparity.
The federal government can easily borrow below 2.5% and the expected rate of return for private infrastructure investment is 8%. Borrowing $200,000,000 (Two Hundred Million dollars) for a thirty (30) year period from the Bank of Canada at 2.50% would incur interest charges of $84,500,000 (eighty-four million, five hundred dollars). Using the expected investment return published by La Caisse Populaire of 8%, borrowing the same amount form the private sector would incur interest of $328,300,000 (three hundred and twenty-eight million, three hundred thousand dollars) Comparing just those two scenarios, private sourcing will cost Canadians $243,800,000 (two hundred and forty-three million, eight hundred thousand dollars) more in interest alone than financing with the Bank of Canada. (Comparison excludes administrative and handling fees). Good for corporate enterprises and private investors, bad for Canadians.
In addition to the exorbitant excess cost resulting from the private sourcing for projects basic to Canada’s needs, there are other disturbing factors associated with direction of the Canada Infrastructure Bank. As the bank has materialized corporate and private investors will, at the very least:
- Determine what, where and when infrastructure projects go ahead;
- Influence and control the direction and operation of the projects;
- Be restricted from having any government representation on the board;
- Entirely control private sector interests;
- Entertain unsolicited bids for projects allowing for sole sourcing of the most profitable projects;
- Increase costs for Canadians, not only through interest payments, but new and increased user fees for our very necessities; (user fees are regressive to low and middle-income Canadians but have little affect on those imposing them);
- Have the potential to move to the privatization of public infrastructure through the control of both projects and funding.
As corporate accounting rules differ greatly from those of the government, most of the real costs which will be incurred as result of the way the Canada Infrastructure Bank has rolled out, will be hidden from the general public. Any modicum of transparency has been erased.
The intention of this article is to draw attention to the undermining shortcomings of an exciting fiscal responsibility. What could and should be done to right this wrong will be the subject of a future article in the series.
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