This budget like those which have gone before talks a good game about reducing the size of the civil service. However, the real intent of staff reductions is to reduce the size of the payroll. That factor could be addressed much more directly using the following methodology: a recent study stated that civil servants are paid 12% more than equivalent workers in the private sector. A government which is serious about getting the size of the payroll down would be to implement an immediate 12% reduction of all civil service wages. This might also have the additional effect of causing some people to decide to leave the civil service. Both would create the cost savings which the government is claiming to want.
In the matter of topping up pension plans, I believe much of this problem is caused by the underlying assumptions made when the plan was set up. Usually, there is an assumption that pension funds will earn 6% over the long term. Since a 6% return has not been possible for several years, topping up exercises have been implemented to keep the plan on track. Perhaps it is time to revisit the underlying assumptions for the plan. To refrain from doing this means that the government is simply making up the shortfall on rates of return – something which is outside of the government’s ability to control. The pension plans should be amended to make the assumptions reflect what seems to be the new reality.
To fail to make this adjustment means that taxpayers fund fat pensions out of general revenues. Since most private sector taxpayers do not have a pension plan or only have one which reflects current market conditions, the civil servants end up with a pension which is far richer than the general public. Civil servants should not be first class citizens while the taxpayer drifts into second class status.
Back to Balance – smart politically, not so smart economically.
The “back to balance’ budget seems to have achieved its purpose. Yes, it is based on some shuffling of expenses between fiscal years, some rather blurry tax increases and a rosy picture of our economic future. That’s forgivable and expected in politics. So it’s smart politically – but is it a smart budget for Nova Scotia?
The answer is no. That’s because, in the interest of having accounting income ahead of expenses it has passed up the opportunity of a lifetime – the opportunity to take advantage of the lowest real long
term government borrowing costs we are ever likely to see. How low? The real interest on Government of Canada bonds is negative in the medium term and below 1% in the long term.
So what is needed is a second budget – an infrastructure modernisation fund that is self financing. This fund would pay for strategic long term fixed investment in five areas:
1) fibre optic connection to all properties served by utility poles;
2) twinning 100 series highways;
3) filling in the gaps in the natural gas supply network;
4) upgrading the power transmission network;
5) water and sewer upgrades.
Why these five? All but highway twinning are automatically self financing through user fees so they deliver two benefits to consumers – lower cost and faster implementation. Moreover the low cost
financing can flow through existing operating organisations without being captured by them. In a limited way this is already happening in power and natural gas delivery through government financing guarantees and capital assistance.
Highway twinning poses a dilemma. It is necessary to meet modern safety standards but cannot be financed by direct tolls for political reasons. The answer is a highway fund with a payback schedule.
This budget like those which have gone before talks a good game about reducing the size of the civil service. However, the real intent of staff reductions is to reduce the size of the payroll. That factor could be addressed much more directly using the following methodology: a recent study stated that civil servants are paid 12% more than equivalent workers in the private sector. A government which is serious about getting the size of the payroll down would be to implement an immediate 12% reduction of all civil service wages. This might also have the additional effect of causing some people to decide to leave the civil service. Both would create the cost savings which the government is claiming to want.
In the matter of topping up pension plans, I believe much of this problem is caused by the underlying assumptions made when the plan was set up. Usually, there is an assumption that pension funds will earn 6% over the long term. Since a 6% return has not been possible for several years, topping up exercises have been implemented to keep the plan on track. Perhaps it is time to revisit the underlying assumptions for the plan. To refrain from doing this means that the government is simply making up the shortfall on rates of return – something which is outside of the government’s ability to control. The pension plans should be amended to make the assumptions reflect what seems to be the new reality.
To fail to make this adjustment means that taxpayers fund fat pensions out of general revenues. Since most private sector taxpayers do not have a pension plan or only have one which reflects current market conditions, the civil servants end up with a pension which is far richer than the general public. Civil servants should not be first class citizens while the taxpayer drifts into second class status.
Jon Coates | April 10, 2013 |
Back to Balance – smart politically, not so smart economically.
The “back to balance’ budget seems to have achieved its purpose. Yes, it is based on some shuffling of expenses between fiscal years, some rather blurry tax increases and a rosy picture of our economic future. That’s forgivable and expected in politics. So it’s smart politically – but is it a smart budget for Nova Scotia?
The answer is no. That’s because, in the interest of having accounting income ahead of expenses it has passed up the opportunity of a lifetime – the opportunity to take advantage of the lowest real long
term government borrowing costs we are ever likely to see. How low? The real interest on Government of Canada bonds is negative in the medium term and below 1% in the long term.
So what is needed is a second budget – an infrastructure modernisation fund that is self financing. This fund would pay for strategic long term fixed investment in five areas:
1) fibre optic connection to all properties served by utility poles;
2) twinning 100 series highways;
3) filling in the gaps in the natural gas supply network;
4) upgrading the power transmission network;
5) water and sewer upgrades.
Why these five? All but highway twinning are automatically self financing through user fees so they deliver two benefits to consumers – lower cost and faster implementation. Moreover the low cost
financing can flow through existing operating organisations without being captured by them. In a limited way this is already happening in power and natural gas delivery through government financing guarantees and capital assistance.
Highway twinning poses a dilemma. It is necessary to meet modern safety standards but cannot be financed by direct tolls for political reasons. The answer is a highway fund with a payback schedule.
Michael Poulton | April 8, 2013 |