Saturday, December 19, 2009

Public Assets

Over the past week both the government of Canada and the government of Ontario have begun looking into the possibility of asset sales to help with their budget deficits.



Given the scale of the deficits - an expected $55 billion for the federal and approaching $30 billion for Ontario - the decision to examine this option is unsurprising. It is also an extremely bad idea should it be taken past the examination phase, however.

In the case of AECL there are issues with giving away the growth potential of the business, but the real objection lies in the area of intellectual property. The CANDU reactor patents, while there has been a dearth of recent sales, have generated revenue in the past and there is a real prospect of significant growth in nuclear power over the next decade. The recent bankruptcy of Nortel, which the government should have prioritized supporting ahead of American auto makers, meant that a number of patents were sold off at fire sale prices. The liscencing fees that Canadian governments and companies will now have to pay to access those technologies will cost considerably more than a support package would have. To repeat the mistake with AECL would be simple incompetence.

The Ontario case provides an even more powerful case for retaining the assets. The LCBO generates approximately $1.5 billion in net revenue, and the OGLC another $600 million. In other words the structural hole in Ontario's budget would be at least $2.1 billion larger next year, and every year going forward. Both the liqour monopoly and the lottery are cash cows that support the program spending of other departments, and to sell them off in order to make one year's defecit smaller is like accepting a pay cut in order to shrink this month's credit card bill!

The deficits themselves are bad enough, though the current low interest rates will most likely put off the real pain from them for at least 6 months or so until they start to rise significantly again. These proposed asset sales will not raise enough money to cover the shortfalls even for this year, and will cost our citizens money even in the short term, much less the long term. They are, in short, political optics masquerading as policy - and a damned bad policy at that.

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