Controlling Ottawa's Employment Costs Key to Achieving Durable Surplus: Shadow Budget 2014

By C.D. Howe Institute James Fleming —— Bio and Archives January 29, 2014

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In "Equipping Canadians for Success: A Shadow Budget for 2014," authors William B.P. Robson and Alexandre Laurin urge a near-term focus on the average compensation cost of federal employees as part of spending control measures to achieve a durable surplus.

"Spending control by Ottawa is an essential first step to position Canada for long-term growth," said William Robson. "The dominant thrust should be containing the cost of federal employment, and in particular the costs to taxpayers of federal pensions and other postretirement benefits." Ottawa's average cost of employing a full-time worker, including wages and benefits, almost doubled between 2002/03 and 2012/13, from about $66,500 to $127,400, note the authors. Over the same period, business sector compensation per job in Canada rose only about a third, from about $38,600 to $52,100. The Shadow Budget calls for caps on taxpayers' contributions to federal-employee pensions, the termination of indefinite banking of unused sick days, and a move to 50-50 cost-sharing of post-retirement health benefits. "We estimate these measures can reduce federal spending by some $5.2 billion in fiscal years 2014/15 and 2015/16 alone," commented Laurin. Shadow Budget measures to equip Canadians for success in the longer term fall under three broad headings: the skills of, and opportunities for, Canadian workers; saving and investment; and innovation and entrepreneurship.

Measures to promote skills and opportunities include:

• investing in new job-information sharing and matching;
• shifting the tax base from income to consumption;
• phasing out regionally differentiated Employment Insurance; and,
• promoting longer worklife by delaying the age at which Canadians lose access to tax-deferred saving.

The Shadow Budget proposes to improve the treatment of saving, and savings, in tax-deferred vehicles. It also proposes to promote investment by providing more uniform tax treatment of active foreign-investment income, and a regular rolling review of capital-consumption allowances. As for innovation and entrepreneurship, the Shadow Budget proposes a more favourable tax regime for intellectual property income, and making academic excellence the key criterion in federal support for basic research. The Shadow Budget would reduce ongoing support to many Crown corporations, prepare a slimmed-down Canada Post for a competitive mail market, and create more market discipline for Crown lenders. It would also reduce tariffs, and institute more transparent reporting and review of tax expenditures. "This Shadow Budget builds on Canada's relatively good post-crisis performance. Its near-term focus on achieving surpluses will protect Canadians from higher interest rates and reduce Ottawa's claim on Canadian saving," said Robson. "And its measures to better deploy Canada's human capital, promote investment, and stimulate income-boosting innovation will promote long-term growth." For Shadow Budget 2014, click here: