Two-thirds of Canadians think members of Parliament should voluntarily reduce their pay, according to a recent poll. MPs should share the struggles of the people they lead. More importantly, doing so would give politicians credibility for the job they need to do next: reduce the overall cost of government employees.
In Ontario, government employee compensation is the single largest area of operating expenditure annually, representing roughly half of all budgetary spending at $72 billion last year.
Fortunately, there is room for savings. A 2019 study from the Fraser Institute found that Ontario government workers earned 10.3 per cent more than their comparable non-government counterparts. But proof of this wage premium is nothing new; studies dating back to the 1970s from various sources, including the University of Toronto, corroborate the conclusion.
While employment statistics have drastically changed since the coronavirus lockdown began in March, it’s already clear that government employees have fared much better than those working outside the world of government.
The province shed 403,000 jobs in March alone, and nearly 90 per cent of those job losses were in the non-government or self-employed categories. More than one million jobs have been lost in Ontario since February. Aside from concerns for fairness, this should raise questions about sustainability.
In 2018, the Ontario government employed approximately 1.3 million people, while overall employment in the province was around 7.2 million. That means that roughly one out of every five employees in Ontario was employed by the provincial government.
It’s the jobs outside of government that help pay for government jobs and programs. Personal income tax, sales tax, and corporate tax are the Ontario government’s three biggest sources of tax revenue. While it’s true government employees pay two of these taxes, many wouldn’t have a paycheque in the first place if it weren’t for those working outside of government.
It’s like the story of the goose that laid golden eggs: don’t kill the source of prosperity in pursuit of more.
Our health-care system could be considered one such golden egg. Ontarians owe a debt of gratitude to those in frontline health care that worked tirelessly in the fight against COVID-19, and to all government employees who deliver vital public services and keep us safe. We owe it to them to be responsible financial stewards so that the province can afford to provide them with the resources they need to perform their jobs safely and thoroughly.
But the more we spend on debt interest payments, the less we have left to spend on the vital public services upon which we rely. Next year, Ontario will spend 8.9 cents out of every dollar of revenue collected on interest payments on our debt. That’s a 12 per cent increase from last year.
The Ontario government is now projecting a $41 billion deficit this year, and the debt will surpass $400 billion. This will cost the province an additional $558 million in interest charges that could have gone toward a future medical mask stockpile or provided needed tax relief.
Reining in the high cost of government compensation will also require politicians to address the pension disparity. In Ontario, 83 per cent of government employees have a pension, compared to only 25 per cent for those outside of government. Perhaps more concerning, 95 per cent of government employee pensions in Ontario are defined benefit plans, meaning taxpayers are liable for any shortfalls.
Ontario should have addressed the government employee wage premium before the coronavirus economic downturn, but with a shriveled tax base struggling to prop up gargantuan governmental overhead, politicians must act now.
