Jack Granatstein reveals some of the real data behind the mind-bogglingly big numbers of military contracts:
The first is something called the accrual system of accounting. In the past, Canadian governments bought a truck for $25,000 and charged that sum to a department's budget. The costs of gas, oil, and maintenance five, 10, and 20 years down the road were charged to future budgets. In accrual accounting, perhaps more reasonably, the costs of operating the truck 20 years into the future are charged to today's budget. That $25,000 truck now becomes a $125,000 charge on this year's budget funding.
This matters. Consider the four C-17s the Harper government has agreed to buy. Each of the huge transports costs about $250-million. The accrual cost, again in round numbers, is $4-billion. Many Canadians remain unaware of the change in accounting methodology, and government rules (or practice) do not appear to permit explanation. So a $1-billion purchase of necessary equipment appears to many as a $4-billion boondoggle. It's not, but it's a hard sell for all of us whose eyes glaze over at the mention of accountants' rules. The answer, of course, is to explain defence purchases (and purchases in every other government department, as well) by making it clear that the total lifetime package is included in the announced sum.
Part of the difficulty in grasping this is that most of us, in our private lives, do not do anything of the sort in our own household budgets . . . we think of the sticker price of your car as "the cost", ignoring the finance costs of a car loan, the regular maintenance, the insurance, the license stickers, and all the other sundry other costs of car ownership. If we did think in this way, we'd all be much more careful in how we spent our money!
The other part of the problem is that the information is presented in the media as if a line of Brinks trucks were taking money from all the "good" areas the government also funds and physically moving all those loonies in through the gates of CFB Boondoggle and handing them over to General Simon Legree.
Posted by Nicholas at February 27, 2007 11:41 AMPart of the difficulty in grasping this is that most of us, in our private lives, do not do anything of the sort in our own household budgets . . .Actually, I do tend to think this way. I see every utility bill as an opportunity cost against my budget for strippers.
... we think of the sticker price of your car as "the cost", ignoring the finance costs of a car loan, the regular maintenance, the insurance, the license stickers, and all the other sundry other costs of car ownership.Just for the hell of it, here's the estimated lifetime cost for my Toyota Echo. I am assuming that I'll keep it for 8 years and drive it for 300,000 km.
23000 Purchase Price + Financing 600 Tires at 120 K 600 Tires at 240 K 17340 Fuel: 300,000 km at 6.8 litres/100km at 0.85/litre 400 Brakes at 60 K 400 Brakes at 120 K 400 Brakes at 180 K 400 Brakes at 240 K 2500 Misc Maintenace 600 Licensing: 8 years at $75/year 8800 Insurance: 8 years at $1100/year 55040 Total 0.183466667 Total cost per kmYikes! A $14,000 car ends up costing $55! Are you any better off leasing for three years and driving the full 60,000 km mileage allowance?
10764 Lease: $299/month × 26 months 3300 Insurance: 3 years at $1100/year 3468 Fuel: 60,000 km at 6.8 litres/100km at 0.85/litre 225 Licensing: 3 years at $75/year 17757 Total 0.29595 Total cost per kmNope.
If we did think in this way, we'd all be much more careful in how we spent our money!I don't think it really matters all that much. We're pretty much screwed no matter what we do. Posted by: Jon at February 27, 2007 01:44 PM
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