Private investment a risky proposition

Instead of considering public options, many governments are financing infrastructure investment through a private ‘partner’ to prevent new debt from appearing on government balance sheets. However the public interest is not served by this debt-dodging maneuver.

Private sector borrowing costs are higher than the rates paid by government. As a result, taxpayers pay more for privately-financed infrastructure. For example, even the world’s largest water corporations, Vivendi and Suez Lyonnaise des Eaux, have a less favourable bond rating than Canadian governments, including most municipalities.

In addition, there is a serious loss of control over public assets, with ownership and operation of the public venture handed over to the private sector for the duration of a unbreakable contract, usually 20 years or longer. Most often, governments are locked into lengthy lease payment obligations that are simply a different form of debt.

There are alternatives. Governments have different options to allow public investment and ownership of public infrastructure. Governments could change their accounting practices to report long-term funding commitments in the same way as the private sector, permitting government capital spending to be spread over a number of years rather than incurring the full amount as debt in a given year. Governments should also reject calls for tax cuts, recognizing the role these public revenues can play in revitalizing public services.

The federal government’s October 1999 Economic and Fiscal Update presents a glowing economic picture. Canada’s economic perfor-mance exceeded budget predictions due to improved world economic conditions and a surge in domestic demand. This caused economic forecasters to revise their projections for economic growth in Canada in 1999 and 2000. The average private sector forecast for growth in GDP was upgraded from 2 to 3.6 per cent for 1999 and from 2.5 per cent to 2.9 per cent in 2000.

Investing in the public sector not only helps strengthen the foundation of our economy and society, it also helps remedy inequality. Strengthening the public sector improves access to services for those who could not otherwise afford them. Free access to quality public services and facilities improves opportunities. In Canada, the best legislative requirements for pay and employment equity cover the public sector. Many of the best paid jobs for disadvantaged groups such as the disabled, Aboriginal workers, workers of colour and women, are found in the public sector. A recent study credits Canada’s highly unionized public sector for the fact that Canadian working women were better paid than their American counterparts.

Yet the shortsighted focus on privatization and private sector partnerships continues. Indeed, it’s now being fueled by public sector pension plans, which hold billions of dollars of workers’ deferred wages.