Yesterday’s Statistics Canada release on public and private investment spending intentions noted that: “Canadian public and private organizations reported that they intend to invest $394.1 billion in construction and machinery and equipment in 2012, up 6.2% from investment in 2011.” Indeed, one story I came across mentioned how important public sector capital spending was going to be as an economic driver next year given that public capital spending was going to be up 6.25 percent compared to 6.23 percent for private capital spending.
With all the talk of public infrastructure spending as a driver for the Canadian economy during the recent recession it piqued my curiosity to see over time how much capital investment spending (construction, machinery and equipment) originates in the public sector and how much in the private sector. As the accompanying figure shows, both have grown but nominal private investment far outstrips nominal public investment by an average of about 4 to 1. However, the nominal average annual growth rate for public capital spending over the period 1992-2012 has been fairly close but below that for private capital spending – at 5.1 percent versus 5.9 percent.
As a result, the public share of total capital spending on construction, machinery and equipment has declined from 25 percent in 1991 to 22 percent by 2012. These end points however mask the fact that the public share declined from 1991 to 1997, grew ever so slightly from 1997 to 2006 and then grew rather substantially from 2006 to 2009 – but has since declined a bit again (see Figure 2). A quadratic trend fits the data quite nicely if that is the kind of thing you are inclined to do. There is a period of decline from 1991 to 2002 and then an increase from 2002 to 2012.
Public sector capital formation over the last twenty years has accounted for a range of 15.8 to 25.0 percent of total capital formation. Not surprisingly, it was highest during the recession periods of the early 1990s and the late 2000s.