For decades, conservatives have tagged opponents as “tax-and-spend liberals.” If we were playing that game where you take a drink every time someone on the right side of the spectrum launches the epithet at a politician to their left, we’d all have expired of hyponatremia sometime in the 1980s.
What is no one ever accused of? Being a tax-and-invest liberal.
One of the central planks of Carneyism is that Ottawa needs to spend less, and invest more. To the extent that’s a substantial change as opposed to superficial rebranding, it’s an extremely good idea. Long overdue, too.
Prime Minister Mark Carney’s biggest proposed public investment so far is the billions of dollars – exact price tag TBD – that his government and Alberta’s are poised to sink into building a pipeline from Alberta to the Pacific.
Is that spending? Or investment?
Tony Keller: Mark Carney’s biggest economic challenge: Canada’s catastrophic investment deficit
I believe it’s an investment, and potentially a very good one. It aims to generate substantial returns for the economy and taxpayers, and it’s likely to deliver.
To understand why, we have to consider what makes an investment an investment. We also have to look at the distribution of benefits from a pipeline – and why a project with limited potential returns for private investors could produce a far larger payback for taxpayers.
But first, some caveats.
Governments always want to claim that their spending is really investment. For example, the Trudeau government’s 2024 budget contained 632 mentions of investing and investments. Child-care agreements with the provinces, money for rental apartments, money for the CBC, money for mental health, bigger Old Age Security pensions – these initiatives and scads of others were “investments.”
But as the Government by Goldman knows, an investment is money deployed with the aim of generating a return. A dollar planted today is supposed to yield more than a dollar tomorrow.
Tony Keller: Should taxpayers build an oil pipeline to the Pacific? Yes
That’s why the one-million barrel a day pipeline at the center of the Ottawa-Alberta memorandum of understanding is an investment. It aims to produce real, measurable and substantial returns for Canadians.
In contrast, rebuilding the prime ministerial residence at 24 Sussex Drive is arguably good and necessary, but that doesn’t make it an investment. It won’t generate a fiscal or economic payoff.
But that’s exactly what the Trans Mountain pipeline expansion delivered.
The Bank of Canada estimated that the opening of TMX gave the economy a permanent boost of a quarter percentage point of GDP.
Charles St-Arnaud, chief economist at Alberta’s Servus Credit Union, estimated last year the narrowing of the price discount that Alberta oil had previously been subjected to, due to its inability to reach any market other than the United States, had generated an economic windfall. He calculated that TMX raised oil industry revenues by $13-billion in its first year, while delivering an extra $4.4-billion in royalties to Alberta, along with $1-billion in corporate taxes to the province and $2-billion to Ottawa.
But if TMX is such a great investment, why didn’t the private sector front the money and retain full ownership? Why isn’t the private sector scrambling to invest in the new Pacific pipeline?
Editorial: The ends of the Pacific pipeline justify the path
Six months after TMX’s opening, the Parliamentary Budget Officer released a valuation report on the expanded pipeline.
The PBO estimated that Ottawa – meaning taxpayers – had spent $34.2-billion to build it. Now that it’s in operation, it generates revenues by charging shippers to send oil through it. The PBO estimated that the net present value of TMX’s tolls gave the pipeline a value in 2024 of between $29.6-billion and $33.4-billion.
In other words, the PBO concluded that the price private investors would be a willing to pay to buy the pipeline from Ottawa would be at least $800-million less than what Ottawa paid to build it.
But whereas a private operator’s only source of returns is tolls, the public sector has a different and wider calculus.
Government benefits from the higher prices and GDP boost the pipeline delivered, as the tax system gives it a cut of higher corporate profits, bigger pay cheques and higher consumer and business spending.
Tony Keller: Is Mark Carney a model for a new centrist politics, or will he be the end of the line?
Measure the full economic and fiscal impact of TMX, as the Bank of Canada and Mr. St-Arnaud did, and you have to acknowledge that public investment is in this case delivering returns for taxpayers significantly in excess of the value of original investment.
The aim of another pipeline would be to reproduce some of those positive TMX effects. The Ottawa-Alberta MOU explains how this would happen. It says that the accord’s first objective is “increasing production of Alberta oil and gas.”
A new, publicly-financed, one-million barrel pipeline to the Pacific is designed to incentivize private investors into sinking tens of billions of private dollars into new oil sands facilities, producing at least one-million more barrels a day of oil.
If the private sector does that, taxpayers would not only earn back their investment on tolls. The windfall of private investment in building new oil sands facilities, followed by decades of higher oil sands output, would mean a new stream of incomes for Canadian workers and businesses, and more tax revenue for government.
But if the new promise of a pipeline doesn’t trigger those private investments in higher oil sands output? Then economic and fiscal returns on the public investment would likely be small or negative.