Mr. Chairman and members of the House of Commons finance committee, I'm pleased to be here on behalf of the Atlantic Institute for Market Studies to offer our viewpoint to you.
There are, of course, many challenges facing the new government, and indeed the government will want to act on them. We all understand that the government's spending power is considerable, but that power ultimately comes from its ability to tax and accumulate debt.
If the Atlantic Institute for Market Studies can leave members with one overriding objective, it is not to become hooked on chronic deficit spending that will eventually return Canada to the days of a government that is overextended.
Going into debt is a lot like getting entangled in a foreign conflict: easy to get into and very difficult to get out of. We know this from Canada's experience with deficit spending in the 1970s, 1980s, and1990s, and more recently but less dramatically in the last Parliament, when the former government worked to balance the budget following heightened spending in the aftermath of the 2008 great recession.
It is worrisome to hear from the current government that promised annual deficits of no more than $10 billion could see the red ink more than double this year. This would make it nearly impossible to return to balance in the near term. Once we start down this road, we know how it ends: rising and wasteful spending on annual interest payments, higher taxes, and even eventual cuts to federal transfer payments.
Here are three suggestions to control costs while still hitting policy objectives.
First, plan future infrastructure spending so that it achieves the maximum economic benefit. The finance minister is under great pressure to get money out the door quickly, but give him some room to manoeuvre so that the money isn't poorly spent. The original Liberal promise was to spend more over a four-year mandate, not push it all out quickly. Stick to that plan so that tax dollars are wisely spent.
Second, control the number of public sector workers, as well as pay, benefit, and pension costs. According to the public accounts, the cost per federal employee is $124,497. While there is debate over the size of the wage gap, there is near-universal agreement that public sector workers enjoy more generous benefits than those in the private sector.
There are two ways to control the overall budget envelope: reduce the number of workers or lower the cost by using outside benchmarks when negotiating contracts. This committee will be well advised to monitor the size and costs of the public sector, as the bureaucracy has the ability to quietly but quickly expand when attention is focused elsewhere. Indeed, our work at AIMS reveals that the size and cost of my region's public sector is larger and costlier than that in other parts of Canada. It is one reason for our budget deficits and why taxes back home are at punitive levels.
Third, incentives do matter. As the old proverb goes, give a man a fish and you feed him for a day, but teach a man to fish and you feed him for a lifetime. Provinces are very much like the proverbial man. Simply providing additional federal transfers for social programs to low-growth provinces ultimately does a disservice to these regions.
The fiscal gap these provinces experience is due in part to a dwindling workforce and the departure of young workers to other provinces. This results in these provinces having more seniors as a percentage of the overall population, which of course reduces the tax base and drives up the per capita health costs.
Equalization is the complex tool to ensure that so-called “have-not” provinces have similar fiscal capacity. Meanwhile, federal transfers to all provinces and territories for health, education, and social services should remain uniform and be calculated on a per capita basis across the country. This is the way to incentivize provinces to adopt pro-growth policies that create jobs in order to keep and attract young workers. Offering additional transfer dollars because of long-standing tough circumstances will not change the dismal economic outlook for these jurisdictions. If provincial governments are provided more transfers without a requirement to adopt growth policies and develop their resources, the economic outlook for Atlantic Canada will not improve, and after a few years, after more workers have departed and the situation has worsened, these governments will be back asking Ottawa for more.
A robust economy is the result of good public policy choices. When the productive sector of the economy is healthy, it means governments have the resources to fund important social programs.
Finally, I'd be remiss if I did not make the case for the Energy East pipeline project. This project will create good-paying jobs across Canada and in the Maritimes, along with the other large projects in the region, such as shipbuilding in Halifax and the Lower Churchill project in Newfoundland and Labrador. Energy East is important to growth in our region and to the long-term development of Atlantic Canada.
Thank you very much. I appreciate your time and attention.