THE BLOG
04/08/2014 12:36 EDT | Updated 06/08/2014 05:59 EDT

Blame Government Employee Unions For Unreformed Government Spending

Most government sector employees do a fine job and are a critical part of a civilized society. But pension liabilities are ultimately paid for by taxpayers, either through special payments or increased contribution rates. The sheer size of the government sector means it is in everyone's interest to ensure compensation is fair and affordable for all.

If Canadians ever wonder why it is so difficult to reform government spending, there's a simple reason: government employee unions.

A good example (if one can call it that) is the issue of growing government sector pension costs and the outright resistance from the unions to address the problem.

Some specifics. In January, Newfoundland and Labrador's auditor general Terry Paddon noted how unfunded employee pension benefits make up more than 60 per cent of that province's net debt and amounted to a $5.6 billion liability.

As the auditor general also noted, that $5.6 billion unfunded pension liability exists despite a $2 billion payment put towards the Teachers' Pension Plan in 2005/06 and a further $1.6 billion in taxpayer bailouts since 2006. "The total unfunded liability is now greater than it was at March 31, 2005, despite in excess of $3.6 billion in special payments over that period," wrote Paddon in his report on Newfoundland and Labrador's finances.

On the other side of the country, Alberta's public sector pension liabilities are also substantial. The most recent budget pegged just the provincial government's share of pension liabilities --repeat, just the government's share -- at $10.7 billion in 2014. That high number persists even though Alberta's taxpayers paid ever-higher contribution rates and also made special contributions into these pension plans over the past decade.

The government union responses to these pension problems have ranged from denial and diversion to attacks on the messenger. They have also supplied "average" pension payout numbers that are disingenuous.

Denial comes in the form of producing union-funded studies on pensions that claim that no problem exists. (This is akin to the Black Knight in the movie, Monty Python and the Holy Grail, who loses his arms but keeps insisting he's fine.)

But governments and government unions are often unrealistically optimistic, as actuary Malcolm Hamilton noted in a recent C.D. Howe report. The result: when governments and "optimistic" government unions get it wrong, those who do not work for government (most of us), pay for the contribution increases and/or bailouts necessary to make pension guarantees whole.

Diversion is evident when government unions attack politicians for their pensions. That is fair game in some cases, although some political pensions have been reformed. But in reality, the pension totals for a few thousand federal and provincial politicians pale in comparison to the total compensation costs for 3.6 million government workers across Canada.

Then there are the "averages" that unions promote in public debate. For example, Elisabeth Ballermann, president of the Health Sciences Association of Alberta, has said the average government sector pension is just $1,200 (or $14,400 annually). But that average statistic contains all the short-term employees that have ever worked for a government sector organization and were briefly part of a government employee pension plan. That is why it is more useful to look a real example of projected pension payouts.

For example, in Newfoundland and Labrador, the provincial government has a calculator that estimates annual pensions. For a government employee who worked 35 years and whose average annual salary (calculated from the highest five years) was $60,000, the annual pension is estimated at $42,000.

Thus, any suggestion that an "average" pension is indicative of what a long-serving government employee will receive is misleading.

Lastly, sometimes government employee unions often spread the fib that pension reform means a dramatic attack on retirement provisions or even the abolishment of pensions one day.

Rubbish. Saskatchewan's NDP government moved the entire public sector to defined contribution pension plans in 1977. Government employees still receive a pension. It is based on contributions plus investment returns. Such plans are fair both for employees and taxpayers at large. In some instances, where investment returns on defined contribution plans exceed expectations, such returns may even trump the defined benefit plan payouts. That was a point the Saskatchewan NDP minister who introduced that province's 1970s-era reforms noted.

Most government sector employees do a fine job and are a critical part of a civilized society. But pension liabilities are ultimately paid for by taxpayers, either through special payments or increased contribution rates. The sheer size of the government sector means it is in everyone's interest to ensure compensation is fair and affordable for all.

Advocates for the status quo on government pensions are not exactly helping achieve that goal. Worse, the misleading rhetoric from government union leaders to union members is part of the problem.

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