Progressive Conservative finance critic Vic Fedeli says changes in accounting rules that started in the late days of the Ernie Eves government are letting the Liberals hide the true cost of their capital spending ─ making the prospect of new transit taxes a "spin tool" instead of a revenue tool.

"Suppose the Liberals do raise their $2 billion in taxes, and suppose they do actually use every penny of that and put it into transit. You'd think it's just a wash," Fedeli said. "But $2 billion of revenue will actually reduce the deficit by $2 billion, but instead of deducting $2 billion from the expense of the ledger, only about a thirtieth of it ─ the amortization amount ─ is deducted each year, about $100 million."

The concern Fedeli raises in his latest "Focus on Finance" is that accounting changes first introduced federally in 2002, then adopted provincially in 2005, are hiding the true cost of Ontario's capital spending by simply booking the annual amortization cost instead of the total capital expenditure for any given program.

(QP Briefing has previously reported on the accounting difficulties the government faces on infrastructure projects, namely on the Scarborough subway.)

The government disputes Fedeli's claims, with a source in the Finance Ministry pointing to the 2006 Annual Report from then-auditor general Jim McCarter, which explicitly endorsed the move to accounting by amortization:

"Until recent years, most governments, including that of Ontario, had charged 100% of the cost of capital assets as an expense in the year such assets were acquired or constructed. The revised standard recommends that, in a manner similar to the approach taken in the private sector, the cost of capital assets be recorded as assets in government financial statements and be amortized to expense over their estimated useful lives," McCarter wrote in 2006.

Fedeli says in his latest Focus on Finance the accounting change, however justified, has serious consequences. "We pay interest on actual cash debt. So next year, Ontario will be paying interest on $20 billion more debt," not on the $11.7 billion more the government accounts for.

Fedeli also notes that over 60 per cent of the accumulated debt since the accounting changes came into effect is for buildings and land, not the government's current darling: transportation (road and transit) infrastructure. That may be partially explained by the fact that before the government joined the transit party, the Liberals spent much of the 2000s building hospitals.

Fedeli releases his latest ‘Focus on Finance,’ calls transit taxes a ‘spin tool’

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