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Business Commentary Accounting rules need to allow the amortization of social investments

Dr. Ryan Meili is a Family Physician in Saskatoon, an expert advisor with Evidence Network and founder of Upstream; James Hughes is a senior fellow at the J.W. McConnell Family Foundation and a former deputy minister of Social Development in New Brunswick.

Investing in social programs improves social conditions and, as a consequence, improves people's lives. That's fairly obvious. What hasn't always been as obvious is that such social spending doesn't come at the cost of economic growth. There is increasing recognition that investing in human beings produces a positive return on investment.

One study of 15 European countries showed that each dollar spent in health and education can return as much as 1.7 times the original investment. By comparison, tax cuts – often cited as key for stimulating growth – actually tend to return less to the economy than what is spent.

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In other words, social spending can be a powerful economic stimulus that results in happier, healthier people. If this is the case, why don't we invest more in improving social outcomes?

Two organizations, the J.W. McConnell Family Foundation and Upstream, are formally proposing to the Public Sector Accounting Board to allow the amortization of evidence-based social investments to be reflected in public accounts. Here's how it would work.

Most health and social spending goes to responding to illnesses and other problems. Preventable diseases such as diabetes and hypertension place heavy burdens on strained health-care budgets. Our justice system is similarly dysfunctional, imprisoning a disproportionate number of indigenous people for whom early intervention could deliver better outcomes. Rather than acting early to create the conditions for good lives for Canadians, we wait for those lives to fall apart before we respond.

Common sense dictates, and research demonstrates, that the earlier we intervene in addressing a problem, the less damaging and costly that problem will be, and the higher the return on the investment. For example, a program that provides universal access to high-quality early childhood education is an investment that pays off substantially in the long-term. The evidence from programs addressing autism, school violence, child and youth mental health and homelessness, among many others, supports the advantage of early intervention.

The impact of such large-scale interventions would be substantial, but the fruits of such investments in upstream action would not necessarily be seen immediately. The cumulative effect over the lifetimes of today's children would be one of the real measures of success. The other would be the gradual reduction in the costs of today's social safety nets, which at present are greatly imbalanced toward late intervention or "downstream" responses.

Some would lay the blame for this late-intervention ethos on short-term political cycles. But there is also a structural, financial barrier that limits our ability to spend in the most effective way.

When a government builds a bridge or a hospital, it's recognized that the benefits of that investment are spread out over decades, so the costs can be spread out over that same extended period. This amortization is an essential financial tool allowing us to build expensive infrastructure now while enjoying its use over the long-term.

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However, when it comes to social investments, no such option is available. All of the costs of a social program are borne in the year they are incurred. The return on that investment could be much larger, but the cost of getting started is prohibitive.

Being able to spread the cost of those early intervention investments over the lifetime of the predicted effects would allow governments to take meaningful action on the factors that improve the quality of our lives. It would allow action on the social determinants of our health and well-being now, rather than at some hopeful moment in the future that may never come. Yet existing public accounting rules don't permit governments to spread their upstream investments over time – even if they demonstrably save the government money and improve the lives of Canadians.

Changing the public accounting rules to allow for the amortization of certain social investments is a potential antidote to austerity budgeting and short-term thinking.

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