Canada’s political parties economically illiterate

A simple cost/benefit analysis would kibosh many of their proposals

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Roslyn KuninOne thing for sure in the 2015 federal election – we can’t say that we don’t have enough time to consider the issues.

Unfortunately, it is still not easy. Politicians have the habit of adjusting their positions as the campaign moves on. Issues are complex and may not always seem consistent.

The NDP just removed its policy book from its website, promising a new policy document. The Liberals have promised an additional $515 million per year for First Nation education. Leader Justin Trudeau has promised to remove the First Nations Financial Transparency Act, an act which has revealed some gross misspending on the part of some First Nations bands. Conservatives say they are starting from a position of budget surplus, while others say they are in deficit.

Most of us, by the time we are old enough to vote, no longer believe in Santa Claus. We know that goodies, even those provided by governments, have to be paid for. This leads to two questions: How are the projects going to be paid for? Are the resulting benefits worth the cost?

One way that politicians try to lull us away from the nasty question of payment is to say ‘not now’. We will give you all the benefits right away, but you don’t have to pay until later – usually years down the road.

This forces the government to run a deficit, spending more than it takes in taxes. Deficits are not necessarily bad if the economy needs a push. However, deficits turn into debt.

As the Liberals have reminded us, interest rates are low, so it is not such a bad time to go into debt. Nevertheless, any tax income that the government spends on interest is tax revenue that is not available for more interesting and useful government services. A growing debt affects a country’s credit rating, raising its borrowing costs, and limits its financial freedom of action.

Another way that politicians try to convince us that all this spending won’t cost us anything is to label it an investment and say that it will pay for itself. Some of us might be a little skeptical. Isn’t that what they said about education and student debt? Education would lead to future incomes that could easily pay off any debt incurred in acquiring it.

Alas, too many heavily indebted former students have learned that not all education leads to high incomes, good jobs, or even any job.

Government spending on investments can be a very good thing if it increases the economic potential of the country and yield jobs and future tax revenue. But not every project does. We have all heard of ‘roads to nowhere’, unnecessary infrastructure spending, and other white elephants.

Then there is the tendency to call projects investments and claim future returns when they are really more of the kinds of things that benefit us in less tangible ways, do not yield dollars except perhaps in the very long term, but still have to be paid for. So called green investments and social investments fall into this category. For example, cleaning up our environment is a good thing that we as a society may well choose to do and could provide us with cleaner air and more available water, but doing so will incur costs and provide less tangible returns.

There is a tool that politicians, governments, or even the private sector can use to determine which projects will pay for themselves. It is cost/benefit analysis. Estimates of the benefits to be generated by any project are calculated and compared to its costs.

This demonstrates which projects will pay for themselves and over what time frame. It is also a very useful way to choose among different options. If we can’t do everything we would like to do right now, which policies and programs will give us the best returns?

So far, in this long and on-going election campaign, there is no evidence that any of the parties have undertaken these sort of analyses. We voters, however, still have lots of time to ask the right questions of all those who are seeking our vote and dangling promises, policies and projects in front of us.

How much will this cost? What are the benefits? Is this the best option for our country?

Troy Media columnist Roslyn Kunin is a consulting economist and speaker. 

© Troy Media


political parties economically illiterate

The views, opinions and positions expressed by columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of our publication.

Roslyn Kunin

Dr. Roslyn Kunin is president of the Vancouver Institute and has been chair of the Vancouver Stock Exchange, WorkSafe BC, and Haida Enterprise Corporation. She has also been on the boards of the Business Development Bank of Canada (BDC) and the National Statistics Council.

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