Movie Accounting for the Feds
Over at Bound By Gravity Andrew raises some rather direct questions about Flaherty’s introduction of the “net debt” concept in the fiscal update.
He helpfully provides this definition from the fiscal update papers:
The full impact of public debt on the economy includes not only the federal government’s debt, but also debt of provincial-territorial and local governments, and the assets of the Canada Pension Plan and Quebec Pension Plan. That is why a standard measure of debt used by organizations such as the Organisation for Economic Co-operation and Development (OECD) is total government net debt.
The OECD definition of total government net debt allows for comparisons across countries. It is calculated on a National Accounts basis. As such, the OECD definition is not directly comparable to federal debt (accumulated deficit) and excludes government employee unfunded pension liabilities, which are fully accounted for in federal debt (accumulated deficit). bound by gravity
Flaherty seems to be using the “net debt” number as a comparison with other G7 nations and with the OECD numbers. Which is good so far as it goes but using a net debt concept for much else smacks of slight of hand. Moreover, while the Statement defines net debt according to OECD standards there is nothing to suggest that this will be the standard the government uses or will continue to use.
In the movie biz, where lying with numbers has become a fine art, the greatest single question in a player’s contract is “net or gross points”. Gross points means a percentage of whatever the film takes in at the box office less what the exhibitor is paid. Net points means that gross number less whatever the hell the studio wants to deduct by way of “production and distribution” expenses for which there is no generally recognized calculation. Which do you think name stars and directors and even writers demand?
A legally undefined “net debt” calculation looks like flim-flam from where I sit. If you want to count government assets against “net debt” you get into a huge set of valuation questions. The CPP is relatively straightforward as it is a financial asset for the most part. But what is to stop you from counting government buildings at fair market value? Can you count Crown land? Can you count receivables (and at what discount?). Do you count future assets like offshore oil reserves or intellectual property like the RCMP logo? Do you count the CBC and its library of copyrights?
I suspect, depending on what assets you choose to include and what valuation you choose to give them, you could count Canada as debt free as of next Tuesday.
Which is bogus. But entirely expected from a Finance Minister who continues to claim the correct measure of the debt is as a percentage of GDP rather than as an absolute number.
Sigh.
Written by jay on November 25th, 2006 with
1 comment.
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#1. October 16th, 2007, at 12:29 AM.
I have been trying to get a good definition of the accumulated deficit and what an acceptable level is. Any suggested reading?The recent pay down of $14 b sparked my interest again. A year or so ago, having a surplus of this size was ‘bad management’, now it is good management. The old saw of not having our kids pay for our indulgences is being trotted out again. I am confused. The concept of net debt is new to me but it is interesting. On my wish list of what I want in a party or candidate is understandable definitions of the terms accumulated deficit and net debt. It would be nice to have some idea of where we are going financially as a country. I’m getting there, but there is a lot of information that comes up on google. Again, any suggestions?