Trump and Trudeau might disagree on climate policy but they seem to agree on preferring public-private over government investment in infrastructure. Both want to build bridges between public and private infrastructure. Paul Krugman questions why the private sector needs to be involved at all.
Trump’s infrastructure plan (extract with emphasis added):
- Leverage new revenues and work with financing authorities, public-private partnerships, and other prudent funding opportunities.
- Harness market forces to help attract new private infrastructure investments through a deficit-neutral system of infrastructure tax credits.
Trudeau’s infrastructure plan (extract with emphasis added):
- $20 billion in capital will be available to the Canada Infrastructure Bank for investments which will result in the Bank holding assets—in the form of equity or debt. This $20 billion will therefore not result in a fiscal impact for the government. … establishing a new organization capable of working with the private sector where it makes sense.
“Morneau said the Liberals will kick in $35-billion and hope to attract private sector dollars at a ratio of $4 to $5 in private funding for every $1 of federal money.” – Liberals announce Canada infrastructure bank: what is it and how does it work?
Here’s an interesting comment on Trump’s infrastructure plan that is as valid for Trudeau’s Infrastructure Bank (emphasis added):
“… if you think we should build more infrastructure, then build more infrastructure, and never mind the complicated private equity/tax credits stuff.” Paul Krugman – Infrastructure Build or Privatization Scam?November 19, 2016
Krugman goes on to say (emphasis added):
“… why involve private investors at all? It’s not as if the federal government is having any trouble raising money — in fact, a large part of the justification for infrastructure investment is precisely that the government can borrow so cheaply. Why do we need private equity at all? One answer might be that this way you avoid incurring additional public debt. But that’s just accounting confusion. Imagine that you’re building a toll road. If the government builds it, it ends up paying interest but gets the future revenue from the tolls. If it turns the project over to private investors, it avoids the interest cost — but also loses the future toll revenue. The government’s future cash flow is no better than it would have been if it borrowed directly …”
Larry Summers had an interesting comment on Trump’s infrastructure plan too:
“Many of the highest return infrastructure investments — such as improving roads, repairing 60,000 structurally deficient bridges, upgrading schools or modernising the air traffic control system — do not generate a commercial return and so are excluded from his (Trump’s) plan. Nor can the non-taxable pension funds, endowments and sovereign wealth funds that are the most promising sources of capital for infrastructure take advantage of the program.”