To Slay the Deficit, Trim the Fat

Media Appearances, Public Sector, Frontier Centre

Civil servants are becoming Canada’s new working elite. They boast better pay, better pensions, greater benefits and shorter working hours than their private-sector counterparts. Two reports released this week by free-market think-tanks conclude that if politicians do not reverse this trend soon, Canada is headed for a crisis in government spending and public debt, as the cost of sustaining this workforce outstrips the ability of private-sector taxpayers to pay for it.

Winnipeg’s Frontier Centre for Public Policy revealed Wednesday that over the past decade, compensation — both pay and perks –for federal government workers has risen 59%. Among provincial employees, the increase has been 55%. The average increase in the private sector over the same period? Just 30%. Then, on Thursday, Vancouver’s Fraser Institute criticized the current government’s fiscal plan as unrealistic. Unless Ottawa follows the example of

then-Finance Minister Paul Martin, who in 1995 cut both spending and government employment, it will not meet its budget targets. It must shrink the size of government, its wages and its workforce.

Public sector union leaders quickly counterattacked. They claim that pay and personnel increases have simply made up for the cutbacks in the 1990s. They also believe public employees deserve their raises, because they face many of the same strains as private-sector workers, perhaps more. Both these notions are wrong. By 2004, the public-sector workforce had recovered from the cuts made between 1995 and 1998. A 2007 study by the federal Treasury Board showed that the federal government employed 195,000 people in 1999, not including members of the Armed Forces, Mounties, employees of armslength agencies, political staffers and Crown corporation workers. By 2004, that number had risen to 235,000. That’s an increase of 20%.And that one-fifth-larger civil service was costing taxpayers 50% more, because it included more administrators and professionals and fewer blue-collar workers than before the cuts.

At over $32 billion today, total civil service compensation eats up almost 15% of federal program spending — more than pensions, the military, the environment, crime fighting, prisons or national security. It is estimated that direct federal employment is at 295,000, or 50,000 more than the 245,000 employed before the 1990s layoffs.

And where public sector jobs once offered lower pay in exchange for better benefits, pensions, job security and more time off, now civil servants enjoy higher salaries, as well. The average compensation package for a federal bureaucrat tops $80,000, including wages and benefits. Meanwhile, the pay and perks of the average private-sector employee is under $60,000. According to a 2008 study by the Canadian Federation of Independent Business, gaps between provincial and municipal workers and their private-sector equivalents are almost as large. When benefits and time worked are included, provincial employees received 25% greater compensation and municipal workers, 36%.

Why do government wages keep going up? In the private sector, when demand for a company’s product falls, so do revenues. To stay in business, a company can cut costs, including remuneration or positions, and remain profitable. But government operates differently. If not enough money comes in, politicians simply tax or borrow more to make up the shortfall. So when state workers ask for more compensation, there are few limits on how much they can be paid.

Sure, voters might at some point object to higher taxes and greater debt to pay higher public-service wages and benefits, but the pressure they exert is not at all like private shareholders’ displeasure at a management cave-in to worker demands. And once one group or level of public servants gets a raise, the others promptly exert pressure on their political masters to match or beat it.

The only way to bring government workers down to earth — and on par with other employed Canadians–is for our politicians to say: Enough. They need to refuse further wage increases, conduct a thorough review of existing positions, and eliminate those which are not necessary. If Ottawa is serious about eliminating the federal deficit, there is no other course.