Never mind that the federal Conservatives haven't posted a balanced budget since 2007. Finance Minister Joe Oliver says he's committed to doing so this year and in years to come.
The problem is how. Despite his frugalista airs, Mr. Oliver has already signalled his willingness to dispense expensive favours, from income splitting for couples to higher contribution limits for tax-free savings accounts. Finding offsetting savings is challenging – unless Mr. Oliver is willing to take on the thorny issue of public sector pay.
The math is laid out in the C.D. Howe Institute's shadow budget, published Tuesday. It shows that Mr. Oliver has limited room to manoeuvre.
Ottawa is expected to spend about $290-billion in 2015-16, but most of that expenditure is hard to touch, at least in the short run. It consists of debt charges or transfers to individuals and provinces through channels such as Old Age Security and fiscal equalization.
In his search for ways to improve the government's fiscal outlook, Mr. Oliver will have to look for most of his savings among Ottawa's direct program expenses. They will amount to about $115-billion this year. But since $45-billion of that total represents the cost of employee compensation, Mr. Oliver is unlikely to find major savings unless he can find ways to rein in public-sector pay and pensions.
William Robson and Alexandre Laurin, authors of the C.D. Howe report, point out that employee compensation eats up an increasing share of Ottawa's program spending. Compensation costs have risen by $20.5-billion over the past 10 years, while other direct program expenses have risen by just $9.5-billion. In an era of frozen budgets, higher pay for public servants is squeezing out other spending.
Government workers have long outpaced their private-sector counterparts in pay negotiations. Since 1997, employee compensation per hour of work has grown faster in the federal government than in the private sector, according to Mr. Robson and Mr. Laurin.
It's possible that part of this pay gap reflects a growing demand in the public sector for workers with high levels of education. However, it's tough to explain the entire difference in this way. Federal government employees are now paid roughly 60 per cent more in total compensation than workers in the professional, scientific and technical services industries, who also tend to be well educated.
Much of this differential is the result of lush public-sector pensions. Mr. Robson and Mr. Laurin acknowledge that recent changes, such as a gradual rise in employee contributions, will eventually help to lower the cost of those pensions to taxpayers. However, the reforms to date have been relatively small next to the "huge fiscal burden" that has already been built up. The authors suggest a cap on future government contributions.
That would be a bold move, especially for a government that has sat by while its employee costs have steadily climbed in recent years. But if the Conservatives are serious about balancing the budget, it's difficult to see how they can avoid the issue. Over to you, Mr. Oliver.
Ian McGugan