THE BLOG

Government Budgets: About 4 Years Behind the Private Sector

11/25/2013 12:03 EST | Updated 01/23/2014 06:58 EST

The government sector in Alberta is unhappy and they want Premier Alison Redford and her colleagues to know it. Universities are advertising against provincial reductions in their funding; government unions are activating their members about proposed pension changes, reforms that would make them more akin to the private sector and less like a taxpayer-funded entitlement.

It is not clear why the government sector believes it must be immune from change. The case for reform is not difficult to make.

Here is one example: Canadians live much longer now then we once did and that necessitates a reform of government pensions promised when everyone lived shorter lives.

In the private sector, such demographic changes are why there has been a two-decade trend away from defined benefit plans. (Defined benefit plans guarantee a certain level of retirement income but that pledge can bankrupt companies.) There has been a distinct shift to defined contribution plans and other forms of retirement provision, where pensions can still be substantial, but where they are more securely based on contributions plus the return on investment.

But in the public sector, defined benefit plans live on. In 2011 in Alberta, 278,252 employees or 79 per cent of the public sector had defined benefit plans; in the private sector, only 148,572 employees, just above nine per cent of that sector, possessed a defined benefit plan.

And that's the real problem: taxpayers, most of whom do not have a defined benefit plan, end up paying for pension promises to government employees' unions. The bill for such promises is now a $10.8 billion liability, this according to Alberta Finance.

Despite such realities, one government union, the United Nurses of Alberta is opposed to pension changes proposed by Finance Minister Doug Horner. They are opposed even though nurses can now retire early at age 55 with full pension benefits.

On higher education, that sector has been advertising since last spring's provincial budget with the-sky-is-falling type claims about reductions in their funding, even though it is overdue to ponder which programs and departments are due for an expiry date.

The usual response to this is that nurses have tough jobs; that universities are a necessary part of a civilized society. Check and check. But that reality does not mean those who receive some or most of their funds and paycheques from taxpayers should forever be immune to reform. Most taxpayers, in the private sector, adjust to reality on a constant basis. It is only government, where regular tinkering is not done, where changes are often last-minute and thus even more disruptive for those involved.

The core problem is that governments (in general) only get around to spending differently, or less, long after the private sector already came to grips with changed circumstances.

For example, recall the 2008/2009 recession. Back then, as data from Statistics Canada shows, private sector employment in Alberta dropped by 57,000 between 2008 and 2009 while employment in the total government sector (federal, provincial and municipal) increased by 21,000. (In contrast to the hike in government employment, a 2010 analysis from the University of Alberta showed how the oil and gas sector alone lost 19,000 jobs in that recession.)

The global public and private sector figures are from one set of numbers from Statistics Canada which throws all public sector workers into the mix. Another set for just Alberta helps break down the areas with some connection to the provincial budget.

So consider employment in certain government sectors between June 2008 and June 2009, the period spanning the recession (which took place in the last quarter of 2008 and the first quarter of 2009).

During that recession year, provincial government employment rose by 1,549 people; health and social services employment increased by 2,921; higher education bumped up jobs by 650; local school board employment rose by 2,112; the only public sector entity where an employment decline occurred was in provincial Crown corporations, where 310 jobs were lost.

The numbers are useful to consider because in the context of later provincial decisions to restrain the growth of government (i.e., in 2013) and to pare back spending in some areas, the province is merely playing catch-up to what happened four years ago in the private sector, during the recession.

Governments do reform spending eventually, usually only after multiple deficit budgets. However, because they can access the pockets of taxpayers, or borrow almost without limit, (or in Alberta's case run down the Sustainability Fund), governments are often slow to enact necessary reforms.

When governments eventually awake to the notion that their spending habits need restructuring, they are only then dealing with the realities faced by the private sector and corrected years before.