Budget Preview
Posted April 3, 2012
As we await the 2012 Nova Scotia budget we have the recent efforts by Ontario and the Federal Government to consider. Each provides some lessons.
For the past ten years Ontario has had the worst financial management in the country. The McGuinty government has until recently shown no interest in balancing the books. But after the last election they commissioned a report by Don Drummond on how to get back to balance. Almost all of Drummond’s well considered recommendations were ignored in the subsequent budget which was full of rosy assumptions and short on details. The one clearly evident direction was a hard freeze on civil servant compensation and a commitment to cap the cost of public sector pensions. In particular this otherwise weak-kneed government has said that it will insist, by legislation if necessary, that public sector employees share equally in the cost of their pensions.
The federal government’s effort has earned better reviews. Rather than vague references to hiring freezes it has specified for each department the cost savings that are to be achieved and provided a sensible period over which to achieve them. A reduction of 19,000 public sector positions will be effected over three years
It forecasts a less onerous approach to civil servant compensation than Ontario, but has a far more credible track record in sticking to its plan.
Where the two are well aligned is on pensions. The federal government also says that both elected representatives and civil servants will be asked to pay fully 50% of the cost of the benefits and has raised the retirement age to 65 for future hires.
So where should we pay particular attention when Minister Steele presents his budget on Tuesday?
(1) Previous budgets have called for reductions of 1,000 civil service positions, to be achieved entirely by attrition and retirements. This hardly ever works unless government specifies which departments are to experience the decrease. A comparison of current numbers to last year’s will be instructive.
(2) Government has called for 3% reductions in funding for district health authorities but has not dealt with the fact that there are too many of them. Reducing the number of DHA’s , and outsourcing functions not related to health care such as cafeteria and laundry, represents the best way to realize savings in health care costs while minimizing the impact on patient care. Will government step up to the plate?
(3) The current government has made some enormous investments in economic development, most recently $300 million in grants and forgivable loans for Irving. The history is not good: $4.5 million wasted on Scanwood, $60 million for DSME where a small workforce is doing maintenance while they wait for orders to show up, tens of $millions for Bowater and Newpage with no indication that they will succeed.
We should all be enthusiastic about the ships project. But unlike the government, the Irvings know a thing or two about negotiating deals. Was Halifax’s proposal so weak that we had to offer $250 million more in subsidies than Vancouver ? One has to wonder how well government has served us on this one. A much more disciplined process is needed.
(4) Most importantly, the cost of public sector pensions has to be brought under control. Both MLA’s and public sector workers, including teachers, must be required to pay fully 50% of the cost of benefits. Where necessary the benefits must be amended to make this happen. To quote from the Ontario budget:
“We do not think it is fair to ask a single mother who earns $14 an hour and who has no pension plan, to pay even more of her hard-earned tax dollars into the pension funds of others.
We want to work with our broader public-sector partners to limit taxpayer exposure when a pension fund is in deficit …
By reducing future benefits, rather than asking taxpayers to contribute even more.”
The Dexter government has shown considerable mettle in its commitment to balancing the books. Health care and university funding have been cut. Schools are being closed. To get to the finish line without further damaging public services the government has to deal with public sector staffing and pension costs.
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