Trudeau government must rein in compensation for government workers
Specifically, the government plans to boost these wages by 6.6 per cent over a three-year period. Two weeks earlier, the government also raised wages (by the same percentage) for another 84,000 government workers, while various forms of paid leave were also increased. And these pay hikes may not capture the full cost of increasing government compensation, as they are likely to set a new precedent for future raises for other federal government workers.
Indeed, government workers in Canada already enjoy a substantial wage and benefit premium compared to comparable workers in the private sector.
According to a recent Fraser Institute study, government workers in Canada at all levels (federal, provincial and local) receive 9.4 per cent more, on average, in wages than Canadians employed in the private sector (in 2018, the latest year of comparable data). The analysis controls for factors such as age, gender, education, industry and type of work.
Now, as many private-sector workers take pay cuts to retain their jobs during the COVID pandemic, many government workers are receiving pay raises, further widening the gap between the two sectors.
The study also found that government workers not only enjoy higher wages than their private-sector counterparts, but they also enjoy greater job security, earlier retirement and more generous pensions. And while many private-sector workers worry about their employment future in light of COVID-19, government workers are six times less likely to lose their jobs and nine times more likely to have a guaranteed pension.
From a fiscal perspective, with these pay hikes for government workers, the Trudeau government is moving in the wrong direction. Since salaries and benefits of government workers represent a substantial portion of its expenditures, and those salaries and benefits are clearly out of line with the private sector, the government should be getting spending under control to begin moving towards balance budgets.
Indeed, the Trudeau government could save a significant amount of money by bringing the compensation of civil servants more in line with the private sector—without reducing the quality of services for Canadians. Not only does this option save money, but it’s also the fairest solution for taxpayers who foot the bill.
In addition to the massive federal budget deficit, annual government program spending will reach $592.6 billion this year and the federal debt is expected to exceed $1.0 trillion. The federal debt-to-GDP ratio (a common measure of the government’s ability to pay its debt) is also projected to climb from 31.1 per cent to 49.1 per cent in 2020, and will likely grow further in the future. This growing government debt could have a negative effect on economic growth, the interest payments will divert money away from important public priorities, and potentially lead to tax increases.
As the health of federal finances deteriorates, it’s critically important that the federal government demonstrates strong fiscal prudence. By bringing government compensation more in line with the private sector, the Trudeau government can help control spending, ensure fairness between government and private-sector workers, and begin moving towards balanced budgets.