Sunday, March 07, 2010

On bad deals

I'm not entirely sure why Dalton McGuinty and so many other Ontario politicians seem to have bought into the idea that massive privatization will do anything at all to help government finances. But in the wake of McGuinty's bizarre "super corporation" privatization plan, Erin has the right response:
Essentially, the Ontario government is considering a reverse mortgage: you get cash today and retain control of your house. But would it actually be a good financial deal for the provincial treasury?
If the government sold one-third of the shares based on a $50-billion valuation, it would shrink the current year’s deficit by $16.7 billion. That would reduce future debt-servicing costs by $0.8 billion per year. But giving up one-third of Crown corporation profits would reduce provincial revenues by $1.3 billion per year. On balance, Ontario taxpayers would come out half a billion dollars poorer.

So, partially privatizing public enterprises seems politically clever, but financially stupid.
Which leaves only the question of whether McGuinty will push ahead with a bad idea based on nothing more than a commitment to creating private profit out of public money. And there's little reason to think Ontario taxpayers will want to be on the hook for the privilege.

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