Administrators running a hospital, a regional health authority, a school board, a university or a police force have one challenge in common: Roughly three-quarters of their budgets go toward employee remuneration.
These institutions are almost completely dependent on provincial governments. They generate few revenues on their own – they can't raise any money at all, or what they are allowed to raise is a pittance (think bake sales, parking or cafeteria profits), or the increased revenue is capped by the province.
Hospitals and regional health authorities can't charge patients. School boards can't ask students to pay. Police don't ask for money from those they protect. University tuition fees are regulated by the province.
The bulk of provincial services are labour-intensive and therefore costly. Many federal services, on the other hand, consist of writing cheques transferring money to citizens (pensions, for example) and the provinces (health care and equalization).
This costly and labour-intensive delivery of provincial services lies at the heart of Canada's provincial fiscal dilemmas, revealed Thursday in the budgets of Alberta and Quebec and soon to be repeated in the budget of fiscally strapped Ontario.
What these budgets have in common are governments wrestling with their own wage bills, in the context of fast-deteriorating revenues (Alberta), a large provincial debt (Quebec) and entrenched slow long-term growth (Ontario and Quebec). And as they wrestle with holding the line on public-sector wages, the full weight of these difficult decisions falls not on the provincial governments but on their creatures: hospitals and regional health authorities, school and university boards, municipalities.
These are the institutions that have to square circles of transfers that do not keep pace with inflation, or collective bargaining agreements that exceed inflation (universities), or arbitration decisions unrelated to ability to pay (police settlements in Ontario), or very strong pressures to avoid cutting services (patients).
Of course, there are options to restraint, such as deficits or debts, and various voices espouse them. One, particularly prevalent in far-left circles of Quebec, is that billions of dollars reside in "fiscal paradises" outside the province. If these mythical billions could be captured, by means largely unknown, then Quebec's fiscal situation would – Presto! – improve.
A more legitimate variation on this theme is credibly argued by economists such as Thomas Piketty and Pierre Rosanvallon, that the top 1 per cent of income earners have so enriched themselves that gross and entrenched inequalities have developed, such that additional taxes should be imposed on them.
When one observes how much senior executives are paid in Canada (to say nothing of the United States), especially in relation to those who work for them, the political logic of higher taxes on the very rich commends itself.
Except that there is always the crushing disappointment that such taxes seldom bring the cornucopia of revenues sufficient to solve all fiscal problems that advocates dream about. And even if additional money is found by these means, those advocating for these new taxes often want to spend the money rather than paying down debt or balancing budgets, thereby locking in a higher cost of government.
The alternative to spending cuts must usually involve much more widespread tax increases than just those affecting "the rich," and that scares politicians to death.
In Alberta, with its strange and corrosive culture of one-party rule, the imposition of a sales tax is completely logical from every conceivable economic perspective, but deemed to be completely unacceptable from a political perspective. And since it is politics that rules, rather than common sense, Alberta looked elsewhere Thursday for additional revenues to accompany its spending cuts.
In Quebec, the government's revenue challenge was completely different. Alberta is a low-tax province with plenty of room to raise taxes; Quebec is already a high-tax province with much less room.
Quebec has already raised its sales tax twice in recent years. It imposes high marginal tax rates on those with upper and upper-middle incomes. It has a fast-aging population and very high provincial debt. And it has baked in generous but costly social programs, such as low university and daycare fees.