October 5, 2009

Stimulus flowing as quickly as it should, says TD economist

OTTAWA

Economist Derek Burleton looks to his neighbour for evidence that Ottawa’s stimulus dollars are at work.

“Anecdotally, you do hear a lot of people talking about renovating this year, including my neighbour,” he says in response to Prime Minister Stephen Harper’s latest report card on how public sector stimulus is impacting the economy.

But in most cases, TD Bank’s Burleton says Canadians will have to take the government’s word on faith — or not — to determine how much of the $46.6 billion Ottawa has committed over two years is already boosting growth and job creation.

The latest report card is the third and most detailed on how the stimulus money is flowing and includes some bold statements.

• 90 per cent of this year’s stimulus already committed, as opposed to 80 per cent in June.

• Funds committed to 7,500 infrastructure and housing projects, “of which more than 4,000 have begun.”

• About 220,000 jobs to be created by the end of 2010, up from the budget’s claim of 190,000, mostly as a result of the new financing of the auto sector.

But like the government’s previous two reports, the latest accounting gives no estimate on how many of the infrastructure projects are actually under way or how many jobs can be directly attributed to stimulus spending.

Even with the Home Renovation Tax Credit, which gives back as much as $1,350 back on the cost of home fixes, the most specific Ottawa can get is to say 2.2 million inquiries have been received. How many Canadians went from inquiring to redoing the bathroom or kitchen won’t be known until tax returns are filed next spring.

There is indirect evidence of usage. Government data shows a 2.2-per-cent increase in home renovation investment in second quarter, the April-June period.

But economist Dale Orr notes that it is impossible to single out how much of the activity would have occurred anyway, how much was stimulated by the tax credit, how much by low interest rates or whether homeowners merely moved up pre-existing renovation plans.

It’s not much clearer on the infrastructure spending front. The Federation of Canadian Municipalities, which previously had been critical of Ottawa’s pace of approvals, says there has been progress since June.

The group estimates over 3,000 municipal projects are in some stage of being implemented, but it admits many of those may only be at the preliminary stage of design and contractor selection.

“We’re glad money has been made available and from that perspective we’ve certainly seen some progress ... but there’s a lot of work that needs to get done before there’s an actual shovel in the ground,” said Berry Vrbanovic, vice-president of the group.

The most recent jobs reports further muddies the water. Construction jobs were up 12,000 in August, but that came off an 18,000 tumble in July.

A Liberal analysis released recently estimated only 12 per cent of the announced government projects have actually broken ground.

“It must be really confusing to Canadians when the government says 90 per cent of the funding has been approved and the Liberals say 12 per cent is flowing to the economy,” said TD Bank chief economist Don Drummond.

But Drummond also believes infrastructure spending is likely flowing as quickly as it should.

“I’m not sure we would have wanted them to go faster or they’d be building bridges halfway across the river and roads that lead to nowhere,” he said.

While the economy has risen from the ashes, most experts give most of the credit to a rebound in the world economy and to the Bank of Canada’s actions that help push some interest rates to the lowest levels in years.

There is little doubt the fiscal stimulus will help, Orr said, but much of that won’t be seen until next year.

Canadian Press

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