Good Accounting Makes For Easier Decisions

When you do not account for all the costs of doing things, you misunderstand the cues. When you misunderstand the cues, you think there are incentives to do things that in practice will not work or maybe miss things that will work.

For example, there is currently a conflict regarding the Metro Toronto Transit proposal, Metrolinx. Who should pay and how are the questions. When you do not know the underlying information and you have no established policy for cost sharing, you let the decision become political. Whose feelings will be hurt least?

For years the province and the city have not paid much attention to extensive public transit. Using public transit, Toronto is one of the most difficult cities in the world in which to get around.

Now the insight – public transit might be good. And then the problem. How much should it be subsidized?

If the system could make money, then subsidies would be unnecessary and it would probably already exist. If the users do not pay enough to make it work financially, they must not value it enough, so why should the others pay?

Of course that presupposes that there are other alternatives that operate without subsidies. The roads and highways are not free because the province collects a significant gasoline tax, car license fees, and sales tax on gasoline, new and used cars and repairs. Even sales tax on insurance premiums. The question is, do all these taxes cover the cost of the road infrastructure? Pretty unlikely although part of that may just be inept management.

Those who do not use public transit, car drivers, trucks, contractors and other businesses that need to move goods and people, seem to think that they should not have to pay extra for public transit. On the surface that looks right but what if there are subsidies already in the system for them?

There is no way to know. If the province manages efficiently and the revenues they receive exceed or at least balance their costs to provide roads and bridges, then the drivers would have a good argument. But no one knows.

The proposal requires $50 billion over 25 years. The problem for the province and the city is raising the money. Their concern is “Revenue Tools” which is doublespeak for “Taxes”, so you know it is a scam. If it made sense they could be forthright. Euphemisms are meant to deceive not clarify. See Maximally Demoted.

It would be a good idea for the province to come up with the information. Citizens are mostly fair minded and they would agree to a system that makes sense. But given the current government and their historic tendency to lie and produce doublespeak, there are few that would believe them, so let’s not waste money on a study.

We are in a quandary. Should we do it or should we not? Should only the users pay? Should everyone pay a little just for access even if not used often?

The unsolvable reality is that taxes and subsidies distort economic reality with the result that there is no objective choice remaining. Only emotions and feelings about what’s “fair” whatever that means.

You might as well guess.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. | Twitter @DonShaughnessy | Follow by email at moneyFYI

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