An Eye on the Taxpayer, Part V: A Long, Cold Winter

February 13, 2015 | André R. Nowakowski

The challenge of public finances and fiscal restraint has not gone away since the last check in on this blog in August.  A new, rapidly developing twist is, of course, the rapid decline in the price of oil.  Naturally, this has had the most immediate impact in Alberta.  As January came to a close, Premier Jim Prentice announced that the Alberta cabinet would have their salaries rolled back by 5%.  It does not look like his Government will stop there as the Premier mused about others having to play their part in fiscal restraint – possibly all members of the Alberta legislature and perhaps public sector workers.  There would most certainly be resistance from the public sector unions.  Some have already raised the alarm bells, with the teachers in Alberta noting that they have already done their fair share with a three year wage freeze effective in 2012.  This week, the Premier, facing a potential $7 billion budget shortfall (and more deficits projected), announced a 9 percent cut in programmes.  Does that inevitably mean reductions in compensation and/or employees in the public and broader public sectors?

The Federal Government is also not immune to the impact of oil’s dramatic drop over the last several months.  The impact will mean that it will be much more difficult for the federal budget to be balanced this fiscal year.  The Parliamentary Budget Officer has noted the difficulty, although appears to hold out hope that the budget could still be balanced.  Nonetheless, it presents a challenge for the Federal Government to look for savings – whether in public sector salaries or elsewhere.

Moving away from the oil patch, manufacturing in Ontario (and other provinces) could be a beneficiary of the oil decline.  However, challenges are still pervasive and Ontario continues to grapple with various pressures on the public purse.  As part of its offensive on this front, the Public Sector Accountability and MPP Accountability and Transparency Act, 2014 received Royal Assent in December (for more detail, see our communiqué).  Among other things, it included the Broader Public Sector Executive Compensation Act which empowers the Government to impose compensation frameworks for designated executives of certain public sector employers such as hospitals, school boards, and universities.  The Government, in other words, will be able to set the market for executive compensation in the broader public sector by imposing maximum limits on compensation (anyone with higher compensation will be grandfathered for a maximum of three years before the compensation framework would apply).  This is still a watching brief to see how the Government will implement this legislation.  Given that the Government is now projecting to be behind its budget forecast, it is clear that the road from the current $12.5 billion budget deficit to the goal of a balanced budget by 2016-17 is one that is long, to say the least.  This of course makes it more likely that the Government will use tools such as compensation frameworks to chip away at the deficit.

The fiscal challenge for governments, and taxpayers, is not an easy one.  In provinces like Ontario, other than targeting unionized employees in the broader public sector (not an easy task in any event on many levels), what else can a government do with wage restraint that has not already been tried and that can make a meaningful difference to a budget crunch?  At what point does wage restraint negatively affect the delivery of public services?  And is that a trade off that taxpayers are willing to make?

Regardless of which groundhog you believed last week (Wiarton Willie vs. Shubenacadie Sam and Punxsutawney Phil), it is clear that the winter, and seasons to come, will be long for governments and taxpayers in Canada.


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