There are several problems with government involvement in a railway. All in my personal opinion.

1) Delay. Both provincial & federal govts act slowly, and usually when there are votes to be won in the immediate future.

2)Politics. The Conservatives don't like unions, no matter what, so the involvement of the Ontario Northland employees means the feds will be very reluctant to help. They might even delay until the Ont Northland is finally defunct so that they can start a fresh rail initiative without them in it. Similarly, co-operation with the provincial Liberals on this will be something they will try to avoid. Also, the Cons prefer dealing with a large American business to a small Canadian one; in their worldview, bigger is better in business.

3)Backroom deals. Pols love these. If someone offers to grease the wheels to get that pipeline approved, for example, they'd offer any help with getting special treatment for a certain large company.

4) Remote communities need a road before a railway. This could be that East-West route, and financing for that would be a priority over a north-south railway.

All of that would not matter if a company like Posco or another large steel maker stepped in.