Selling the gun to pay for the bullets
Source: Globe & Mail
Published: February 18th 2009

There is news that Ottawa is pushing ahead with the review of assets, beginning with some high-profile operations like Via Rail, the Mint, and Canada Post.

Colour me unimpressed.

In and of themselves, corporatization is generally a good thing for many government operations, and outright sale can actually improve service offerings, provide the capital to enable upgrades and reduce the economic warping backstop of a Treasury bailout. Certainly, the LCBO in Ontario shows how just the threat of sale can force major improvements in everything from employee service to selection to decor.

But the problem comes when the impetus for selling assets is the cash, and not the public policy outcome.

Let me explain by using as a metaphor your own life.

If you have an asset - a house, a car, a particularly handsome collection of first-edition Swamp Thing comics - selling them to pay the credit card bill is a pretty bad idea. It tends to lead to having nothing to pay for the credit card bill next month AND no house, car or Swamp Thing comics to read on a rainy day.

Instead, you need to look at either bringing in more money, perhaps a higher paying or second job, or reduce spending, say canceling that gym membership you never use or not subscribing to all those Swamp Thing comics in the first place.

However, if you use an asset to buy another asset - selling those Swamp Thing comics to buy an engagement ring, or make the deposit on your first home purchase - you have maintained your wealth while staving off a cash crisis.

Government is similar. Selling assets to balance the budget is as dumb as cutting taxes to balance the budget; it only drives the government into a deeper debt hole over time, forcing tax increases or spending cuts to get out of the red.

When trying to balance the budget, there are only two choices: increase revenue (raise taxes) or decrease spending (cut services). Its like trying to lose weight. You either eat less or exercise more, preferably both. Asset sales are the vibrating belt fat-loss machine of the fiscal world.

Not to mention the challenges of selling in a recession market. There may be investors willing to pay full market value for Canada Post or Via Rail. These are strategic assets that international or even Canadian organizations would be willing to pay to own.

But the risk on not finding a buyer willing to pay what these assets are worth is high, leaving the very real possibility that the government sells at a depressed price. Selling the fridge to pay for the groceries is bad policy, but selling the fridge for so little it doesn't even cover the grocery bill puts the "um" in dumb.

Reviewing Canada Post, Via Rail or any other asset is a great idea. Just reviewing them can actually find ways to make them run better, particularly if the review is wide-ranging and innovative. Remember the LCBO example, where Mike Harris just rattling the sale sabre forced major improvements.

Selling them can also make sense. What does government know about running a railroad? CN, CP or any number of companies have that as their core business, not government. What does government really know about running a delivery company? Again, UPS, FedEx and other companies do that 24/7, not government.

Divesting those assets can allow government to reinvest in those things it should operate, natural monopolies or public goods. These are things like highway networks, electricity transmission, the Atlantic and Pacific gateways, defence, border crossings, transit or finally upgrading water quality on aboriginal reserves to first-world standards.

But this is not what the federal government appears to be considering in this story, or in their budget. They are planning major asset sales simply to make a minor reduction in the self-inflicted deficit.

Selling Via Rail to pay for operating spending is like selling your car to fill up at the pumps. Its like selling your gun to buy bullets. Its like drilling a hole in your head to let the stupid out.

So why would the federal government want to divest assets for cash in a down economy?

There is only one answer: ideology.

If the cornerstone of your world-view is "small government is good," then asset sales for cash in a down economy suddenly makes sense.

You are reducing the size of government. No more government-owned Via Rail is an end, not a means. No more Canada Post is an end, not a means.

Buy burning the value off in a deficit fight, you prevent a corresponding increase in the size of the government that would come with purchasing new assets with that cash. Again, an end is acheived, smaller government.

And best of all, by artificially reducing the deficit for a single year, you force future governments to pay for your largess now. Deficits are deferred taxes (or spending cuts) and that second part is the critical one. No future government is going to be able to raise taxes by the amount needed to tackle these structural deficits being created. That means another round of service reductions, and - you guessed it - smaller government.

I have no public policy objections to the proposed review of government assets; in fact, it is likely to only have a positive impact on the service outcomes from those organizations.

But there is no excuse for the government taking us for fools and tossing any revenue they accrue from these sales in a fire sale bonfire.

If the Liberals are smart, they will place an amendment to the budget or one of the budget updates, requiring the revenue from any asset sales to be placed in a trust to use toward strategic infrastrucutre and asset investments, rather than temporarily masking the Harper deficits in an election year.

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