The Structure and Presentation of Provincial Budgets
Provincial governments seem to consider it only natural to finance public infrastructure using debt. There is a standard arsenal of arguments used to justify the practice, to the point where there are scarcely any political voices willing to dissent from the tradition. Financing a bridge or school with debt is like a family buying a house, goes one common rationalization, or like a business taking out a loan for equipment. Others argue that infrastructure investment can stimulate the economy and pays for itself over time. Another justification insists that it is only fair for future generations to shoulder some of the burden of infrastructure purchased today, since they will continue to enjoy it after living generations are gone. Still another holds that debt financing infrastructure offers the necessary smoothing of the tax rate over time. These arguments are widely repeated and accepted as these arguments are, but under closer scrutiny they hold almost no water at all. On the contrary, the economic analysis casts doubts on financing infrastructure using debt. If provinces want to build more roads, bridges, schools, airports, hospitals, and other infrastructure, they would do taxpayers a much bigger favour by financing it through current income. Building a government hospital is not the same as a couple taking out a home mortgage; that couple cannot increase its revenues the way a government can through higher taxes, and that couple has an earning life cycle (rising until the earners are in their mid-50s, and then declining until their income is largely comprised of public and private pensions and savings). Businesses primarily fund new investments using retained earnings; their use of debt is motivated largely by tax incentives that allow interest deductibility. Neither of these are reasonable comparisons for a government’s financing rationale. The fiscal stimulus argument is weak to begin with, as the timing of infrastructure spending is often too slow to be effective during a recession. It is a particularly so in Alberta, where unemployment rates are low and skilled labour is already at a shortage. And the idea that it is somehow fair to saddle future generations with paying for infrastructure they did not vote to build is problematic and permits current generations the ability to be more reckless than they might otherwise. But more to the point, most of the benefits of infrastructure is enjoyed by the generations who are living when it is built; less than 20 per cent of its utility accrues to unborn generations. Furthermore, the tax-smoothing argument implies that taxes should be increased (or other current spending cut) to finance an infrastructure program so that the present value of fiscal surpluses cover the debt incurred in financing construction — the key to satisfying the condition of debt solvency. Some infrastructure does “pay for itself” — when user fees or tolls are applied — and in those cases debt financing can be justified. But this almost never happens. Despite claims to the contrary, the cost of a school or a hospital can never be recouped in the higher productivity and wealth it might bring to the jurisdiction, since income taxes (particularly in Alberta) are so low. Therefore, when a province announces that it plans to build things, it should also indicate how it will raise the necessary funding to pay for it, rather than borrowing. This is not a message that provincial politicians will want to hear; indeed, their entire budgeting model — based on accrual accounting and capital budgeting — is predicated on the assumption that infrastructure is an asset rather than an expense, despite the fact that maintenance costs make every infrastructure project an ongoing obligation. This model — in part the result of balanced-budget rules — is the primary reason why the public finds provincial budgets to be notoriously incomprehensible. The self-imposed balanced-budget rules adopted by provincial governments are often only a symbolic gesture. If provincial governments want to be truly accountable to taxpayers, they should be prepared to finance a significant portion of the actual upfront cost of infrastructure out of current revenues and provide a more transparent cash-based accounting of revenues and expenditures in their budgets.
The following is the copyright statement of SPPP.
Copyright © <Author name> <year>. This is an open-access paper distributed under the terms of the Creative Commons license CC BY-NC 4.0, which allows non-commercial sharing and redistribution so long as the original author and publisher are credited.
Publication Copyright and Licensing
The following guidelines and information, provided in six sections, are intended for authors (the “Author”) who are invited to write a paper (the “Work”) for The School of Public Policy Publications (the “Publisher”). The rights and responsibilities conveyed in the SPP Author Agreement will only apply once your paper is accepted for publication. At that point in the publication process, you will be asked to download the form and return a signed copy via e-mail to firstname.lastname@example.org. Please review the below information to ensure agreement with SPPP policies.
Section 1: Author’s Grant of Rights
In consideration of the Publisher’s agreeing to publish the Work in The School of Public Policy Publications, the Author hereby grants to the Publisher the following:
1.1 The irrevocable, royalty-free right to publish, reproduce, publicly display, publicly perform and distribute the Work in perpetuity throughout the world in all means of expression by any method or media now known or hereafter developed, including electronic format;
1.2 The irrevocable, royalty-free right to use the Author’s name and likeness in association with the Work in published form and in advertising and promotional materials related to the Work; and
1.3 The irrevocable, royalty-free right to license others to do any or all of the above.
Section 2: Prior Publication & Publication by Others
2.1 The Author agrees not to publish the Work, or authorize any third party to publish the Work, either in print or electronically, prior to publication of the Work by the Publisher.
2.2 The Author agrees not to publish the Work in any publication outlet which is substantially similar to The School of Public Policy Publications for a period of six (6) months after publication of the Work in The School of Public Policy Publications. Substantially similar is defined as a non-subscription, open-access publication outlet with a similar mandate/vision and intended audience.
2.3 Should the Author publish or distribute the Work elsewhere at any time or in any alternate format, the Author agrees to contact The School of Public Policy Publications to inform them of the subsequent publication.
2.4 Should the Author publish or distribute the Work elsewhere at any time or in any alternate format, the Author agrees to make reasonable efforts to ensure that any such additional publication cites the publication in The School of Public Policy Publications by author, title, and publisher, through a tagline, author bibliography, or similar means. A sample acknowledgement would be:
“Reprinted with permission from the author. Originally published in the The School of Public Policy Publications, http://www.policyschool.ca/publications/.”
Section 3: Editing and Formatting
The Author authorizes the Publisher to edit the Work and to make such modifications as are technically necessary or desirable to exercise the rights in Section 1 in differing media and formats. The Publisher will make no material modification to the content of the Work without the Author’s consent.
Section 4: Author’s Ownership of Copyright and Reservation of Rights
4.1 Nothing in this agreement constitutes a transfer of the copyright by the Author, and the copyright in the Work is subject to the rights granted by this agreement.
4.2 The Author retains the following rights, including but not limited to, the right:
4.2.1 To reproduce and distribute the Work, and to authorize others to reproduce and distribute the Work, in any format;
4.2.2 To post a version of the Work in an institutional repository or the Author’s personal or departmental web page so long as The School of Public Policy Publications is cited as the source of first publication of the Work (see sample acknowledgement above).
4.2.3 To include the Work, in whole or in part, in another work, subject to Section 2 above and provided that The School of Public Policy Publications is cited as the source of first publication of the Work (see sample acknowledgement above).
4.3 The Editors and Editorial Board of The School of Public Policy Publications requires authors to publish the Work under a Creative Commons Attribution-NonCommercial 4.0 International licence (CC BY-NC 4.0). This license allows others to distribute, remix, tweak, and build upon the Work for noncommercial purposes, and ensures the Author is credited for the original creation. This onward licensing is subject to section 2.4 of this agreement, which further ensures that the original publisher is credited.
Section 5: Author’s Warranties and Undertakings
The Author warrants that:
5.1 The Author is the sole author of the Work, or if a joint author, the Author has identified within the Work the other authors, and holds the copyright, either solely or jointly, and has the power to convey the rights granted in this agreement.
5.2 The Work has not previously been published, in whole or in part, except as follows:
5.3 Any textual, graphic or multimedia material included in the Work that is the property or work of another is either explicitly identified by source and cited in the Work or is otherwise identified as follows:
5.4 To the best of the Author’s knowledge, the Work does not contain matter that is obscene, libelous, or defamatory; it does not violate another’s civil right, right of privacy, right of publicity, or other legal right; and it is otherwise not unlawful.
5.5 To the best of the Author’s knowledge, the Work does not infringe the copyright or other intellectual property or literary rights of another.
5.6 The Author will indemnify and hold Publisher harmless against loss, damages, expenses, awards, and judgments arising from breach of any such warranties.
Section 6: The Reuse of Third-Party Works
The Publisher requires that the Author determine, prior to publication, whether it is necessary to obtain permissions from any third party who holds rights with respect to any photographs, illustrations, drawings, text, or any other material (“third-party work”) to be published with or in connection with your Work. Copyright permission will not be necessary if the use is determined to be fair dealing, if the work is in the public domain, or if the rights-holder has granted a Creative Commons or other licence. If either the Author or Publisher determines for any reason that permission is required to include any thirdparty work, the Author will obtain written permission from the rightsholder.