Stimulating the economy with private pipeline projects rather than with public deficits

Montreal, June 9, 2016 – Pipeline projects currently in development in Canada represent enormous private investments that can stimulate the Canadian economy more effectively and more sustainably than the approximately $30-billion deficit projected for this year by Ottawa, shows an Economic Note published today by the MEI.

The publication is co-signed by the Honourable Joe Oliver, former Canadian Minister of Natural Resources and of Finance and, since March 2016, Distinguished Senior Fellow at the MEI.

In all, the four projects studied (Energy East, Northern Gateway, Trans Mountain and Keystone XL) represent investments totalling $34 billion, excluding the Keystone XL project located largely in the United States.

“Certain municipalities across the country will benefit greatly from this infrastructure. Others will not reap as many direct economic benefits on their territory. But this in no way prevents such large projects from being economically positive from a pan-Canadian perspective. It is from this broader point of view that they must be evaluated,” underlines Joe Oliver.

The main benefit of pipelines is the opening up of access to the global market for oil from the Prairies, allowing producers to obtain a higher price than they currently do. For purposes of illustration, obtaining better prices would lead to an estimated gain for the Canadian economy of $13.5 billion a year.

In order to stimulate the economy, Ottawa announced a total of $120 billion devoted to infrastructure over the next 10 years. However, for the year in progress, the real amounts devoted to boosting the economy are small. Also, the effectiveness of using public infrastructure spending to stimulate the economy is questionable, as several empirical studies show.

“Private investment is clearly preferable to public spending, even on infrastructure, in terms of stimulating the economy. Pipeline projects, in particular, represent substantial economic benefits, without increasing either Canadians’ indebtedness or their taxes,” says Youri Chassin, co-author of the publication and Research Director at the MEI.

The Note proposes ways for the federal government to encourage private investment by ensuring that these four projects go forward. For example, intelligent regulation must include delays that are predictable and avoid regulatory duplication so that developers know what to expect.

“By resolving these irritants, the federal government would encourage projects that do a better job of stimulating the Canadian economy than infrastructure spending, all without hurting our public finances,” concludes Joe Oliver.

The Economic Note entitled “The Most Efficient Way to Stimulate the Economy: Private Pipelines or Public Infrastructure?” was prepared by the Honourable Joe Oliver, Distinguished Senior Fellow at the MEI, and Youri Chassin, Economist and Research Director at the MEI. This publication is available on our website.

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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.

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