Accounting may seem like a science. Put the numbers in the right columns, add them up, and out pops an unbiased result. But how the numbers are organized and counted can be highly political, and can distort public policy. Accounting rules are widely used to hide the true costs of public-private partnerships (P3s) and privatization.
That’s why CUPE has intervened in a review of how governments and public sector organizations report P3s in their financial statements.
Canada’s public-sector accounting standards dictate how governments and public sector organizations present their financial statements. Currently, these rules have strong incentives for governments to privatize public assets and engage in P3s.
Canadian accounting standards allow governments to severely undervalue public assets on the books. With one side of the balance sheet artificially low, it’s tempting to sell physical infrastructure like buildings, roads, airports, ports and bridges. That’s because privatizing, even at below market value, makes a government’s deficit and long-term debt magically appear better.
Asset sales, like the partial sale of Hydro One, always put the government in a worse financial situation over the long term. The asset is gone, forever, along with any revenues that flowed back to the service and the public.
Under Canadian public sector accounting guidelines, there are no standards or rules whatsoever for reporting P3 contracts or obligations. They’re a black hole for transparency and accountability. Governments can report as little or as much as they want, with no consistency.
The guidelines don’t force Canadian governments to account for future P3 payments in their financial reporting, except in the years payments are due. Most P3 contracts are for 20 years or more. So P3s and private contracts appear to cost less in the short term, even though publicly-financed and operated infrastructure costs far less over the long term.
P3s are also creating a growing and off-book debt bomb that will weigh heavily on future generations. When the UK government added up all the liabilities and obligations associated with their P3 projects, known as PFI or private finance initiative, the final tally was over £300 billion. That’s almost C$500 billion, or C$20,000, per UK family.
It could soon be harder for governments to sweep P3s under the fiscal carpet. Canada’s Public Sector Accounting Board (PSAB) is proposing new disclosure requirements and standards for public entities reporting on P3 liabilities.
Any positive changes would be an improvement over the current vacuum. But it’s important to get it right, because this may be the only review for many years. Otherwise, we’ll all pay the price for years to come.