The assets are mismeasured and mismanaged, although it is held by governments. Citizens—the ultimate owners of those assets—should demand better. If “public wealth” was properly measured, managed, and better understood, society as an entire would benefit. But, to assist build robust public finances, this needs professional accountants and modern accounting within the public sector.
If the globe wants growth, it needs bookkeeping and accountants within the public sector.
The global exchange is worth about US $78 trillion, which is roughly similar to the scale of the world economy—or global GDP. By armies of analysts, brokers, investors, regulators, tax authorities, and media, this wealth segment is scrutinized at every moment. Using modern accounting standards refined over the last 800 years, much of the knowledge that’s analyzed is predicated on audited accounts. What has not only enabled capital market development but also the wealth that we all enjoy today, is the event of those accounting standards.
Although the worth of public assets is twice that of world stock markets, or 2x global GDP, in step with estimates from the International fund, it remains unaudited, unsupervised, and unregulated. Even worse, it’s almost entirely unaccounted for. When developing their budgets, most governments largely ignore these assets and, the worth that might be generated from them.
The question, within the best interests of citizens, is are public assets getting used and managed? Sadly, the solution is perhaps not. Better accounting might not guarantee that assets are going to be better managed. But knowing what assets you have got and what they’re worth is a prerequisite for professional management, and increases the percentages for a return back to society—instead of raising taxes.
In fact, what could, across advanced economies, generate annually more revenues than governments receive in corporate tax collections, is the professional management of public assets. This might also multiply the funds available for infrastructure investments or the UN’s Sustainable Development Goals.
Including the value of pension promises made to public sector workers, politicians consistently underestimate, or completely ignore, the worth of public assets and liabilities. Although this is often clearly a recipe for poor governance, if not outright corruption, it’s only rarely heard in political debate. The most reason may well be that this is often about accounting—a topic of limited interest to several politicians.
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Furthermore, only 8% of all professional accountants are within the public sector, in line with IFAC, the worldwide organization for the accountancy profession. Directly reflected within the poor quality of knowledge employed by governments in their financial management is the relative dearth of public sector accountants. Flying blind into a storm is what managing financial performance and position without sound information is like. And, the realm where financial information is weakest is asset management.
This doesn’t benefit anyone, since poor or risky accounting practices can shake, and ultimately bring down entire societies. Proper accounting is important for the general public sector—and by proper accounting we mean the kind of accounting that has been utilized in the company sector for hundreds of years.
The reality is that the majority of governments are stuck within the Middle Ages when it involves accounting. Economists whose perspective on the management of public finances is restricted to simple measures of money flows and debt, they need for too long been influenced by. This is often like trying to manage a contemporary corporation using only the knowledge available from the cash transactions recorded within the bank statements. Company accounting requires more complex information than this. This can be equally true of governments.
The proper tool is accrual accounting for managing the financial affairs of a contemporary, highly complex government. A contemporary government needs a distinct mindset, a mindset that will recognize that managing public assets can generate revenues to get hold of public services, fund infrastructure investments, and boost the economy—without raising taxes. This implies shifting the main focus to net worth rather than a spotlight on cash and debt alone, just like in the private sector.
So far, using it as a tool for its budgeting, appropriations, and financial reporting, only New Zealand has introduced modern accounting and integrated its record with the budget. Since the general public sector reforms within the mid-1980s, where most comparable governments like Australia and Canada, or larger countries like the united kingdom and US, have a negative net worth, New Zealand has achieved and maintained significantly positive net worth.
We depend on engineers using modern technology to style and build robust bridges. To create robust public finances, we’d like accountants to use modern accounting systems.
This will reduce the burden on future generations and benefit societies today.