Canada's Housing Bubble

Matt Stiles  Dec 12, 2009  examiner.com

Canada's Parliamentary Budget Office, the independent watchdog charged with overseeing the country's finances, deems that it has not received nearly enough information to make a determination of whether $4 billion in infrastructure stimulus funds (ISF) have succeeded in their objective of, "stimulating economic growth and creating jobs."

"The “value of work completed” is a critical performance indicator. Unfortunately, at the present time, this value is not deemed to be an accurate assessment of program performance due to the limitations of the dataset," the report stated.

It continued, "We also understand from officials at Infrastructure Canada that the data on project completion rates is unreliable because of inconsistent and incomplete reporting. As a result, at this point, the PBO is unable to provide an assessment of the ISF’s progress. It is important that the data quality and gaps be addressed so that Parliamentarians will be provided adequate and reliable information on completion rates."

The report confirms the suspicions of some that the primary engine for Canada's economic rebound has been the Bank of Canada's reduction of interest rates to 0.25% and the speculation on financial assets that has resulted.  The low interest rates have encouraged savers to abandon their savings accounts in favour of higher risk assets like real estate and stocks.  This has the temporary effect of increasing employment and profits in these sectors, but can also result in malinvestments that require liquidation at a later date.

It will prove difficult to determine the effectiveness of the ISF, as nobody will know whether the projects undertaken will serve an economic purpose until many years after their completion.  It is also unknown if the unintended consequences of funds being allocated by government are causing job losses in other areas of the economy.

The Japanese government has engaged in hundreds of billions of infrastructure spending over two decades, yet their economy remains weak and mired in deflation.

Canada's massive infrastructure deficit, however, likely ensures that the first projects selected were necessary.

View the PBO's entire report here.