Controlling government-sector salaries key to Kenney’s deficit-reduction plans

It’s almost budget season in Canada and the Kenney government is working on its next provincial budget. Alberta, once Canada’s poster boy for fiscal strength, has run budget deficits in 10 of the past 11 years. This year, the Kenney government forecasts an $8.7 billion operating deficit.

So make it 11 deficits in 12 years.

Largely as a result of these deficits, Alberta’s net debt (a measure that adjusts for financial assets) has climbed from zero in 2015/16 to a projected $37 billion this year. For context, that’s $8,379 per Albertan and rising.

The Kenney government has promised to eliminate the deficit and significantly slow the pace of debt accumulation in Alberta over the next four years. The government’s deficit-elimination plan relies on a small decrease in nominal spending over the course of its mandate.

But it’s one thing to promise a nominal spending reduction, and quite another to implement one.

The Kenney governments ability to keep its promise and eliminate the deficit on schedule will hinge largely on its ability to control the compensation of government employees, as government salaries and benefits are a major expenditure for all governments in Canada.

A recent Fraser Institute study suggests there’s room for savings in this area. In this study, my colleagues measured the wage differential between similar government-sector and private-sector workers using a statistical technique called “multivariate regression.” This approach, essentially, allowed the researchers to compare workers in the two sectors of the economy who were similar in age, education, industry and fulltime/part-time status—essentially, an “apples to apples” comparison between workers in the government sector and private sector.

The result? Government-sector workers enjoy a wage premium of 9.3 per cent compared to similar workers in the private sector.

And of course, wages are just one component of total compensation. Across other dimensions of compensation, government workers (on average) have an advantage over workers in Alberta’s private sector. Government workers retire 1.8 years earlier (on average), experience job-loss less frequently, and take more days off for personal reasons.

Obviously, it’s important for the government to be a good employer and competitive on compensation to attract and retain talented people to deliver high-quality government services. However, decisions about hiring and compensation levels also must be made with an eye on Alberta’s challenging fiscal situation.

Controlling the growth of Alberta’s debt burden isn’t just a matter of academic concern—more debt means more money must be spent on debt-interest payments. Consider that as recently as 2008/09, government debt-interest costs per Albertan were just $58. That figure is projected to climb to $655 per person by 2020/21. All that money spent on interest will, unfortunately, not be available for other priorities such as health care, education and tax relief for Albertans.

Government compensation represents a substantial share of all provincial government expenditures. In its next budget, the Kenney government should remember that gradually reducing the government-sector wage gap (again, a substantial 9.3 per cent) is one important way it can help keep its promise of slowing the accumulation of debt (and accompanying interest costs), which will be borne by Albertans today and in the future.