Squeezing public-sector benefit plan is key to Tories' budget balancing act

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The Conservative government's final push to balance the books relies to a significant extent on wringing significant savings from the retirement health benefits of federal public servants.

By far the single largest measure in Tuesday's budget is a bid to squeeze $7.5-billion over six years in fiscal savings from what's called the Public Service Health Care Plan for retired bureaucrats. This is supplemental health coverage that goes beyond what provinces offer the public.

In the 2015-16 fiscal year, when the Tories are forecasting a return to balanced budgets and a $4.1-billion surplus, this measure alone is contributing $1.4-billion of savings, budget documents show.

Prime Minister Stephen Harper's government has made no secret of its desire to trim the pay and benefits of civil servants, betting the public feels little sympathy for bureaucrats who enjoy relatively lucrative remuneration compared to private sector norms.

"The government is committed to ensuring that overall public service employee compensation is reasonable and affordable, as well as aligned with that offered by other public and private employers," the 2014 budget says.

The Conservatives said they will significantly hike premiums paid by retired civil servants – more than doubling them for individual coverage – so that retirees bear a full 50 per cent of the costs of health benefits.

This means for instance that a former government employee would see their annual premiums paid into the plan rise to $550 from $261.

This will mean Ottawa collects $150-million more on a cash basis from retirees who belong to the benefit program.

The change however has a dramatically bigger impact on each year of Ottawa's fiscal outlook because public sector accounting standards require that liabilities for future health care expenses be reflected in the year they are earned by civil servants.

Ottawa is also lengthening the amount of time a bureaucrat must work in the public service before they are eligible for this health retirement benefit plan. Instead of merely two years they will have to work for six years before they are eligible to join.

Separately, the Harper government announced it will give military veterans preferential treatment for employment in the federal public service.

Each year about 7,600 Canadian Armed Forces personnel leave the military, including about 1,000 released for medical reasons, the government said.

The government said it would legislate a hiring priority for vets who are released from the military for medical reasons and amend the Public Service Employment Act to give preference to eligible veterans in job competitions including so-called internal hires.