Grasping Alberta's budget problems

The new Alberta government has delayed introducing a budget until the fall, so MLAs will have plenty of time to think about how they’ll collect and spend Albertans’ money.

Thus, to properly manage the estimated $48.4 billion in provincial budget expenditures, it helps to become familiar with where the money is spent.

First, one should be clear about some laudable ends and the dynamics on how services are delivered. Universal access to education and health care are desirable—and we already have that in Canada- but that doesn’t mean governments should own and operate every school and every hospital.

In Canada, while provincial governments are not complete monopolists in those two areas, much of the delivery of such necessary services are captured by government unions, which have no interest in delivering services more efficiently. Here’s one fact to remember: In Canada, 70.6 per cent of health care money is spent by government and much of the government-related delivery is unionized.

That’s problematic as government monopolies (or near monopolies, in the case of government-provided education and health care), like those in the private sector with a corner on the market in some good or service, feature a lack of options. That allows one supplier to charge high prices and provide low quality services or goods while never innovating.

As for how the money is spent, in Alberta, as with many organizations, staffing costs are significant. In Alberta, almost 50 per cent of provincial expenditures went to government and public-sector compensation costs in 2014/15, or $24 billion.

Which brings up this question for Alberta’s new NDP government: Does it understand that the government sector enjoys a compensation premium relative to the private sector?

Here are the facts. In Alberta, government-sector workers and others in the broad public sector garner a 6.9 per cent wage premium over private-sector workers in similar jobs. That 6.9 per cent government sector premium accounts for education, length of time in the workforce, age, and other factors that would otherwise explain the higher government pay.

But that wage premium doesn’t account for these additional benefits: Almost 78 per cent of government-sector workers in Alberta have a registered pension plan. More than 97 per cent of those are in the gold-plated defined benefits plan.

In the private sector? Just under 22 per cent have registered pension plans with only about four in 10 of those receiving the guaranteed defined benefits variety.

The wage premium also doesn’t include how government- and public-sector workers in Alberta retire more than one year earlier than private-sector workers (and thus start their defined benefit pensions earlier).

The higher-than-private-sector wages, generous and early retirement pensions, and other benefits matter because that money comes from the public treasury funded by taxpayers.

That matters, because unless one believes that tax dollars grow on magical tax trees, money taxed away from people means one of two things is happening.

First, the money is diverted from families and their priorities such as saving for higher education or retirement.  That’s a reality of taxation but politicians, especially new ones, should keep in mind that families have other needs, ones often very different from the priorities of politicians.

And second, these days, we’re all getting less for the taxes we’re paying.

Above-private-sector salaries and generous pension plans means money is redirected from new or refurbished schools and hospitals, or from hiring new teachers, nurses and doctors. Simply put, when additional tax dollars are spent on those already employed in the government system, governments push on a string in any attempt to improve the quality and quantity of education, health care and other programs in which government is heavily involved courtesy of our tax dollars.

Those are all some hard facts and real numbers the new Alberta government may wish to review in advance of its fall budget—at least if the guiding assumption is that new MLAs prefer not to tax and spend with abandon.