Accounting rules must allow the depreciation of social investments

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Dr Ryan Meili is a family physician in Saskatoon, expert advisor to Evidence Network and founder of Upstream; James Hughes is a senior researcher at the JW McConnell Family Foundation and a former Deputy Minister of Social Development in New Brunswick.

Investing in social programs improves social conditions and therefore improves people’s lives. It’s pretty obvious. What has not always been so obvious is that such social spending does not come at the expense of economic growth. It is increasingly recognized that investing in people produces a positive return on investment.

A study of 15 European countries showed that every dollar spent on health and education can bring back up to 1.7 times the initial investment. By comparison, tax cuts – often cited as key to boosting growth – actually tend to pay less to the economy than what is spent.

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In other words, social spending can be a powerful economic stimulus that makes people happier and healthier. If so, why don’t we invest more in improving social outcomes?

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

Most health and social spending goes to deal with illnesses and other problems. Preventable diseases such as diabetes and hypertension place a heavy burden on tight health budgets. Our justice system is equally dysfunctional, imprisoning a disproportionate number of indigenous people for whom early intervention could work better. Rather than acting early to create the conditions for a good life for Canadians, we wait for those lives to collapse before reacting.

Common sense dictates, and research shows it, that the sooner we intervene to solve a problem, the less damaging and costly the problem will be, and the higher the return on investment will be. For example, a program that provides universal access to high-quality preschool education is an investment that pays great dividends in the long term. Evidence from programs focusing on autism, school violence, child and youth mental health, and homelessness, among others, supports the benefit 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 immediately visible. The cumulative effect on the lifespan 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 are currently highly unbalanced in favor of late interventions or “downstream” responses.

Some would blame this philosophy of late intervention on short-term political cycles. But there is also a structural financial barrier that limits our ability to spend in the most efficient way.

When a government builds a bridge or a hospital, it is recognized that the benefits of this investment are spread over decades, so the costs can be spread over that same extended period. This depreciation is an essential financial tool allowing us to build costly infrastructures now while benefiting from their long-term use.

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However, when it comes to social investments, such an option is not available. All costs of a social program are incurred in the year they are incurred. The return on this investment could be much greater, but the start-up cost is prohibitive.

Being able to spread the cost of these 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. This would act on the social determinants of our health and well-being now, rather than at a promising time in the future that may never come. Yet current public accounting rules do not allow governments to spread their upstream investments over time, even though they clearly save government money and improve the lives of Canadians.

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


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