CALGARY, May 27, 2015 /CNW/ - Provincial governments often finance public infrastructure using debt. There is a standard arsenal of arguments used to justify the practice. They claim that there is an infrastructure deficit and that borrowing for public infrastructure is "just like a household taking out a mortgage."
Except it's not.
A report released today by The School of Public Policy and authors Dr. Bev Dahlby & Dr. Michael Smart argues that the accrual accounting framework used in budget presentations hides the real impact of "borrowing to build" from taxpayers.
According to the report there is a "growing disconnect between the numbers that are presented in the budgets and the general public's understanding of the state of provincial finances. It seems that broad segments of the public, and even those who take the trouble to read the documents and listen to commentaries on it in the media, are confused by the way the numbers are presented and are not confident that the numbers adequately reflect their government's true fiscal position." One example of this is the way deficits are measured under accrual accounting. Another is comparing government financing of infrastructure to a household financing the purchase of a new home.
The authors believe these problems are so significant, that the public needs an independent body at the provincial level to provide simplified and more transparent presentation of the province's finances for voters. To that end, the authors recommend an independent "fiscal council". The arm's length council would be made up of experts who could explain to the public the true cost and impact of budgets, spending and borrowing. For example, that borrowing to build now, is nothing more than a tax increase postponed. Further, the authors recommend, whenever possible, that governments rely on pay-as-you-go mechanisms to finance infrastructure. When possible, these should include tolls.
The paper can be downloaded at http://www.policyschool.ucalgary.ca/?q=research
SOURCE The School of Public Policy - University of Calgary
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