Ontario Premier Kathleen Wynne has been signalling her desire to deal with the “crisis” of so-called “lazy capital” or “dead money” in the coming weeks, most likely in the approaching fall economic statement.
It can be argued that “lazy capital” is actually corporate prudence in the form of savings, an attribute for which Canadian firms were celebrated during the 2008 financial crisis. Moreover, one could question the Ontario government’s credibility to admonish corporations for having healthy balance sheets considering its less-than-stellar fiscal record, and the recent gas plant revelations.
While Premier Wynne is right to focus on the balance sheet, her target is wrong. She should focus on the balance sheet for which her government is responsible – that of the province of Ontario. In this regard, the moniker of “lazy capital” is most apt. Don Drummond and others have suggested numerous creative ways that Ontario could get out of its fiscal hole and better deploy the government’s resources. This would boost the economy and provide better services rather than just piling on debt.
Unfortunately, the government of Ontario does not have large cash reserves from saving as “lazy” corporations do (indeed, instead it has a significant debt). What it does have, however, is potentially tens of billions of dollars in commercially-suitable infrastructure assets and government business enterprises. These sit on government balance sheets undercapitalized and underutilized.
Recycling these assets could produce enough value to fund a significant proportion of our critical provincial infrastructure needs and potentially better services for taxpayers. Taking the proceeds of one-time asset sales (such as the LCBO) and investing them in new, long-lived assets – like rebuilding roads and bridges, recreation centres, desperately needed transit infrastructure, and the like – makes a lot of financial sense.
The concept of “recycling government capital” has recently been put to work in Australia. At the core of the Australian policy is the recognition that to meet its ever-growing infrastructure requirements, it will need to creatively use the resources of the government. The policy seeks to encourage “governments to efficiently recycle capital in mature assets into new, much-needed infrastructure.”
The governments of Australia have identified nearly $200-billion in federal and state assets that could be sold to fill the infrastructure gap and lift productivity. The state of New South Wales recently sold long-term leases on two ports and used the $5.1-billion in proceeds from that sale to fund an important highway project and increased rail links. The Australian government has realized that freeing up government capital to invest in other long-term assets (and, importantly, not squander on covering operating deficits) is a smart policy option in a world of fiscal constraint. It is a rare example of public policy creativity.
What could this look like in Ontario? The ill-fated “supercorp” proposal of former premier Dalton McGuinty envisioned a 20 per cent sale and leveraging program of the large crown corporations. Such a program could net the province over $15-billion. As in Australia, the number of commercial assets at the provincial and municipal level runs well north of a $100-billion.
Imagine a scenario where these assets are sold and properly regulated, and the proceeds are used to finance major projects like the much-needed Downtown Relief Line in Toronto or the mid-pen corridor in Niagara in years, not decades.
Ontario should look to deploy its own lazy capital to build up infrastructure that will increase productivity and economic activity in a real way for generations.
J.C. Bourque is a business strategy consultant in Toronto. He has worked on several campaigns for the Progressive Conservative Party of Ontario.