How much of the risk would be assumed?
I finally just got around to reading an interesting piece that the Toronto Star did on Trudeau's pan to create a trillion dollar government infrastructure investment bank.
Of course this week the government announced said bank to some fanfare.
At the end of the piece, the original Star piece provided a rough summary of how some such bank would work. Among the handful of points was the following two:
RISK MANAGEMENT: Much of the risk would be assumed by the federal government, which would offer experts to help investors find the right projects for them. [...]
HOW DO PROJECTS GENERATE RETURN? It depends. On energy and electricity infrastructure, it could be fees for use. On new roads and bridges it could be tolls, plus a chance to build offices, residential developments and paid parking lots along new routes.
Is there an economist in my extended network that can explain to me how this combination can, on average, be good for Canadians?
On the one hand, I can see how they can be very appealing for sitting governments: basically you can get 5 or 6 additional dollars of investment (Sabia's guesstimate) for every tax dollar spent.
Last week, Morneau committed $35 billion public dollars to the new Infrastructure Bank. It sounds like the government is planning to leverage this into as $100 billion or more in combined public and private investments.
On the other hand, if all the risks are internalized, and returns are not, I cannot for the life of me work out how over many iterations these schemes could be a good thing for the public as a whole.
Either risk is zero, or the public loses.
Couldn't the government just raise taxes to pay for these infrastructure investments? Even tax the very corporations they want to partner with? [1]
Then the public will still internalize the risks, but at least we'll also receive all the returns that there are there to be made. Assuming there are any... [2]
[1] The whole issue is actually complicated a bit by the fact that some of the biggest proponents of these schemes are pension management firms like that covered in the Star piece. I wonder if rather than this being an argument for P3s, it isn't actually an argument for keeping pensions and the like public.
[2] What if there are no returns to be made? What if the only source of return in these things is the decoupling of risks and returns introduced by the partnership?
Comments