Inkless Wells

Paul Wells on all the latest out of Ottawa—along with the occasional post about jazz. Follow Paul on Twitter: @InklessPW

Categories: Capital Read, Inkless Wells

Asset management

by Paul Wells on Monday, June 1, 2009 9:17pm - 77 Comments

Asset management Bingo:

Opposition MPs are worried a Conservative plan to sell off government assets threatens Crown corporations like the CBC and Atomic Energy of Canada Ltd.

— Ottawa Sun, Jan. 31 2009

The federal Department of Finance has flagged several prominent Crown corporations as “not self-sustaining,” including the CBC, VIA Rail and the National Arts Centre, and has identified them as entities that could be sold as part of the government’s asset review, newly released documents show.

— National Post, tonight

Now, don’t get too excited. Andrew Mayeda’s story is careful to point out that there is, as yet, no plan to put the NAC or the Corp on the block. He seems to have got his hands on a departmental survey of all saleable assets. And it’s less glamorous Crown properties that are listed above the blue-chip properties Andrew mentions in his lede. It’s entirely possible for the feds to reject a sale of these marquee assets, or indeed of any assets at all.

But Paul Dewar, the NDP MP who gets quoted in the Sun story above and has archived it on his website, is right. The feds are not only airily mulling an asset sale in the abstract, they’ve booked revenue from it in this budget year, and in succeeding years, to the tune of many billions of dollars in total sales. When Dewar quizzed Jim Flaherty about it three months ago, Flaherty was nonchalant in acknowledging, broadly, the premise of Dewar’s questions.

There are really only two possibilities. The government can sell billions of dollars worth of stuff, or its deficit can be billions of dollars higher.

Tags: assets, Jim Flaherty, Paul Dewar

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Mulletaur

"The feds are not only airily mulling an asset sale in the abstract, they’ve booked revenue from it in this budget year, and in succeeding years, to the tune of many billions of dollars in total sales."

This goes against the fundamental accountancy principle of prudence – you don't book the revenue unless and until you actually have a deal already. They are cooking the books just like Flaherty did when he was Ontario Finance Minister. Disgusting. 'les Cons' are totally out of control. They need to be booted out before they totally ruin the finances of the nation.

Dot

It's a budget, or a forecast. I'm sure Paul was not thinking of GAAP when he wrote that line.

Mulletaur

Neither was Diamond Jim, clearly. Full accrual accounting = GAAP.

Dot

I'm not familiar with the example you are citing.

Mulletaur

That's because it's not an example.
Dot

So, if I understand you correctly, what you are alleging is that when Flaherty recently reported deficit numbers for March 2008, the last month of fiscal 2008-2009, in it were revenue numbers from the sale of assets. Is that what you are alleging?

"Booking" something in accounting terms is an historical entry. It does not properly apply to forecasts for "this budget year, and in succeeding years".

As you sure you're not mixing things up with something you read at The Gap?
Mulletaur

I'll try to make it simple for you, so simple that even Diamond Jim himself has a chance to understand it.

Can you count something which doesn't yet exist ?
Dot

It exists on the gov'ts balance sheet. If/when sold it will would move from the balance sheet to the income statement for the fiscal period when the transaction occured.

It's like when you had a lemonaid stand. You would buy the ingredients, and mix up a jug with the expectations of selling at a profit. If you don't sell it, you put it back in the fridge.Think in those terms. You'll figure it out, eventually.
Mulletaur

Except that you don't know which assets you are going to sell. You don't even know whether you are going to sell them, and if so, which ones in which combination. But you still show revenues which go into your income statement. Not just for one year, but for several years. So the whole thing is based on total fantasy. Have you clued in yet, Dot ?
Dot

Yes, I've clued in- you really are thick.

Have you ever prepared a budget – say for your household? Using your logic, you can't because you have no guarantee of whether you will be working (generating income), that your house doesn't flood (through an act of God and so uninsured), or you don't get hit by a car and die.

Furthermore, you could never get a loan at the bank or obtain a mortgage.

Enough for me. Thanks for the entertainment.
Mulletaur

When you have no idea which assets you intend to sell, no buyers and no prospect of a sale, it's not a projection, nor is it a budget – it's a lie.
Dot

Once again, you know not of what you write.

Eric Reguly of the G&M, for one example, has been writing about the potential sell off of AECL, for years. From 2006:

AECL, the maker of the Candu nuclear reactors, has been a ward of the federal government since 1952. In recent years, it has been the subject of all sorts of privatization chatter. Sources say the Tory government is mulling the options for AECL, including its potential sale, in whole or in part, to private investors.

The privatization scenario is plausible. The chief executive officer of the company, Robert Van Adel, last year told the House of Commons industry committee that “AECL, or parts of AECL, could indeed be privatized at some point.” He said ACEL, in fact, had attracted “investor interest.”

Sources said Areva Group of France, the world's largest builder of nuclear generating plants, was keen to invest in AECL two or three years ago…

http://www.jobspace.info/bbs/viewtopic.php?t=714
Mulletaur

I have been taking about cutting my hair for years. But it never happens. Nor will any of this. The money Flaherty has included from these sales is just another lie to cover the massive smoking crater the Conservatives have left in place of a budget surplus – and that's before the recession and the auto bailout.
Dot

Probably best to keep the hair. You have "no clothes".
Mulletaur

Nope, that would be our Finance Minister.

Jenn

Even in a budget you have GAAP-like rules to follow.

Dot

…which have nothing whatsoever to do with having been accrued, by definition.

A forecast is a prediction of the future. An accounting entry is a record of an historical event.

People like Mulletaur should not make statements such as "They are cooking the books just like Flaherty did when he was Ontario Finance Minister. Disgusting. 'les Cons' are totally out of control" when they clearly don't know what they are talking about.

From investorworld.com:

cooking the books

Definition

Knowingly providing incorrect information in a company's financial statements. Illegal.

Mulletaur

No reasonable prospect of selling assets, not even identifying which assets are up for sale and what they may be worth on the market, while at the same time forecasting revenues based on these asset sales = cooking the books to cover a massive, Conservative created deficit.

Do you think Diamond Jim has a little icon on his computer which looks like a ledger cooking in a stewpot that he clicks on every time he needs to cook up a new lie about our federal finances ?

Anon

Could be worse. "Not self-sustaining" could apply to provinces too. For example, PEI.

Mulletaur

LOL, okay, that was a good one.
KadyITQ

Say, how much do you think we could get for — wait, it's the birthplace of Confederation — what am I thinking? (Could we throw in a senator for free?)

WDM

Duffy does seem like the type who'd take one for the team.

Sisyphus

Have a little respect , please.

The Japanese would snap it up just so they could institute some quality control on the souvenir Anne wigs.

Come to think of it , you’d look good in one of those , Kady.

KadyITQ

I'm no Anne — I'm a Valancy, through and through.

kcm

Could we throw in a senator for free? How bout the whole team?
madeyoulook

Well, the least you could do is throw in a sac of potatoes…

jarrid

Tu ne serais pas "le p'tit gars" par hasard?

http://tinyurl.com/n8zjqe Steph C

Last week, while appearing before the Government Ops Cttee, the DM of PWGSC said that the government has yet to formally consult the department for a list of real assets.
Sam

This has me worried immensely.
Stevie-boy will no doubt use the $50 billion deficit to his advantage,
and take the opportunity to sell things that he wanted to get rid of anyhow.
Perhaps he is "masterful", albeit it for the forces of evil! ;)

Orson Bean

You forgot to mention that he also strangles kittens and poisons cute little dogs. I really wonder about your progressive bona fides.

Mulletaur

That's why they are already booking the revenue, of course. Because they don't even know what they intend to sell, so they don't know what the amounts are they can book. It's a lot easier to do accounts when you make it up as you go along.

http://tinyurl.com/m3smv2 Steph C

The PBO isn't impressed: "The as-yet-to-be-identified asset sales and savings pose a nearterm
downside risk to the budget deficit projections as half of the planned savings/revenues are
required to be identified and realized within the next fiscal year."

Mulletaur

Any indication how much they are booking for the current fiscal year ?

ottawasteph

$8 billion (was 6B in Fiscal Update)

Mulletaur

So that's another $8 billion we can add onto the federal budget deficit projection of $50 billion, bringing the total up to $58 billion. Yikes.
Orson Bean

I'm with ya. We better vote the Liberals in pronto — ideally in a minority with the Dippers holding the balance of power — so that the government will spend more and sell nothing.
Mulletaur

The Liberals put the federal budget into balance after the Conservatives left a huge and growing deficit under Mulroney. But that was with a majority Liberal government, clearly not what you are hoping for.
Orson Bean

I'm well aware of the history of deficits in this country, including the fact that that structural deficit under Mulroney was inherited from Liberal Icon Pierre Trudeau. That's not the point. The point is whether the current Liberal Party under Mr. Ignatieff would, or proposes to, do anything which would make the deficit any smaller. So far I haven't heard a peep about that. All I've heard is how the Liberals want to increase spending on EI, to the tune of an additional $1.5 billion a year. Thus my reference to spending more, and selling nothing. Have you heard anything different?
Mulletaur

Selling assets, a one off revenue source with some small effects on operating costs, will not change the structural deficit – created, by the way, when the Harper government lowered the GST from 7% to 5% while increasing spending to the point that Coyne could call Flaherty with total justification the "biggest spending finance minister in Canadian history". Recall that this took place before the economic effects of the financial crisis hit.

Both Ignatieff and his finance critic McCallum have said that spending would be reexamined to see where there is room for cuts. Tax increases have not been ruled out – my personal preference would be putting the GST back to where it was before as consumption taxes are the least harmful to investment and enterprise. If we are going to have an adult discussion about putting the fiscal house back in order rather than a partisan slanging match, we should all admit that both of these are necessary.

Making EI fair across the country for $1.5 billion is relatively cheap and would be a more effective way to get money into the hands of individuals quickly so they can spend it. Federal infrastructure projects to build bridges to nowhere will start too late to help and risk being inflationary as their economic effect will hit just when the economy is starting to improve.

Recall that the budget crisis was created when Harper's government introduced a deflationary budget last year. That would have been economic suicide for Canada.
Orson Bean

"Both Ignatieff and his finance critic McCallum have said that spending would be reexamined to see where there is room for cuts. Tax increases have not been ruled out"

Wow. You certainly can't get any more specific and concrete than that, can you? That settles it, I'm votin' Liberal . . .

dan in van

Never mind that he's selling in a horribly weak market — hey, you can get the CBC for so many hundred million, or a handful of Canwest properties for half the price! Maybe take the Canwest and then ask Ottawa for a bailout! Hah! Diamond dud Jim Flaherty strikes again!
Justin Wordsworth

Can we sell the Governor General?

Is there any need for faux monarchs with painted grins who eat strange parts of strange animals?

If so, let's replace Michaele Jean with the mascot from Burger King.

And while on the subject of mascots, how did the one from Lucky Charms cereal end up being our Finance Minister?
kcm

Indian and native affairs are in that review. My god! Are we selling the Indians?

Anon

At this rate, we're all going to sold into the slave trade. If so, I call Morocco!

Wondering….

Help me out here….. Say you get 500 million "cash" for the CBC – the amount that show's up on the income statement is the difference between that "cash" and how much the CBC is valued on the balance sheet right now right?

So how much would getting 500 million or whatever for the CBC or VIA or ____ actually help on the deficit? Does Flaherty's budget account for net proceeds (vs. amount currently carried on gov't balance sheet) or the 'headline' figure?

Justin Wordsworth

First of all, the government only gets "cash" for a sale if it is made to Karlheinz Shreiber.

Second, the asset (at its value) is removed from the balance sheet and is replaced with cash. Now, since the government's liabilities are greater than its assets, the cash moves over to the other side of the balance sheet and reduces the liabilities (deficit) by the amount of the cash (the sale).
Austin So

Precisely.

Who creates real debt? The guy who purchases assets or the guy who sells off those same assets at cut-rate prices?

This kind of bottom-line accounting will only lead to long-term government debt that will take generations to offset.

BTW…ever wonder how Mulroney "inherited" a large debt from Trudeau?

Justin Wordsworth

Debt is created (although "created" is sort of misleading, I suppose debt is technically created by the guy who is willing to lend at interest) by the guy who purchases something on credit.

Crit_Reasoning

If the government sells any of these key national assets, I will switch my vote to the Liberals in a heartbeat.

sbt

Why is it alright that Greyhound, CoachCanada, Air Canada, WestJet, Porter Airlines are not publicly owned but ViaRail is somehow a "key national asset"? There is absolutely no reason for ViaRail to be owned by the government and it hardly qualifies as a key national asset since people are still able to travel around the country affordably (more affordably in most cases) without it. What's next, declaring GM and Chrysler as "key national assets"?

Mulletaur

No, they're "too big to fail". That's totally different.

Crit_Reasoning

Actually, I'm open to persuasion on VIA Rail, but not on the CBC or other key national assets.

Frankly, VIA Rail is a complex issue and I'd have to read some reports before I made up my mind on whether it should be sold. I can think of good arguments in favour of both positions. I have doubts that the taxpayer would get good value if VIA was sold in the current economic climate. It would be more like the Russian privatization fire sale of the early 1990s.

Mulletaur

Instead of pondering whether to sell VIA, we should be thinking much, much bigger. Like electrification, like high speed trains between large urban centres including the northern United States. The French have the SNCF, the Germans have the Deutsche Bahn, both run high speed trains, both are heavily subsidized by the state. The British privatized their trains, you couldn't create a bigger mess if you tried, and with the exception of the Eurostar, I am not aware of any high speed lines which run in the United Kingdom.

If we are going to spend all this money on infrastructure anyway, we should be spending it on something useful to people which will help generate wealth – in this case, from tourism.
sbt

Why do we need high-speed trains to promote tourism? There a plenty of ways to get from Toronto to Montreal. And Americans will come to Canada whether a high-speed train exists or not. Even if we were to accept that there is some logic in having the Canadian taxpayer subsidize the American tourist, is building a high-speed train from Montreal to Boston the most efficient (or effective) way of doing it? Perhaps it would be better to give them a free night at a hotel if they choose to stay Sunday night on a weekend visit.

sbt

That was the reason for buying them, not the reason we're going to sell them in the future. It was more a comment that just because the government owns something does not necessarily make it a "key national asset" that the government must continue to own going forward. What makes them "key national assets"? I can see a case being made for the NAC on the basis of promoting culture. I can even see a similar case for the CBC (especially if we move to deregulate private broadcasters). I fail to see any role that ViaRail carries out that would qualify it as a "key national asset".

Justin Wordsworth

A critically unreasoned statement. What you call national assets are actually national liabilities. UnVIAble businesses.

Hear that VIA Rail train in the distance? That's the sound of your money evaporating. Canada Post has been making assets out of us all for years – it's employees earn monstrous sums for delivering a product that should have been facing extinction at the advent of the telephone -never mind fax, email, cell phone, text message, …

If your idea of an asset is anything that you are over-paying for, then I have a used car to sell you.

The only way in which watching VIA derail could be any sweeter is if it took the teachers' unions with it.

Crit_Reasoning

The only way in which watching VIA derail could be any sweeter is if it took the teachers' unions with it.

Classy.

Justin Wordsworth

If you think that collective ownership is a good thing, I expect you not to make a fuss when you find me sleeping on your (our) couch.

Loraine Lamontagne

Maybee they'll sell everything, except tour 12% share in GM and our 2% share of Chrysler. Does that mean that the billions we put in these auto makers could be accounted as revenue?
Mickey

"There are really only two possibilities. The government can sale billions of dollars worth of stuff, or its deficit can be billions of dollars higher."

Really? That only disregards about 1,000 other budgeting variables. I'll take the side of the bet that says there might be more than 2 possibilities.

Inkless

Well, now we know which name Jim Flaherty's posting under.

Wascally Wabbit

The Neo Economics…privatize public assets…sell them at fire sale prices…then – when they falter – buy them back at inflated prices – because they are too big to fail…

Mother Thatcher – who hatched this whole doomed economical model – did this in the UK with essential services like Water…sold off the water utilities. The private sector speculators sucked them dry – but when it was time to put up major capital to replace the failing infrastructure..walked away from it all laughing up their sleeves…
Scott M.

Aargh… VIA isn't self-sustaining because they are *REQUIRED* to run unprofitable routes to Jonquiere, Prince Rupert, Churchill, and winter service on all non-corridor routes.

No private company will ever be able make money with those restrictions. Remove them and VIA can become profitable.

Which is great.

As long as you don't live in Smithers, Capreol, Gimli, and dozens of other towns who depend on the train.

It drives me mad — governments are more than happy to put BILLIONS of dollars into roads which are used, for free, by hundreds of carriers. But rail? Oh no, it need be self-sustaining. Aargh.
http://www.maple-leaf-forever.com Lord Bob

No doubt, it would be terrific if the government could get out of the highway business as well as the rail business. But taxpayers are still hooked on the idea of "free" roads – that fifty percent of your paycheque apparently doesn't count – so it would be politically untenable.

Having said that, better to have only one evil than two, and ditching VIA Rail would at least be a step in the right direction.
DianeG

A fire sale of irreplaceable national assets – sure, that's just what we need. Why not sell everything else that isn't already sold? I hear the Americans will need water, I think we still have some and maybe we can sell the rights to the northweat passage while we're at it.

Selling CBC, or Via Rail is a massively stupid idea,
Dot

What city do you live in? Perhaps I can get a new member from Junior Achievement to stop by and give you some lessons on accounting, finance etc.

Mulletaur

Aha, now I know where Diamond Jim learned his accountancy. The secrets of the Conservative state are thus revealed.
T. Thwim

I dunno, Dot, usually I find that even basic accounting teachings you not to budget based on fantasy. No, you may not know the exact amounts you'll pull in, but you should generally have an idea of how it's going to happen. What's next, Flaherty budgets that he'll finally be able to steal the pot of gold from the Lucky Charms Leprechaun and that'll take care of our deficit?

Budgeting for a sale of assets, without any information on what, if any, assets will be sold is fool-hardy at best. And when done for the budget of Canada as a whole, nearly criminal negligence.

Dot

Partisan fools.

Mulletaur

That's not actually an argument, Dorothy.

Rudy Daniels

So they have already accounted for the sale of unknown assets in the budget?

Mulletaur

Yup.

Mulletaur

And now we know which name Guy Giorno is posting under …
hosertohoosier

Yes, but the CBC, Via Rail, etc. may not perform all that badly in strong markets (at any rate it may be a good time to sell in whatever industry they are in).

This reminds me of the (reverse of) foolish argument in favour of the LCBO I hear all the time. "The government shouldn't privatize it because it makes money." The fact that it does make money, however, means that private investors would be willing to pay a lot of money for it. It all depends upon intertemporal time preferences – there is for every person a point at which they would be willing to trade off between some sum of money and an income stream in perpetuity. By the same token when we are talking about negative income streams, that number is going to be low, regardless of the shape of the economy.
JJ2

On the comments so far, I've yet to see an argument against an asset sale. Ok, you're mad at the idea: why?
http://www.walkersunknownthoughts.blogspot.com Walker

Finally. Somewhat dubious about the others, but the CBC definitely deserves the axe of sale.
http://cork2toronto.blogspot.com Mark Dowling

So now we know why the Tories gave VIA Rail more money – to fatten it for sale.

That said, VIA regional routes wholly within a province – Jonquiere, Senneterre, Churchill, White River etc – should be cofunded by that province or taken over by that province and that includes Vancouver Island even if that inflames "BC Separatism". VIA could then concentrate on national routes like Quebec-Windsor, Ottawa-Montreal, Montreal-Halifax and the Canadian.