Budget Balancing Act
Posted August 19, 2016
With the notable exceptions of oil-dependent Alberta and Newfoundland and Labrador, the provinces have been moving to balance their books.
Each of the other eight is moving toward fiscal balance. Some are faster than others—BC is already there, and Nova Scotia has good prospects to be there next year. The rest are proceeding more slowly.
We have no reason to be complacent. The provincial government spends $10,000 per person each year on services, much more than Ontario and Quebec. The provincial debt per person is just over $16,000.
Our aging population will be increasingly challenged to meet these costs. The combined federal and provincial income tax rate tops out at 54%, which not a level that will attract and retain entrepreneurs and head offices.
The recently released Nova Scotia public accounts show an improving picture, with a small deficit of $10.7 million for the year that ended in March—much better than the budget or the most recent forecast. A principal driver of these results is restraint on public sector wages, a battle that is not yet won.
The government position is that pay rates should remain unchanged for two years, and rise no more than 3% over the four years that began on April 1st, 2015.
The former NDP government gave public sector employees an increase of 7.5% over three years starting on April 1st, 2012. This was about 3% more than inflation over that period, and 2% greater than the average increase received by private sector workers.
The government’s proposal would likely bring pay increases over the seven year period more or less back in balance.
An extra 1% of public sector salary costs would add more than $50 million to the bill taxpayers have to pay each year. Adding 1% in each of the next four years would cost more than $200 million annually, eliminating any chance of achieving fiscal balance. The government’s direction is necessary if they are to balance the books.
The government also proposes to stop further accruals of retirement allowances. This type of allowance, which provides up to 26 weeks of salary at retirement in addition to a defined benefit pension plan, is virtually unknown in the private sector.
Making these changes actually happen is tricky. The government passed the Public Services Sustainability (2015) Act in December, but has not yet taken the final step to bring it into force.
That will only occur if collective bargaining with one or more of the unions cannot achieve an agreement within the government’s parameters.
Premier McNeil says the bill will be proclaimed the moment a union calls for arbitration, saying “No arbitrator is going to get an opportunity to determine the ability of this government and this province to pay our way.”
The act attempts to limit what compensation agreements can be reached by any public sector employer, whether by negotiation or arbitration. The province has had painful experiences with arbitrators—most recently with James Dorsey, who was commissioned to implement legislation to unify health care unions.
Mr. Dorsey, who was ultimately dismissed, showed little interest in adhering to the legislation under which he was appointed. Left to his own devices, he would have made a career out of an assignment that was supposed to last three months.
This time the party to review any compensation arrangements is a Board, to be appointed by the government.
The Board is explicitly instructed that it does not have jurisdiction to make determinations on constitutional issues. Its job is to determine whether compensation plans, reached through negotiation or arbitration, fit within the government’s formula. If not, the plan is rejected and pay levels remain frozen.
This all sounds straightforward—but whether things will happen as anticipated will depend a great deal on the underlying disposition of the Board.
The Act has more than 4,600 words. If the Board’s members really dislike what the words are trying to accomplish, the government may find itself surprised by some unexpected interpretations, or by the Board adding considerations not contemplated by the Act.
If so, we may see another abject retreat as happened with the unsuccessful effort to unify the health care unions.
The government has given no indication of who it has in mind for the Board. It should be very prudent in making its choices.
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