The structural deficit that dare not speak its name

by Aaron Wherry

Stephen Gordon sees yesterday’s budget as an implicit acknowledgement of a structural deficit.

Many commentators have suggested that the structural deficit was created by increased spending, so spending cuts are the appropriate remedy. I don’t see how this hypothesis fits the data, and the fact that the necessary spending cuts have yet to be specified suggests to me that there’s no expensive new program that can be blamed for the structural component of the deficit.

It’s much easier to tell a story (here and here) in which the cuts to the GST are the cause of the federal structural deficit.




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The structural deficit that dare not speak its name

  1. Yes, indeed we do have a structural deficit….caused by the cuts to the GST. Something Harper was warned about, but as always he wouldn’t listen because he saw it as a vote-getter.

    We also have structural unemployment, but no one has even mentioned that yet.

  2. Stephen Gordon needs to read articles from outside his particular ideological bent.  ”I don’t recall many people voicing concerns that the Conservatives’ plan to cut the GST would send the federal government into deficit.”  Really?  That’s the claim?  I knew the NCC was revisionist, but that’s just silly.

  3. “Many commentators have suggested that the structural deficit was created by increased spending, so spending cuts are the appropriate remedy. I don’t see how this hypothesis fits the data, and the fact that the necessary spending cuts have yet to be specified suggests to me that there’s no expensive new program that can be blamed for the structural component of the deficit.”

    Prof Gordon provides links to two pages of his work but nowhere does he mention who Government is writing cheques to. 

    When Prof Gordon starts thinking about his salary, pension and benefits as an “…. expensive new program …. ” or listens to Shannon Steele – “Of course I get more benefits and stuff, but I think I deserve them …. I do a lot of work, and it’s stressful” –  he might have more luck finding answers to his question.

    We are cutting government programs in order to pay increased costs of public employees salaries.

    ——–
    In 2002-2003, the average salary of workers in the core public service was $53,000, increasing to $73,400 when factoring in benefits ……. In the private sector, the average salary was $38,885.

    ———-

    CTV: March, 2011Canada’s new Governor General earned more than $1 million in 2010, making him the second-highest Ontario employee last year according to the province’s co-called sunshine list.

    The province started releasing its annual sunshine list in 1995, disclosing the names, salaries and bonuses of all Ontario public sector workers who are paid more than $100,000.

    A total of 71,478 government employees made the list in 2010, up 11 per cent from 2010.There were 64,000 names on the list that year; about 10,000 fewer than that made the list the year before.

    The continual increase of employees earning six digits has prompted some to suggest the threshold should be raised.If the threshold were raised to match inflation, to $132,000 according to government numbers, about 73 per cent of those on the list would no longer qualify.

    ————–
    Government Of Canada: The Treasury Board is the benefit plan sponsor. It is responsible for establishing and modifying the plans and developing policy.  It also sets the terms and conditions relating to eligibility, premiums, contributions, and benefits. 

    Each group benefit plan has a principal administrator or insurer. The health and dental benefit plans have a total eligible population of over one million members and dependants, while the disability plans have 227,000 eligible members.  

    The Treasury Board Secretariat, in its role as employer, spends approximately $2 billion per year for employee and pensioner health and disability benefit plans.
    —————–

    CTV – July 2007: Canada’s public servants earn an average salary far higher than those in the private sector, while the core public service workforce has swelled to its largest size in a decade, according to a new report.

    The Treasury Board of Canada posted the 800-page study on its website last week.In 2002-2003, the average salary of workers in the core public service was $53,000, increasing to $73,400 when factoring in benefits.

    “For me to make that amount of money, I would have to work twice as much time,” tradesman Tim Cogswell told CTV News.In the private sector, the average salary was $38,885.

    Roughly three per cent of public servants earned less than $35,000, while the same amount of bureaucrats made more than $100,000.The study also shows that civil servants took a total of 7.74 million days of leave in 2002-2003. On average, each employee took:

    17.3 days for vacations
    8.3 days for sick leave
    1.6 days for family-related leave

    But civil servant Shannon Steele said she earns her pay.”Of course I get more benefits and stuff, but I think I deserve them,” she said. “I do a lot of work, and it’s stressful.”

    “Our members work in a hostile work environment where they are subjected to discrimination and harassment in the work sites,” said Patty Ducharme, vice president of the Public Service Alliance of Canada.

    ——-

    Financial Post, July 2009:Garbage collection in cities ordinarily costs less than in the suburbs or rural areas because of the economies of scale that cities offer — in cities, garbage trucks have shorter distances to travel, saving time between pickup stops.

    By all rights, garbage collection should cost much less in Toronto.Amazingly, Toronto’s costs are higher than those of its lower-density neighbours — heaps higher.

    According to two Ontario Waste Management Association studies produced over the last decade, Toronto spends almost 30% more than the average of its neighbours to collect a ton of trash, and almost 60% more than its most efficient neighbour, Markham.

    Why are Toronto’s costs higher instead of lower than its neighbours? Salaries are one factor. Toronto’s unionized work force averages more than $30 per hour in wages and benefits, fully 50% higher than the private sector average. 

    More important than the compensation, however, is the productivity of the workers. Private sector workers handle a staggering two-and-a-half to three times more waste per hour than Toronto’s union workers. The private sector does this by working smarter and harder:

    Private managers tend to be cleverer at developing efficient routes and private workers tend to have more endurance because they are younger — 32 years old on average compared to 44 for city workers. 

    As private sector workers age, private sector managers move them up and over to positions that are less physically challenging. In the city, with its dead end union positions, there’s no place to move.

    • Brother I like reading your posts, but can’t tell where the comment ends and the regurgitation (for lack of a better word- sorry) of external articles begins. 

      Maybe you could try using hyperlinks rather than cutting and pasting? Trust that your readers who are interested will pursue the link. Trusting should come easy, being a classical liberal. ;)

      • “Trusting should come easy, being a classical liberal”

        That’s funny. For past week or two, I am in mood to irritate liberals and left wing types and that’s why I have been posting large amounts of info.

        I know they won’t click through because they prefer ignorance and platitudes.

        I was very disappointed with election because Government is causing enormous harm and no one seems to care. My missus says I have bothered enough people and I should stop it but I could not help myself with Prof Gordon’s analysis.

        Promise no more large amounts of info, more links instead.

        • Thank you, Tony – much appreciated.

        • tl;dr became an internet meme for a reason, and not because people preferred ignorance over knowledge.

    • Agreed that public sector salaries are too high, but comparing to average worker is misleading. You need to make comparisons based on comparable skill requirements. It overstates the gap.

      Off-topic, but I think Macleans would appreciate it if you did not expose them to copyright suits by posting articles in toto from their competitors. Link if you must.

      • “…. but comparing to average worker is misleading. You need to make comparisons based on comparable skill requirements.”

        This is just fancy way of justifying middle and upper middle class public employees shameless behaviour. University grads are more qualified so it makes sense to pay themselves bigger salaries off working class in private sector. 

        What is misleading?  

        “In 2002-2003, the average salary of workers in the core public service was $53,000, increasing to $73,400 when factoring in benefits ……. In the private sector, the average salary was $38,885.”

        “The bigger differences between NDP and Liberal voters are demographic. Grit voters are the more likely to be university educated ….” Globe, May 27, 2011

        “That contrasts with the Liberal party, which collected more in public subsidies last year — $7.3 million — than the $6.6 million it got in donations.” TorStar, June 1, 2011

        • I’m saying you should compare to comparable private sector jobs. The government doesn’t employ many people who do jobs that would otherwise pay minimum wage in the private sector, such as burger flipping. Believe it or not, but I agree with you wrt public sector salaries. The facts speak for themselves; no need to use torqued statistics to make the case.

          University educated people, in equilibrium, ought to be paid more than non-educated. The opportunity cost of getting a 4 year degree is on the order of $50k – $150k, so for people to justify that investment, they need to have higher expected earnings.

          • “University educated people, in equilibrium, ought to be paid more than non-educated.”

            I agree with this in private sector, not public. Completely different. Public service is not a proper market, that’s why costs of bureaucracy keep rising. 

            In what world does this make sense: “David Johnston was paid $1,056,813 in salary and bonuses as the president and vice-chair of the University of Waterloo last year.”

            What does President of U of W do exactly that earns him million $$$$ a year? 

            And why are we paying million $$$ to President of U of W when “the Canadian government has announced to cut funding to Ontario Youth Program that has been a huge success in settlement of new immigrants”?

            Public service is not meant for people to get rich off and retire early with fabulous pension and benefits. We are cutting programs to pay salaries now. 

            http://www.canadaupdates.com/content/canada-government-cuts-funding-ontario-immigration-program-16244.html

            The Treasury Board of Canada posted the 800-page study on its website last week. In 2002-2003, the average salary of workers in the core public service was $53,000, increasing to $73,400 when factoring in benefits.

          • As an alumnus of Waterloo, I can tell you he earned every penny. Waterloo is a young university, and one without a medicine and law school. It has a puny endowment. He brought in hundreds of millions of donations–donations that school would not have landed otherwise.

          • And those people in the public sector should be compensated in keeping with private sector compensation for similar roles. Should government lawyers not require law degrees? I don’t see what point you’re making.

          • “ As an alumnus of Waterloo, I can tell you he earned every penny ….. I don’t see what point you’re making.”

            It is not that difficult. 

            Do you think people in SWIS program think a million $$$ to President of U of W is worth it? How long do we keep on cutting programs to pay salaries for bureaucracy? 

            -”The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it.”

            “The Canadian government has announced to cut funding to Ontario Youth Program that has been a huge success in settlement of new immigrants.

            Named SWIS (Settlement Workers in Schools) program, the program for new immigrants coming in Ontario is a joint collaboration between the immigrant agencies and school boards.”

            http://www.canadaupdates.com/content/canada-government-cuts-funding-ontario-immigration-program-16244.html

            -”The province started releasing its annual sunshine list in 1995, disclosing the names, salaries and bonuses of all Ontario public sector workers who are paid more than $100,000.

            A total of 71,478 government employees made the list in 2010, up 11 per cent from 2010.”

            “But civil servant Shannon Steele said she earns her pay.”Of course I get more benefits and stuff, but I think I deserve them,” she said. “I do a lot of work, and it’s stressful.”

          • The President of Waterloo is paid by the university out of its budget, which includes funding from various sources, only part of which is government. This is a fallacy.

            Johnston was a net positive to UWaterloo’s budget. If he had not worked for the University, it would have less financial resources. Nothing came away from SWIS, or any other program.

          • “Nothing came away from SWIS, or any other program. ”

            If you say so. 

            Is it just a coincidence that programs are being cut when Fed and Ont budget are larger than ever and public salaries are increasing?

            Will you ever provide facts or figures to illustrate this? You are big on assertions but not a fan of facts or data.

          • Since you’re a fan of posting large blocks of text without argumentation or context, please follow and read this link to the University of Waterloo Act, 1972:

            http://secretariat.uwaterloo.ca/governance/uwact/UWAct.htm

            What are we talking about here, public sector salaries in general or the President of Waterloo in specific?

          • Blame the governments. They are responsible for their spending decisions. The University of Waterloo is largely independent and sets the compensation for its president. The province can opt to reduce the subsidies it gives for students, and the federal government can choose to reduce research grants, but neither directly sets or pays the compensation of the president of the university.

          • “Blame the governments. They are responsible for their spending decisions.

            Hallelujah!!!

            I am blaming governments, that’s why I am classic liberal/libertarian.

          • I’m not sure how much we agree. I don’t think Johnston’s salary was a problem (most years he was paid less–last year I checked was about $600k). It’s the University of Waterloo’s prerogative.

            Aside from that point, I agreed with the point that public sector salaries were too high a dozen posts ago. I quibbled with some bad statistics, but thankfully the argument doesn’t rely on those bad stats.

          • More importantly, education is a PROVINCIAL responsibility, so while the feds do contribute directly to educational endeavors through scholarships and the like, money for things like salaries and benefits (to the extent that money comes from the government at all) comes from the PROVINCIAL government. 

            The Feds under Harper have been pretty adamant that they’re not going to cut transfers to the provinces, so Johnston’s U of W salary is a COMPLETELY moot point in this discussion, I believe.  If one wants university salaries curtailed one needs to talk to McGunity et al., not Harper, (and realize that McGunity doesn’t have the power to cut university salaries unilaterally against the wishes of University administrations either, not without RADICALLY taking direct control of University operations) and if one is aiming to eliminate the FEDERAL deficit, one shouldn’t be talking about university salaries at all.

          • “University educated people, in equilibrium, ought to be paid more than non-educated. The opportunity cost of getting …. ”

            Geoffrey Miller, Spent:
            The irony about general intelligence is that ordinary folks of average intelligence recognize its variance across people, its generality across domains, and its importance in life. 

            Yet educated elites meanwhile often remain implacably opposed to the very concept of general intelligence, and deny its variance, generality, and importance. Professors and students at elite universities are especially prone to this pseudo-humility. 

            They socialize only with other people of extraordinarily high intelligence, so the width of the whole bell curve lies outside their frame of reference.

            I have met theoretical physicists who claimed that any human could understand superstring theory and quantum mechanics if only he or she was given the right educational opportunities. 

            Of course, such scientists talk only with other physicists with IQs above 140, and seem to forget that their janitors, barbers, and car mechanics are in fact real humans too, so they can rest comfortably in the envy-deflecting delusion that there are no significant differences in general intelligence.

          • This is not a point. Yes. There is an intersection between above average intelligence and propensity to attend post-secondary education.

    • TL,DR.

      Care to sum up your multitude of copy-paste cites into, say, a point?

      • “In 2002-2003, the average salary of workers in the core public service was $53,000, increasing to $73,400 when factoring in benefits ……. In the private sector, the average salary was $38,885.”

        “For me to make that amount of money, I would have to work twice as much time,” tradesman Tim Cogswell told CTV News.”

        “Private sector workers handle a staggering two-and-a-half to three times more waste per hour than Toronto’s union workers.”

        “But civil servant Shannon Steele said she earns her pay.”Of course I get more benefits and stuff, but I think I deserve them,” she said. “I do a lot of work, and it’s stressful.”

  4. Hope you are paying attention Mr Rae. Here’s something brave and radical for the liberal party to run on right off the bat; commit to restoring the GST. Indeed commit to increasing it further down the road[ might want to soft peddle that one a bit?] and commit to lowering personal ITs and small business taxes. Be brave for god’s sake, you have nothing left to lose anymore anyway. If you’re really lucky you’ll be castigated for it – that’s good[ better then the CPC stealing your idea; can anyone see Harper wanting to steal it? It's tailormade for a radical centrist party.] but stick with it anyway; take the long view; work on building a consensus for it.Be prepared to be unpopular for a while. It may not get you back into power any sooner, but it’ll help and you’ll be doing a great service to the country.

    • That would certainly be one way of putting the NDP in a bit of a box.  Because bear in mind, any NDP policy proposals and overall policy platform costs (including how to pay for them on the tax side of things) are now going to be examined a lot more closely than they used to be. 

      • We can only hope.

      • I hadn’t even considered the effect on the NDP – which is why i’m not running anything. It’s gonna take some time for libs to realize they’re low man on the totem pole now, and that it many ways their main target is now the NDP and not necessarily Harper. I just happen to think consumption taxes are the way to go, and one policy that Harper’s hardly likely to want to steal – smart politics too.

  5. Wow, so tax cuts don’t magically fix everything? Three decades of right-wing shibboleth down the drain.

    • I think you mean down the drain AGAIN. 

      It’s not as if conservatives haven’t failed at this again and again throughout our history.  The entire history of Canada’s deficit and debt since WWII is a history of Liberal governments sometimes raising the deficit and debt, and sometimes lowering it (while once eliminating the deficit all together and running surpluses) while Conservative governments have all raised the country’s deficit and debt with unwavering consistency.  The one exception?  The three years that the debt continued to fall while the Harper government spent every last cent of the large surpluses that Chretien left them, and then kept right on going.  People tend to forget that the Tories eliminated the federal surplus BEFORE the recession hit, not in response to the recession hitting, but they did.  They spent our rainy day funds while the sun was shining, and then they had little choice but to go into deficit once it started raining.

      I look forward to the Harper government eliminating the federal deficit, if they do, as it will be the first time in my lifetime that a Tory government has managed to accomplish such a feat.  I wish them luck.

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