New Brunswick’s Fiscal Challenges and the Argument for Public Sector Restraint

New Brunswick Premier Brian Gallant announced recently that he is voluntarily reducing his pay by 15 per cent and members of his cabinet will endure a 10 per cent reduction in their wages. He also officially opposed any recommendations to increase the pay of elected officials.

Gallant’s promise is a good sign for the province, which is in desperate need of leadership, particularly in light of the economic issues facing the region. Despite the provincial government’s willingness to examine the salaries of its highest ranking employees, Danny Legere, who is the President of the New Brunswick Canadian Union of Public Employees, says he and his members will not consider wage reductions. Furthermore, he warned that the provincial government “will get the strongest possible resistance if they try to roll back wages in the public sector.”

In New Brunswick, wherein economic and political problems have plagued the province for quite some time, average public sector compensation increased 20 per cent between 2009 and 2013 (as per Statistics Canada), while inflation averaged roughly 8 per cent during that same period. In comparison, average private sector compensation rose 9 per cent between 2009 and 2013. Yet, the labour movement refuses to accept its role in public finance issues in Canada. Data available in the CANSIM Table 383-0030 shows that public sector spending in New Brunswick averages roughly $4.5 to 4.7 billion annually. Additionally, sub-national government sector employees comprise nearly 19 per cent of New Brunswick’s labour market. One thing is clear, therefore, which is that the federal government and its provincial counterparts are not spending less on the public sector. In fact, public sector salaries constitute the largest expense for every government in Canada.

There must be some consensus among New Brunswick’s elected officials if the province is to emerge from its economic woes. Moreover, the provincial government and the province’s labour representatives must cooperate if both parties wish to stimulate the provincial economy. It might be true that some members of the Canadian Union of Public Employees cannot make ends meet, as Legere claims, and although that is unfortunate, they are ultimately beholden to the provincial government, and more importantly, the province’s taxpayers.

Rationalizing the public sector is another option available to governments in Canada that wish to reduce their expenditures and align them with current economic realities. Although this process may entail eliminating public sector positions that are redundant and unnecessary, reducing public sector employment rates through attrition is a more palatable alternative. Since 2010, attrition has resulted in 10,000 less public sector positions annually and, in a growing economy, prospective employees should be able to identify other opportunities in the private sector. (In economics, the “crowding out” effect explains how reducing the public sector, or government involvement in the market, can create new job opportunities in the private sector.) Importantly, however, as argued frequently by former Nova Scotia Finance Minister Graham Steele, attrition is an imperfect solution because some departments will have much larger outflows of retirees and simply eliminating those positions would be incongruous with departmental demands. In any case, although this solution is less than ideal, it is a step in the right direction.

Aligning benefits, wages, and pensions with the private sector is another positive step forward. In New Brunswick, on average, federal, provincial, and municipal employees earn 43, 25, and 34 per cent more than their private sector equivalents when calculating both wages and benefits. The Canadian Federation of Independent Businesses has also calculated that New Brunswick defined benefit plans have unfunded liabilities of roughly $500 million. Lastly, the average retirement age for public sector workers is 60, whereas in the private sector it is 63, and for the self-employed it is 66–and the government actually provides early-retirement incentives.

Recent developments in New Brunswick pertaining to public finances are positive. Premier Gallant is positioning himself to reduce government expenditures and place the province on a sturdy foundation from which to grow the economy. Although he will still receive nearly $152,000 annually, down 15 per cent from $164,000, his gesture demonstrates a serious willingness to consider deep reforms for the sake of New Brunswick’s future.

Corey Schruder is an AIMS on Campus Student Fellow who is pursuing an undergraduate degree in history at Cape Breton University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies

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