Ontario’s minister of finance has his work cut out for him.
Peter Bethlenfalvy, who assumed the position in January, is taking on the role during tough economic times in Ontario. Businesses have closed and millions of jobs have been affected since lockdowns began last March. Meanwhile, provincial spending and debt are skyrocketing.
Bethlenfalvy will need to find savings where he can in order to get the province’s finances back on track.
Ontario’s bloated bureaucracy should be his first target.
The province employs more than 1.3 million people. When it comes to pandemic related job losses, nine out of 10 of those losses were suffered by someone without a government job, according to a June report from the province’s financial accountability office. Now there are fewer taxpayers covering the bill for these government employees.
That bill isn’t small. Compensation for Ontario’s government employees accounts for nearly half of all program spending annually – approximately $72 billion in 2019. Nobody knows this better than Bethlenfalvy, who has retained the responsibility of his role as president of Ontario’s Treasury Board Secretariat which oversees labour relations between the government and its employees.
The situation is stark. The province is broke. The bureaucracy is the single largest area of operational spending. Bethlenfalvy has no choice but to tackle bureaucratic bloat to get spending under control.
Fortunately, he can save the province billions by simply bringing government employee compensation back in line with reality. Ontario’s government employees earn a 10.3 per cent wage premium over people in similar jobs with similar education working outside of government, according to a 2019 study by the Fraser Institute. By that estimation, eliminating the wage premium alone could have saved the province nearly $7 billion in 2019.
Shockingly, nearly every single government employee in Ontario is eligible for a raise this year. That’s not a problem Bethlenfalvy inherited – it’s one he created himself.
Bethlenfalvy passed legislation in 2019 making nearly all of Ontario’s government employees eligible for a one per cent raise per year for three years. The legislation was called Protecting a Sustainable Public Sector for Future Generations Act. Each one per cent raise for government employees will cost taxpayers $720 million by the government’s own estimation.
But a lot has changed since 2019, and this government must react accordingly. At the very least, these raises should be cancelled immediately. It’s not business as usual.
The province’s already dire debt situation is worsening. Ontario’s deficit is projected to be $39 billion this year while the debt is approaching $400 billion, according to the provincial budget released in November.
Fortunately, Bethlenfalvy has the professional experience to understand the disastrous consequences of out-of-control provincial debt. He worked at Dominion Bond Rating Service (DBRS) in 2009 when the agency downgraded Ontario’s credit rating. At the time, DBRS expressed concern over Ontario’s debt-to-GDP ratio which reached 32 per cent at the end of that fiscal year. By comparison, it’s projected to hit 47 per cent by the end of this fiscal year, and 50 per cent by the end of 2022-23.
More expensive debt is the last thing Ontario needs. Even though interest rates are at historic lows, a one percentage point change in interest rates from the current forecast would increase the cost of interest on Ontario’s debt by $800 million in a single year, according to the province’s budget.
Bethlenfalvy deserves credit for reducing the size and cost of government in Ontario through hiring freezes and voluntary attrition programs. In an emailed to the Canadian Taxpayers Federation, his office said that the size of government has decreased by over 5,000 employees as a result of these programs, and that the Transition Exit Initiative and Voluntary Exit Program will save a further $215 million in 2021.
Now he must go further. If Bethlenfalvy really wants to protect public services for future generations, Ontario needs to rein in its spending. The greatest area of largesse is government employee compensation.