Wage Restraint, Alberta and Saskatchewan Set the Trend

Commentary, Economy, Lee Harding

The 1990s were a great time in Canadian political history. They marked a course correction after many years of higher taxes, increased spending, and never-ending deficits. Premiers Ralph Klein in Alberta, Roy Romanow in Saskatchewan, and Mike Harris in Ontario changed all of that, and Ottawa followed. In recent months, those provinces have stemmed the growth of public wages. Taxpayers elsewhere can only hope that they are establishing a new trend.

Public sector workers have it better than their private sector counterparts when it comes to job security, wages, benefits, and pensions. This is especially true for federal employees, but provincial ones aren’t far behind. A 2015 study by the Canadian Federation of Independent Business showed that provincial employees earned 5.5 percent more than private sector counterparts doing the same job. This gap rose to 21.2 percent if benefits and pensions were included. The disparity has only grown in the years since—until recently.

Last spring, the Ontario government announced its intentions to limit public sector wage increases to one percent annually; and for good reason. If any province needed to curb its spending, it’s Ontario. Its debt is projected to reach $325.9 billion at the end of the fiscal year, with a debt-to-GDP ratio at 40 percent. The province pays its civil servants $72 billion, which is nearly half of the $149 billion spent on programs. 

Ontario reigns as the most indebted state or province in the entire world and it is impossible to rectify this without restraining public wages. Other provinces have reached the same conclusion.

In Saskatchewan, workers at seven provincial Crown corporations went on strike. After 17 days, negotiators reached a tentative deal. Wages would be frozen for two years, then rise one percent in the third year, and two percent in each of the fourth and fifth years. This was precisely what the province had offered Unifor, prior to the strike, making the provincial government (and taxpayers) the clear winners. 

Saskatchewan is still on track for its first balanced budget since 2014-15. Alberta is not so lucky. The MacKinnon Report, released in September, noted the province was on track for $102 billion of debt by 2023 unless changes were made.

Fortunately, for Albertans, the necessary changes have already begun. The province wants wage rollbacks of 2 to 5 percent for its 180,000 public sector workers. Binding arbitration with unions is already underway. Alberta’s Premier has the moral authority to ask for these reductions, having cut his own salary by 10 percent, and that of other MLAs by 5 percent. The civil service will also shrink by nearly 1,600 jobs over the next four years, mostly due to attrition. During that span, Alberta will accumulate $22 billion in more public debt nevertheless.

Sometime in the 2020s the deficits are expected to end. Alberta expects a $600 million surplus in 2023. Ontario expects to follow one year later.

Farther horizons still look ominous. As the boomer generation retires, health care expenses and pension payouts will dramatically increase, leaving those left in their working years bearing a heavier burden than before. The 2012 Provincial Solvency study by the MacDonald-Laurier Institute found that Ontario had a 42 percent chance of defaulting on its debt obligations by 2031 and a 79 percent likelihood of defaulting by 2041. The authors named Quebec and Saskatchewan as the only provinces more likely than not to avoid the same fate.

As it was in the 1990s, the example shown by Alberta, Saskatchewan, and Ontario could set trends for the rest of the country. Wage restraint is a tough pill to swallow for public sector unions. Even so, it is necessary medicine to ensure the fiscal health of all Canadians—civil servants included.