Challenging Austerity

Resources for OPSEU Members

Working people didn’t cause the Great Recession of 2008-09, but we’ve been paying for it from the start. First the high-rolling financiers whose risky bets torpedoed the private sector had to be bailed out by governments. Now those same financiers are demanding deep cuts to public services, jobs, and wages to pay for the bailouts – and protect the profits of private bondholders.

They might not get away with it. Around the world, working people are saying NO to this “austerity” agenda. We’re refusing to pay for a crisis they didn’t cause.

Here at home, fighting austerity starts with understanding it –and knowing how to talk about it with your friends, family, neighbours and co-workers. The materials listed here are designed to help OPSEU members do exactly that.

To order bulk (more than 20) quantities of any of the written documents, or to arrange for a presentation in your local, please e-mail us by clicking here.

Warren (Smokey) Thomas discusses Ontario Budget on CTV
News

June 21, 2012 OPSEU President Warren (Smokey) Thomas addressed issues concerning the new Ontario Budget on CTV News shortly after it was passed   

Budget Bill 55 update

June 20, 2012 The Ontario Budget Bill 55 cleared the Legislature today, but not without changes forced by NDP Leader Andrea Horwath and the caucus.

Austerity in Ontario


May 18, 2012


This new OPSEU PowerPoint presentation provides basic facts about Dalton McGuinty’s “austerity” campaign to cut public services, jobs and wages. Complete with speaker’s notes, anyone can deliver it to local meetings, bargaining team caucuses, area councils, or any other group  

 

Budget 2012 and the Public Sector’s Contribution to Ontario’s Economy

April 18, 2012 OPSEU commissioned this report from the Centre for Spatial Economics to quantify the economic damage to Ontario from the 2012 budget. The report also compares the economic impacts of public service cuts vs. tax increases.

Ontario Budget 2012 analysis: Executive summary


Government deficits are the result of the 2008-09 global recession. Ontario is no exception. The recession didn’t start in Ontario or in the public sector. It started on Wall Street and other financial capitals when bankers and hedge fund managers played their high-risk games.

Now, the Ontario government is telling us somebody’s gotta pay. And they’re saying it won’t be the richest people. It will be the people who are hit hardest and who can’t afford to lose any more.

In the 2009 and 2010 budgets, Ontario spent money to create and save jobs to lessen the recession’s impact. Without finishing the job and launching the province on the road to prosperity, the McGuinty Liberals are gunning it down the road to austerity. The Budget fails Ontario and will make working people, including a lot of OPSEU members, pay for the 2008 recession.

Here are some points you can use to lobby your MPP to say “NO” to this budget and the devastation it would mean for our province and the people.

The budget fails Ontarians because the Liberals:

  1. Blamed the deficit on overspending rather than the recession

  2. Exaggerated the size of the deficit

  3. Ignored revenue options and refused to consider tax fairness to raise revenues from profitable corporations and high-income individuals

  4. Bought into a plan that will hurt people, slow our economy, and sharply increase income inequality


1.  Overspending is NOT the problem (a few supporting facts)

  • Three budgets before the 2008-09 recession were balanced.

  • Ontario spending per person is lower than any province in Canada.

  • Program spending per capita is 11 per cent lower than average of the other nine provinces.

  • Duncan estimates 2012-13 budget deficit at $15.3 billion.

  • At 2.4 per cent of province’s economy, these deficits are lower than for five consecutive years from 1991-92 to 1995-96, the period for the last recession.

  • Still, Liberals are cutting real spending by 2.3 per cent per year. As bad as this budget is there is worse ahead.

    2.  Exaggerated deficit

    Duncan has overestimated the deficit by billions every year since the recession began. Now he’s exaggerating how big the deficit will be in the years ahead to scare people into accepting the cuts.

    Duncan’s adviser, Don Drummond, made future deficits look bigger when he:

    • Underestimated growth

    • Overestimated interest on Ontario’s debt

    • Overestimated how much government spending would grow

    • Built in a huge contingency fund to make the deficit look bigger

    Duncan and Drummond also ignored revenue options:

  • The Liberals refused to consider tax fairness as a way to strengthen the economy and reduce income inequality

  • If Ontario had the same tax rates today as in 1994, the budget deficit would be a budget surplus

  • While they froze cuts to corporate income and Business Education Tax this brings Ontario no new money

  • The only budget measures to bring in more revenue are user fees and plans to make more money from increased alcohol sales and gambling. This will account for $4.4 billion over three years, or just over 1 per cent of total revenues.

    3.  Options the government ignored to increase revenue

  • Eliminate lower tax rates for income earned from stock options. This cost Ontario $180 million in 2010-11.

  • Make income tax rates more progressive. Canada’s top one per cent of taxpayers earn more than 13 per cent of the total individual aggregated income.

  • Introduce Financial Transactions Tax (FTT). Even a tax of 0.1 per cent on the $1.5 trillion in trades through the Toronto Stock Exchange would bring in well over $1 billion a year.

  • Tackle problem of offshore tax havens. Canadian banks avoided $2.4 billion in taxes in 2007 alone. Money earned in Canada should be taxed in Canada.

  • Restore corporate tax rates to 2009 levels to bring in an extra $1.5 billion a year.

  • 4  Cuts, Cuts, Cuts

  • Government through budget measures is cutting $17.7 billion in spending.

  • There are so many cuts, the government had to publish them in their own book, available at: http://www.fin.gov.on.ca/en/budget/ontariobudgets/2012/addendum.html

  •  

    Spending growth in 2012-13 Budget, in dollar terms, next three years

    REAL change in spending per capita per year (after inflation)

    Total Government

    1.0%

    -2.3%

    Health

    2.1%

    -1.2%

    Education (Schools)

    1.7%

    -1.6%

    Education (Post-Secondary)

    1.9%

    -1.4%

    Social Services

    2.7%

    -0.6

    Justice

    0.4%

    -2.9%

    Social Services

    0.5%

    -2.8%

    All Other Programs

    -4.3%

    -7.6%

    LOOKING AT CUTS – MINISTRY BY MINISTRY

    Corrections

    • Three new closures will affect nearly 500 active OPSEU members: Brantford and Chatham jails and full closure of Toronto West Detention Centre.

    • That’s in addition to previously-announced closures of Owen Sound, Walkerton, and Sarnia jails.

    Environment

    The axe will fall on every ministry, but none more heavily than environment.

  • More than nine per cent cut in dollar terms. That’s more than 12 per cent after accounting for inflation and population growth.

  • Ministry budget already 45 per cent less, in real terms, than in 1992.

  • Social services

  • Social assistance rates frozen, and in real dollars will soon be half of 1995 rates.

  • Slow down increases to Ontario Child Benefit, now $1,100 per child per year.

  • Possible funding changes in developmental services that threaten services and jobs

  • Plans to integrate Ontario Works, Ontario Disability Support Program, and Employment Ontario.

  • Health Care

  • Limit spending increases to 2.1 per cent per year, a drop of 1.2 per cent after inflation and population growth.

  • Zero increase for hospitals, except 2 per cent for a few specific programs such as wait-times initiatives.

  • Home and community care get 4 per cent, 0.7 per cent after inflation and population growth. But, they face greater transfer of hospital patients.

  • Long-term care gets 2.8 per cent (or 0.5 per cent after inflation and population growth). Only 1 per cent goes to frontline care for residents.

  • Local Health Integration Networks get more ‘flexibility’, or power, to allocate resources.

  • ‘Routine’ medical procedures to shift from hospitals to not-for-profit clinics.

  • Health-Based Activity Model extended to take ‘price’ into account for services and treatments through Community Care Access Centres and Long Term Care Homes.

  • Wealthier seniors will pay more for drugs with no adjustment for inflation. Over time, more seniors will pay more for drugs. Government won’t use the extra money to increase access to prescription drugs for working age, low-income Ontarians.

  • Mental health . . . no mention.

  • Restructuring Public Services

  • Amalgamate some school boards.

  • Integrate employment and training services.

  • Move to industry self-regulation in more areas.

  • “Modernize” court services.

  • Merge the Ministry of Economic Development and Trade with the Ministry of Research and Innovation.

  • “Rationalize” some functions of the Ministry of Municipal Affairs and Housing.

  • Bring in a new funding model for Children’s Aid in a hazy cloud of talk about “restructuring.

  • Education

    • Spending increases capped at 1.7 per cent per year for next three years. (A 2.7-per- cent cut after inflation and population growth.)

    • Two-year freeze on salaries with threat to intervene if strikes occur.

    • Amalgamations of some school boards.

    • School closures.

    • Colleges

    • Average annual increase over next three years before inflation and population growth of 1.04 per cent, even less than Drummond Commission recommended.

    • Ontario has lowest per-student provincial operating grant in Canada.

    Privatization

  • Budget document sings praises of ServiceOntario for “fast, easy access to government information and services”, “exceptional track record”, and 93-per-cent customer satisfaction.

  • ServiceOntario brings in $10 for every $1 it costs to run; yet, the government plans to run it as a “public-private partnership” (P3).

  • McGuinty Liberals talking about “expanding the role of the private sector” in Ontario Lottery and Gaming.

  • They are promoting privatization even though repeatedly proven to be a failure. Privatization creates investment opportunities. It doesn’t save public dollars. The public pays.

    Here are a few examples:

  • Province’s air ambulance service, now called ORNGE, is tale of scams and rip-offs.

  • Average lab test costs $22 at public hospitals, $33 at private labs, according to recent Ontario study.

  • Government sold Teranet, its electronic land registry service, to private investor for barely one third of its real value.

  • Other failures: meat inspection, super-jails, over-budget ‘P-3’ hospitals, and Highway 407.

  • Cutting Wages

    Budget is more about cutting wages than anything else even though Ontario already has the leanest, most efficient public sector in Canada.

  • Ontario Public Service has 14 per cent fewer employees than in 1995.

  • Of the $17.7 billion the government wants to cut over the next three years, $6 billion is to come from pay to physicians and public servants and restraint for school boards.

  • Another $6.8 billion in cost-cutting in the broader public sector will certainly cut wages and jobs.

  • Government not clear about whether it expects all workers to accept two-year wage freeze, or whether it wants more from some.

  • Government claims to respect collective bargaining process, but says if it can’t get the agreements it wants through bargaining, it will use legislation.

  • Pensions

    Proposed changes could affect how much it costs you to retire, when you can retire, and what your retirement income will be. OPSEU is seeking actuarial and legal advice.

    Legislation would:

    1. Force pension plans to make up shortfalls in a way that government as the employer won’t have to pay more and plan members will receive less when they retire.

    2. Have costs for all public pension plans shared 50-50 by employers and employees.

    Other changes:

    • Major change to historical relationship between parties in jointly-sponsored pension plans: force “third-party dispute resolution” when plan sponsors can’t agree on benefit reductions through bargaining.

    • “Pool investment management functions” of smaller pension plans, with specific reference to the 25 pension plans at Ontario’s 20 publicly-funded universities.

    Collective Bargaining

  • Anticipate difficult bargaining with restraints.

  • Government threatens to force agreements if can’t get what it wants through bargaining.

  • OPSEU seeks legal opinions.

  • Download this document

    The "Shock Doctrine" Comes to Ontario

    An overview of the 2012-13 Ontario Budget

    March 28, 2012
     

     “The bad bank debt that triggered the crisis in 2008 never went away – it was simply shifted on to governments. Private debt became public debt.”

    -  David McNally, Global Slump

     

    Naomi Klein’s 2007 best-selling book The Shock Doctrine describes how big business and governments around the world have learned to take advantage of crises to create new investment opportunities and boost corporate profits. Any kind of crisis will do – an earthquake, or a war, or a recession – and it doesn’t matter who is to blame. Because when the crisis hits, the “solution” put forward is always the same: money moves upward from people who can’t afford to lose it to people who already have a lot. Usually, the people who are hit hardest are too disoriented and intimidated by the crisis to fight back.

    The global recession of 2008-09 did not start in the public sector, and it did not start in Ontario. It started on Wall Street and in other financial capitals, where a small number of bankers and hedge fund managers took insane risks that sank the global economy. Now, regular people in countries around the world are being told to pay up for the colossal mistakes of the richest people on the planet.

    In the 2009 and 2010 budgets, the Ontario government responded to the Great Recession by spending money. This “stimulus spending” was the right approach to take, and governments around the world took the same path. Government spending created jobs, and it saved jobs. It did not prevent the recession, but it did lessen its impact on people.

     The recession has left governments everywhere with Budget deficits, and Ontario is no exception. Finance Minister Dwight Duncan has estimated the deficit for 2011-12 (the year just ending) at $15.3 billion. For the year ahead (2012-13), Duncan says the deficit will be $15.2 billion. The Budget introduced on March 27, 2012 says the deficit will be reduced to zero by 2017-18 (see chart at right, from p. 6 of the Budget).

    How Big is the Deficit?

    The deficit is the difference between how much money the government is taking in compared to how much it is spending. Fifteen billion dollars sounds big, but compared to what? Any government’s ability to pay depends on the size of its economy. Viewed in that way, $15.3 billion is about 2.4 per cent of the province’s economy. To put that in context, Ontario’s deficit was worse than that for five years in a row from 1991-92 to 1995-96, as the chart below shows.[1]

    If the government’s goal is simply to balance the Budget, it seems obvious that this can be done without the severe cuts that happened in the mid-1990s. But Don Drummond, the bank vice-president who advised the government on how to balance the Budget, has recommended spending cuts that are deeper and longer lasting than those of the 1990s. In his Feb. 15, 2012 report, Drummond called for cuts in real per capita spending[2] of 2.5 per cent per year for six years.[3] This means a real cut, after compounding, of more than 16.2 per cent.

    In the 2012-13 Budget, Finance Minister Dwight Duncan has more or less accepted Drummond’s target, choosing to spend a mere 0.2 per cent more than Drummond recommended. For the next three years, the Budget will increase spending by 1.0 per cent in dollar terms. But after inflation and population growth are taken into account, what sounds like an increase is actually a cut. Overall, the Budget plans for a real spending cut of about 2.3 per cent per year.[4]

     

     

    Spending growth in 2012-13 Budget, in dollar terms, next three years

    REAL change in spending per capita per year (after inflation)

    Total Government

    1.0%

    -2.3%

    Health

    2.1%

    -1.2%

    Education (Schools)

    1.7%

    -1.6%

    Education (Post-Secondary)

    1.9%

    -1.4%

    Social Services

    2.7%

    -0.6

    Justice

    0.4%

    -2.9%

    Social Services

    0.5%

    -2.8%

    All Other Programs

    -4.3%

    -7.6%


     It is important to emphasize that the current Ontario deficit was in no way caused by government spending. Prior to the recession, Ontario’s Budget was in balance for 2005-06, 2006-07, and 2007-08. Furthermore, Ontario spending per person is the lowest of any province in Canada. “This is the backdrop to Ontario’s efforts to bring down its deficit,” says Matthew Mendelsohn, director of a University of Toronto think tank. “It already runs the least expensive, most efficient programs in the country.”[5] In fact, for the year just ended, Ontario’s program spending per capita is 11 per cent lower than the average of the other nine provinces.[6]

    The idea that Ontario’s public services need to be slashed to pay off the deficit does not stand up to scrutiny. There must be another explanation.

    Exaggerating the Deficit

    In the 2009 Budget, the McGuinty government decided to speed up major investments in infrastructure to save jobs and create jobs in the construction industry, with the goal of injecting stimulus into the whole economy. At the same time, the government made two major moves that transferred money from people and public services to Ontario’s corporations. The first was to introduce the Harmonized Sales Tax (HST), which caused Ontario consumers to pay consumption taxes that had previously been paid by businesses. The second was to announce a cut in the Corporate Income Tax rate from 14 to 10 per cent of taxable profits. The government said this move alone would cost provincial coffers $2.4 billion a year when fully phased in. (As of July 1, 2011, the rate had reached 11.5 per cent and was costing $1.5 billion a year.) It was obvious in 2009 that the money lost could only be recuperated by a) raising taxes; or b) cutting public spending. It was also obvious that the McGuinty government had made a decision to transfer money from regular Ontarians to business – including some of the richest corporations in the country.

    The 2012-13 Budget is another step on the journey the government began in 2009.

    Cuts to public services like health, education, transportation, environmental protection and so on are seldom popular. That is why scaring Ontarians has been an important part of the government’s deficit strategy. By claiming that the deficitS will grow rapidly unless drastic measures are taken, the Liberals hope to make Ontarians accept severe cuts that they would never accept in normal times.

    In his report, Don Drummond claimed that Ontario’s deficit would reach more than $30 billion in six years if the province did not change its ways. Hugh Mackenzie, a researcher with the Canadian Centre for Policy Alternatives, has documented the assumptions Drummond makes in order to get the number that high:

    1.      Drummond assumes that government revenue will grow more slowly than the economy. It won’t. Revenue growth normally outstrips growth in the economy.

    2.      Drummond assumes the average interest rate Ontario pays on its debt will go up. It won’t. Right now, all Ontario debt that comes due is being refinanced at a lower interest rate. The average interest rate on our debt right now is 4.3 per cent, but we are refinancing new debt at 3.5 per cent. With a struggling economy, the U.S. has vowed to keep interest rates low. Interest rates aren’t going up any time soon.

    3.      Drummond assumes real per capita spending (after inflation is taken into account) will go up by 0.5 per cent a year. It won’t. It could be maintained at the current level.

    4.      Drummond’s assumptions include a contingency fund that will add $1.9 billion to the deficit in six years.[7]

    If we reject these incorrect assumptions, the Ontario deficit is actually on track to go down to $9.6 billion in six years just by keeping per capita spending at current levels. And $9.6 billion is NOT $30 billion. The chart below, from Mackenzie’s report, tells the story:

    It is worth noting that Finance Minister Dwight Duncan has overestimated the provincial deficit every year since the recession began. In 2009, Duncan said the deficit would be $24.7 billion; by the end of the year it was $19.3 billion. In 2010, he said the deficit would be $19.7 billion; the final figure was $14 billion. Clearly, the Minister has worked hard to keep deficit estimates frightening so that the final real result is cheerful.[8] What this means, in simple terms, is that the Minister’s numbers can’t be trusted.

    Ignoring Revenue Options

    Perhaps the biggest assumption the Drummond Commission made was that the government has few options when it comes to raising revenues. This is not true. The government recognized this in the 2012-13 Budget when it postponed the cuts to the Corporate Income Tax rate, leaving it at 11.5 per cent, and also postponed cuts to the Business Education Tax rate. Together, these changes will save the government $1.1 billion a year (by 2014-15) that would otherwise have been lost.

    The only other revenue measures contained in the budget involve either a) increased user fees, specifically for services provided by the Ministry of Transportation or the Ministry of Environment[9]; and b) plans to make more money from drinking and gambling by “optimizing” the Liquor Control Board of Ontario and “modernizing” the Ontario Lottery and Gaming Corporation.[10]

    Taken together, these measures add up to $4.4 billion over three years, or just over 1 per cent of total revenues. Other than these few changes, however, the government has not looked seriously at the revenues that could be raised by making the tax system fairer. “The plan rejects tax increases,” the Budget intones[11]. “In total, we have reduced taxes for Ontario businesses by over $8 billion a year,” the Minister boasted in the Budget speech.[12]

    At one point, the Budget notes that:

    Ontario tax revenue has been falling as a share of the economy. Tax revenues are 11.6 per cent of gross domestic product (GDP), almost 15 per cent lower today than the ratio in 1994. While some may argue for tax increases, the McGuinty government will not take that path to balance the budget.[13]

     

    What the Budget doesn’t say, but should, is if we had the same tax rates today that we had in 1994, Ontario’s current Budget deficit would be a Budget surplus!

    With 600,000 unemployed Ontarians, 400,000 children growing up in poverty, and long waiting lists for housing and long-term care, it is clear that Ontario has urgent problems that need to be addressed. Ontarians, including those who think of themselves as middle class, are working longer hours at stagnant wages and going deeper into debt in a bid to maintain a decent standard of living. But while the majority struggles, high-income earners and corporations are living in a different world.

    High income earners can disguise much of their income as “capital gains” and pay a much lower rate of tax than those who cannot make use of such loopholes. In 2010, the average income of Canada’s Top 100 CEOs was 189 times that of the average full-time worker.[14]

    The result of tax changes that benefit the well-to-do is greater income inequality. This inequality cannot be ignored as simply another issue to be dealt with – or not – at some distant time after the deficit is eliminated. Dealing with the deficit must be done in a way that reduces income inequality and strengthens the economy at the same time.

    With Canada’s corporations sitting on $512 billion in cash and the top one per cent of Canadians earning 13 per cent of income in the country, it’s time for a discussion about tax fairness. Here are just a few options that would reduce inequality and help fund the public services people need:

    • Eliminate the lower tax rates for income earned from stock options. Only the highest-paid Ontarians receive any of their income in the form of stock options, but those who do pay tax at half the rate most Ontarians pay on income. A buck is a buck, but so-called “employee security options” cost the Ontario treasury $180 million in 2010-11[15] and are expected to cost much more in 2012-13.

    • Make income tax rates more progressive. The Conservative government of Mike Harris reduced the tax rate on high-income earners from almost 17 per cent to 11.16 per cent. Even raising the rate on high income earners by two points to 13.16 per cent would have a significant impact on provincial revenues. That’s because the top one per cent of Canadian taxpayers earn more than 13 per cent of the income in the country.[16]

    • Introduce a Financial Transactions Tax (FTT). Much of the “investment” that takes place these days is not investment in the productive economy but speculation. Originally conceived as a way to dampen speculative trading, a “Robin Hood Tax” on trades in stocks, bonds, derivatives, and currency would also raise money for public services. Even a rate as low as 0.1 per cent on trades would raise well over $1 billion a year on the $1.5 trillion in trades made through the Toronto Stock Exchange. And that’s assuming the tax succeeded in dramatically reducing speculative trading.

    • Tackle the problem of offshore tax havens. Canadian companies are now “investing” $160 billion a year in countries viewed as “tax havens”: Barbados Cayman Islands, Ireland, Bahamas, and Bermuda. The main “service” these and other countries offer to foreign corporations is, to be blunt, legalized tax evasion.[17] One academic study estimated that Canadian banks avoided $2.4 billion in taxes in 2007 alone through the use of tax havens.[18] The Ontario government should be working with the federal government and Canadian businesses with overseas holdings to insist that money earned in Canada be taxed in Canada.

    • Restore corporate tax rates to 2009 levels. In the 2009 Budget, the Ontario government announced cuts to corporate income tax rates that, by the government’s own estimate, were designed to cost the Treasury over $2.4 billion a year by July 2013.[19] While the government has postponed further cuts to the corporate tax rate, there is still approximately $1.5 billion a year missing from provincial coffers due to the rate cuts that happened in 2010 and 2011.

    If corporate income tax cuts were going to create jobs, they would have done so by now. We have seen corporate income tax rates fall for the last 10 years, but the rate of investment has actually gone down.[20] The federal government says that every dollar a government spends on corporate tax cuts creates just 30 cents worth of economic growth. But we get $1.70 in economic growth when we support unemployed and low-income people, and $1.40 when we invest in public services.[21]

    The government’s decision to postpone further cuts to the Corporate Income Tax rate is good as far as it goes, but it does not represent a sacrifice on the part of Ontario’s corporations. Those corporations’ profits come from centuries of hard labour by working people in Ontario. In the end, it is working people, and those who are unable to work, who are called on to make the sacrifices in the 2012-13 Budget.

    A Catalogue of Cuts

    While the government plans to raise $4.4 billion in new revenues over the next three years, it plans to cut four times that amount, or $17.7 billion, over the same period. The cuts to public spending and public services in the Budget are so numerous that the government has published them in their own book, available online at http://www.fin.gov.on.ca/en/budget/ontariobudgets/2012/addendum.html .

    Prior to the Budget, the government had already announced the closure of the Bluewater Youth Centre (Goderich) and the downsizing of the Cecil Facer Youth Centre (Sudbury) and the Brookside Youth Centre (Cobourg). But the Budget goes farther, saying it will “rationalize excess capacity in the youth justice system, in part, by reducing the number of transfer payment agencies contracted to provide open custody services.”[22] On the adult side, the government had already announced the closure of the Owen Sound, Walkerton, and Sarnia jails; now it is also closing the Brantford and Chatham jails and fully closing the Toronto West Detention Centre.[23] These three closures will affect close to 500 active OPSEU members.

    While no ministry of the Ontario government avoids the axe entirely in the 2012 Budget, some areas are notable for the severity of their punishment. The Ministry of the Environment is to be cut, in dollar terms, by over nine per cent, which makes for real cut of more than 12 per cent after inflation and Ontario’s population growth are taken into account. This is happening even though the Environmental Commissioner of Ontario noted recently that the MoE’s budget was 45 per cent less today, in real terms, than it was in 1992.[24]

    In social services, the government has frozen social assistance rates, which will very soon be only half of what they were, in real terms, in 1995. The Budget bluntly says that recent growth in social assistance spending is “not sustainable.” The government is awaiting the report of the Commission for the Review of Social Assistance in Ontario, expected late this year, but it is clear that whatever that Commission’s recommendations, they will only be considered in the context of cost-cutting.[25]

    At the same time, the government is slowing down its plans to increase the Ontario Child Benefit, currently at $1,100 per child per year.[26] In developmental services, the language is coded, but it is clear that the government plans to move quickly to an individualized funding model that can only undermine existing developmental service agencies: “The government… is examining the best way to give individuals and families more choice and encourage greater opportunities for individuals with developmental disabilities to participate fully in their communities while encouraging greater efficiencies in the sector.”[27]

    It is true that in the Budget there are some areas that may see modest spending increases. But with overall spending declining, any gains, no matter how small, are paid for by cuts in another area.

    The health care sector is a perfect example.

    Back in February, many health officials said that Don Drummond’s recommendation to restrain health care funding to increases of 2.5 per cent per year (a cut of about 0.8 per cent a year, after inflation and population growth are accounted for) were simply not workable. But the new Budget limits spending to an average 2.1 per cent (-1.2) over the next three years.

    Hospitals will be the hardest hit – their core budgets set at zero. The government has set aside 2 per cent in envelope funding for specific hospital programs, such as wait times initiatives.

    Home care and community care will get the biggest increase at 4 per cent (+0.7) per year, bringing funding to $526 million more annually by 2014-15. Already stretched thin, home care will face a greater transfer of hospital patients under the government’s present scenario.

    Long term care will receive a 2.8 per cent increase (-0.5), although only 1 per cent will be dedicated to front line care to residents. Surprisingly, after complaints about nursing homes siphoning off care money to their accommodations budget (where they are allowed to take profit), the province says that it will provide operators with “greater flexibility to pay for services from their current funding structure.”[28]

    There is no mention at all of mental health services in the budget. Once considered to be a major priority for government, it appears to be content to play out its modest plan of addressing child and youth mental health for at least the next two years.

    Much of the Budget has been lifted straight out of the Drummond report, including more flexibility (read: power) for the Local Health Integration Networks to allocate resources. They also like the idea of shifting more “routine” procedures from hospitals to not-for-profit clinics.

    The other surprise is the extension of the so-called HBAM (Health-Based Allocation Model) funding to Community Care Access Centres and Long Term Care homes. Originally it had only been discussed in the context of hospitals. The budget states that these health providers “will be funded based on the types and volume of services and treatments they deliver, at a price that reflects the best practice and complexity of patients and procedures.”[29] While best practices are usually discussed in clinical terms, it is interesting that the government inserted “price” into the equation.

    The government also adopted Drummond’s recommendation to make wealthier seniors pay for more of their drugs. Instead of simply taxing the rich, the government prefers a complex process of assessing senior’s income and adjusting deductibility on the Ontario Drug Benefit plan. The net result is that about five per cent of seniors will be paying more. Seniors with incomes in excess of $100,000, or couples in excess of $160,000, will pay an average of $665 more per year on the cost of their prescription drugs. It is interesting to note that they say these income thresholds will not be adjusted for inflation, meaning more seniors will be eventually required to pay a greater share of their drugs costs over time. The government did not adopt Drummond’s plan to use the savings from doing this to increase access to drugs for working age low-income Ontarians.

    While Don Drummond found a zeal for public health, it was not reflected in the budget. There is no plan to upload that remaining 25 per cent share of public health costs from the municipalities. Not surprisingly, neither does the McGuinty government plan to increase public health funding to BC levels, which are about three times the per capita investment of Ontario.

    Don Drummond’s recommendation to widen coverage of Medicare in Ontario was likely intended to blunt criticism from progressive quarters. Needless to say, it didn’t make the Budget. In fact, there is a suggestion that there could be reduced coverage for certain kinds of testing.

    Restructuring Public Services

    It is not possible here to fully catalogue every cut to a public service proposed in the 2012 Budget. Part of the reason for that is that many of the cuts are hidden in various moves to “transform” the way public services are delivered. The Budget proposes to:

    • Amalgamate some school boards;[30]

    • Integrate employment and training services;[31]

    • Move to industry self-regulation in more areas;[32]

    • “Modernize” court services;[33]

    • Merge the Ministry of Economic Development and Trade with the Ministry of Research and Innovation;[34]

    • “Rationalize” some functions of the Ministry of Municipal Affairs and Housing;[35]

    • Bring in a new funding model for Children’s Aid in a hazy cloud of talk about “restructuring.[36]

     

    Many more examples of fundamental changes to public services are included in both the Budget and the Addendum to the Budget.

    One particularly large project appears to involve changes to the Ministry of Natural Resources. Note the buzzwords in the Budget as the government proposes to:

    transform the stewardship and conservation of Ontario’s natural resources;

    transform key parts of its legislation, regulations, policies and guidelines with a view to streamlining and automating permitting processes and requirements;

    • conduct resource management with a stronger regional focus and fewer field offices; and

    • redesign its science and delivery activities to shift away from a species-by-species approach to a risk-based ecosystem/regional approach.

    The government is also proposing to amend the Public Lands Act to make it possible for the Minister of Natural Resources to delegate selected functions to persons outside government. This might involve, for example, allowing municipalities to manage Crown land within municipal boundaries.[37]

    Privatization: Promoting a Failed Ide

    The privatization of Ontario’s air ambulance service, now called Ornge, is a tale of scams and rip-offs, its only purpose being to pad the pockets of high-flying executives. With this colossal failure on the front pages every day, it is hard to believe that the McGuinty Liberals would pick now as the time to promote more privatization of public services. Yet that is exactly what they are doing.

    The Budget contains several mentions of the great things that are possible through “Alternative Financing and Procurement,”[38] also known as giving corporations a way to make money from public services. The Budget talks of “expanding the role of the private sector in the operations of Ontario Lottery and Gaming, thereby “creating greater efficiencies.”[39] A simpler way to put this might be to say that private operators were getting a piece of the action. Why? Because they want it.

    Nowhere is the government’s bias against the public sector more obvious than with respect to ServiceOntario. In the Budget, the government begins by singing the praises of ServiceOntario:

    ServiceOntario provides Ontarians with fast, easy access to government information and services, including registrations, certifications, and licensing. This innovative government organization already has an exceptional track record – customer satisfaction increased from 75 per cent in 2008 to 93 per cent in 2011. Birth and marriage certificates are delivered on time in 99.8 per cent of cases, and money-back guarantees are offered when they are not. [40]

    Sounds good, right? Well, these days it’s not enough to be “innovative” and “exceptional.” A good service must also be profitable for private investors. The government says it has already “uncovered significant opportunities to employ private capital and expertise to reduce costs and improve operations.” [41] ServiceOntario already brings in $10 to the people of Ontario for every $1 it costs to run. Reducing costs will only happen if privatized workers can be forced to transfer part of their wages to corporate profits. The government’s plans to run ServiceOntario as a “public-private partnership” (P3) will rip off workers and the citizens of Ontario at the same time.

    Privatization has a lousy track record in Ontario.

    The Budget’s call for more “alternative service delivery” forgets the Andersen Consulting fiasco of a few years back, in which private consultants were getting paid six times the rate of in-house IT professionals. It ignores a recent Ontario study that showed it cost $22 to do the average lab test at public hospitals but $33 at a private lab. It overlooks the fact that Ontario sold Teranet, its electronic land registry service, to a private investor for barely one-third of its real value. In short, it ignores the facts.[42]

    From meat inspection to super-jails to over-budget “P3” hospitals, the history of privatization in Ontario is a long list of gaffes. Ontarians paid a lot to correct some of those mistakes. Some of them are still with us – as any driver on Highway 407 will tell you.

    What drives privatization is not a desire to save public dollars, but pressure from business to create investment opportunities. If you’ve ever wondered why anyone would pay $1,500 a plate to go to a Dalton McGuinty fundraising dinner, look no further.

    Cutting Wages: What the Budget’s All About

    For all its talk of “modernizing” public services and finding “efficiencies,” the Budget is about one thing more than any other. It’s about driving down wages.

    Forget the fact that Ontario already has the leanest, most efficient public sector in Canada. Forget the fact that (for example), the Ontario Public Service has 14 per cent fewer employees than it had in 1995.[43] Forget the fact that public employees are hard-working, taxpaying, voting citizens of this province whose contribution should be recognized.

    Forget all that. Because Dalton McGuinty says you need to take a pay cut.

    In 2010, the Budget bill included legislation to freeze the pay of all non-unionized provincial employees for two years. In bargaining with unionized workers, the government took a hard line, forcing many, although not all, to accept a wage freeze (which is really an annual pay cut equal to the rate of inflation). Now, in 2012, the government is threatening to pass legislation if workers won’t accept similar cuts at the bargaining table.

    Of the $17.7 billion the government wants to save over the next three years, a full $6 billion of it is to come from “compensation restraint for school boards, payments to physicians and public servants”[44]. A further $6.8 billion is to come from cost-cutting across the broader public sector – costs that are certainly attached to wages and jobs.

    The government is not clear as to whether it expects all workers to accept a two-year wage freeze, or whether it is demanding more. One line from the Budget is ominous: “While the length of individual collective agreements may vary, restraining public-sector compensation costs for the full five years of the plan is critical to balancing the budget.”[45]

    In his Budget speech on March 27, Dwight Duncan started out sounding diplomatic and ended up sounding dictatorial:

    The McGuinty government respects the collective bargaining process and we will work through it. Bargaining in good faith is not only the right choice to make … The Supreme Court of Canada requires it … Just as all Ontarians require that we stay on track to balance Ontario’s budget. Where agreements cannot be reached that are consistent with the government’s plan to balance the budget… And if no agreement can be struck to protect Ontario’s progress in education and health care… We are prepared to propose necessary administrative and legislative measures to protect the public from service disruptions.[46]

    In bargaining units that do not have the right to strike under the law, the government is interested in “greater transparency and accountability.” It is also interested in changes to the province’s arbitration system – again, with a view to keeping a lid on costs:

    The government will consider proposals that respect the collective bargaining process and will hear submissions from employers, bargaining agents and other stakeholders on additional tools necessary to live within their funding allocations. In particular, the government is interested in submissions based on practices in other Canadian provinces.[47]

    Until such consultations take place, of course, it is impossible to know exactly what the government has in mind.

    One thing we know for sure: the government is solidly in favour of “pay freeze for executives”! According to the Budget, the pay of executives at hospitals, colleges, universities, school boards and agencies has already been frozen for two years. Two years from now, the Budget says, “their pay will have been frozen for four years….”[48]

    OPSEU members who have watched as executives with their pay “frozen” raked in fat bonuses over the last two years should have a good chuckle at this one. It’s the only thing that’s funny about the government’s approach to wages.

    The Attack on Pensions

    Pensions are a form of wages, so given the Budget’s attack on wages it is not at all surprising that the Budget also includes attacks on the pensions of OPSEU members and hundreds of thousands of other public employees in Ontario.

    Simply put, the employer doesn’t want to pay.

    On the heels of the 2008-09 recession, public pension plans around the world are in deficit. This is not unheard of following a recession. Normally, a shortfall in a pension plan is made up either by a) increasing contributions to the plan; or b) reducing future benefits. The government wants to ensure that option b) is the only option available. If this happens, government won’t have to pay more, and plan members will receive less when they retire.

    The government also wants to move to a system where all public pension plans are paid for by employers and employees on a 50-50 split. (While some pension plans are already like this, in others the employer pays a larger share than employees do.)

    In the case of both changes, the employer wants to enshrine them in law. While the government proposes “consultations” to discuss pension plan changes, it is clear from the Budget that it already has its own ideas about what these changes should be. The government says that “current retirees would not be affected” by any changes. Another idea is that “where plan sponsors cannot agree on benefit reductions through negotiation, a new third-party dispute resolution process would be invoked.”[49] This would be a major change to the historical relationship between the parties in jointly-sponsored pension plans.

    In a similar vein, the Budget also proposes changes to smaller single-employer pension plans, referring specifically to the 25 pension plans at Ontario’s 20 publicly-funded universities as an example. Given the better performance, the government intends to introduce legislation in the fall that would “pool investment management functions” of smaller pension plans in Ontario.[50]

    All of the pension proposals in the 2012 Budget could have significant impacts on OPSEU members who are pension plan members. The changes proposed could affect how much it costs you to retire, when you can retire, and what your retirement income will be. OPSEU will be fully engaged in any and all pension discussions, and will work to mobilize members to ensure that their interests are safeguarded as we continue to work for retirement security for all working people.

    The Impact of the Budget on Jobs

    When it comes to jobs, the lessons of the last four years are pretty straightforward: When the economy is weak, an increase in government spending makes it stronger and saves jobs. On the other hand, a reduction in government spending makes the economy even weaker and eliminates jobs.

    A weaker economy undermines government efforts to deal with deficits, on the cost side and the revenue side. Lost jobs mean more workers applying for Employment Insurance or social assistance, which adds to government costs. Lost jobs means more workers who are not paying taxes to pay for public services – or pay down the deficit.

    OPSEU will be releasing a comprehensive report on the job losses due to the 2012-13 Budget in April 2012.

    In December, the Angus Reid polling company asked 2,000 Ontarians how they would like to see the government deal with the deficit. A whopping 87 per cent chose “job creation” as their preferred deficit-cutting method.[51] It is clear to most people that building a strong economy where people are working at good jobs is the surest way to address budget shortfalls.

    The government says the province’s unemployment rate will fall to 6.7 per cent in 2015.[52] Maybe it will. But if it does, it won’t be because this Budget helped. The 2012-13 Budget walks away from its responsibilities when it comes to job creation.

    Aside from the 20,000 jobs the government says have been created because of its Green Energy and Green Economy Act[53], it is hard to pinpoint what the government’s job creation plan is. On the one hand, the government says it will “continue to invest in core economic infrastructure such as highways, transit and postsecondary education,”[54] but on the other hand the Budget plans to scale back its infrastructure spending.[55] The government’s new “Jobs and Prosperity Fund” will roll business support programs into a single $2-billion-a-year entity, but again, its main goal appears to be to reduce spending by $250 million.[56]

    Naïvely, the government believes that the Harper government’s plan to sign a Comprehensive Economic and Trade Agreement (CETA) with the European Union will help Ontario,[57] but acknowledges that the entire Euro-Zone economy is in decline.[58]

    There are two things to say about this: First, CETA won’t help the Ontario economy. It will increase our dependence on resource extraction and cost us manufacturing jobs.[59] It will expose our public services to intense privatization pressures as corporations gain new rights to prey on provincial and municipal public services and overrule the economic development plans of elected governments.[60]

    Second, even the government’s banker-advisor, Don Drummond, warned the government about the dangers of CETA because of what it could do to prescription drug costs:

    Negotiations for a comprehensive free trade agreement with the European Union (EU) are underway and the outcome of these negotiations could have significant impact on the cost of prescription drugs in Ontario. The potential harmonization of patent rules with the EU could cost Ontario dearly since generic drugs would be kept off the market for a longer time. If all three of the EU pharmaceutical intellectual property proposals are adopted, estimates suggest it could cost Ontarians up to $1.2 billion annually ($551 more for the Ontario government, and $672 million for the private sector), which would more than wipe out the savings achieved through the government’s recent drug reforms.[61]

    The McGuinty Liberals are not the first government in history to put their faith in free trade as a cure-all for an ailing economy. In the end, this strategy is no strategy at all: it is merely the surrender of decision-making power to corporate CEOs whose only loyalties are to shareholders, not citizens. Putting your faith in corporate CEOs is an abdication of responsibility. What this province needs is an industrial strategy that will restore our economy, support our public services, and put the province on a firm financial footing.

    When Dwight Duncan says that “the most important thing the Ontario government can do to strengthen the economy is to balance the budget,”[62] he has it backwards. In reality, the most important thing the Ontario government can do to balance the budget is to strengthen the economy.

    Conclusion: A Budget That Fails Ontario

    The 2012 Ontario Budget is one small part of a larger campaign to make working people – including a lot of OPSEU members – pay for the 2008-09 recession. First the government borrowed money to absorb the shock of the recession; then it blamed the resulting deficit on over-spending; then it exaggerated the depth of the deficit; then it refused to consider tax fairness to raise revenues from profitable corporations and high-income individuals; then it tabled the Budget.

    The 2012 Budget has failed Ontario on several counts. If this Budget passes, it will hurt people, slow our economy, and sharply increase income inequality in this province.

    In the weeks ahead, the Ontario Legislature will be debating this Budget. But the real debate is not about the contents of a 300-page paperback. It’s about what kind of province we want to live in.

    OPSEU members work every day to make Ontario a better place to live. Saying NO to this Budget, and the damage it will do to Ontario, is a continuation of that work.

    Authorized for Distribution by Warren (Smokey) Thomas,
    President, Ontario Public Service Employees Union.

    Produced by OPSEU Communications on March 28, 2012.

    Notes

     

    [1] RBC Economics. “Provincial Fiscal Tables.” Royal Bank of Canada, March 22, 2012. Available at http://www.rbc.com/economics/market/pdf/prov_fiscal.pdf.

    [2] “Real” means after inflation (which Drummond estimated at 2.2 per cent per year). “Per capita” means per person. Since Ontario’s population is growing at 1.1 per cent a year, any spending growth that is less than 3.3 per cent is actually a real cut in spending per person.

    [3] Commission on the Reform of Ontario’s Public Services. Public Services for Ontarians: a Path to Sustainability and Excellence (Toronto: Queen’s Printer for Ontario, 2012), p. 10.

    [4] Dwight Duncan, 2012 Ontario Budget (Toronto: Queen’s Printer for Ontario, 2012), pp. 174-177.

    [5] Matthew Mendelsohn, “Ontario staggers under burden of fiscal federalism.” Toronto Star, March 6, 2012.

    [6] Budget, p.8.

    [7] Hugh Mackenzie, Ontario’s Fiscal Reality: Cup Half Empty or Half Full? Toronto: Canadian Centre for Policy Alternatives, March 2012.

    [8] In this regard, it makes sense that the government hired Don Drummond for advice. As the man in charge of federal budgets for many years in the 1990s, Drummond may hold the record for missing a budget balance. In 1997-98, federal Finance Minister Paul Martin estimated the country would have a $17 billion deficit. By the end of the year, the government had a surplus of $3.8 billion. The government had underestimated the budget balance by nearly $21 billion. See Jim Stanford, “Paul Martin, the Deficit, and Debt: Taking Another Look,” in Hell and High Water: An Assessment of Paul Martin’s Record and Implications for the Future (Todd Scarth, ed.) (Ottawa: Canadian Centre for Policy Alternatives, 2004), p. 48.

    [9] Budget, pp. 103-106.

    [10] Budget, p. 66. It is interesting to note that the plan to “optimize” the LCBO completely ignores the more than $16 million a year the government could bring in by returning large-volume “agency stores” to direct operation by the LCBO.

    [11] Budget, p. xxiii.

    [12] Dwight Duncan, 2012 Ontario Budget Speech (Toronto: Queen’s Printer for Ontario, 2012), p. 9.

    [13] Budget, p.8.

    [14] Hugh Mackenzie. Canada’s CEO Elite 100: The 0.01%. Ottawa: Canadian Centre for Policy Alternatives, 2012. Available at http://www.policyalternatives.ca

    [15] Ontario Ministry of Finance. “Transparency in Taxation, 2010,” 2010 Ontario Economic and Fiscal Review. Available at http://www.fin.gov.on.ca/en/budget/fallstatement/2010/transparency.html .

    [16] Armine Yalnizyan, The Rise of Canada’s Richest 1% (Ottawa: Canadian Centre for Policy Alternatives, 2010), p. 4.

    [17] See Toby Sanger, “Canada’s Caribbean Bank Tax Holiday.” Progressive Economics Forum, April 15, 2011. Available at http://www.progressive-economics.ca/2011/04/15/canadas-caribbean-bank-tax-holiday .

    [18] See Léo-Paul Lauzon and Marc Hasbani, “Les banques canadiennes et l’évasion fiscale dans les paradis fiscaux: 16 milliards de dollars d’impôts éludés: Pour la période de quinze ans allant de 1993 à 2007.” Chaire d’études socio-économique de l’Université du Québec à Montréal, mai 2008. Available at http://www.cese.uqam.ca/pdf/rec_08_evasion_fiscale.pdf.

    [19] Dwight Duncan. Ontario’s Tax Plan for Jobs and Growth (Toronto: Queen’s Printer for Ontario, 2009), p. 15.

    [20] Calculated from Ontario Ministry of Finance, Ontario Economic Accounts (July 2010), “Historical Tables.”

    [21] James M. Flaherty, Budget 2010: Leading the Way on Jobs and Growth (Ottawa: Her Majesty the Queen in Right of Canada, 2010), p. 281.

    [22] Dwight Duncan, Addendum to the 2012 Ontario Budget (Toronto: Queen’s Printer for Ontario, 2012), p. 4

    [23] Addendum, p. 12.

    [24] Environmental Commissioner of Ontario. “MoE and MNR Can’t Handle Core Responsibilities.” News release, Nov. 29, 2011. Available at http://www.eco.on.ca/index.php/en_US/pubs/annual-reports-and-supplements/2010-11-annual-report---engaging-solutions/moe-and-mnr-can-t-handle-core-responsibilities .

    [25] Budget, p. 43.

    [26] Budget, pp. 44-45.

    [27] Budget, p. 45.

    [28] Budget, p. 28

    [29] Budget, p. 29

    [30] Budget, p. 13.

    [31] Budget, p. 13.

    [32] Budget, p. 91.

    [33] Budget, p. 94.

    [34] Addendum, p. 5.

    [35] Addendum, p. 7.

    [36] Budget, p. 94.

    [37] Budget, p. 92.

    [38] Budget, p. 40.

    [39] Budget, p. 82.

    [40] Budget, p. 87.

    [41] Budget, p. 87.

    [42] Eric Reguly. “Reclusive investor gets last laugh as Queen’s Park bungles Teranet.” The Globe and Mail, April 28, 2005. Available online at http://www.globeadvisor.com/servlet/ArticleNews/story/gam/20050428/RREGULY28 .

    [43] Budget, p. 83.

    [44] Budget, p. 65.

    [45] Budget, p. 69.

    [46] Speech, pp. 14-15.

    [47] Budget, pp. 75.

    [48] Budget, p. 4

    [49] Budget, p. 77.

    [50] Budget, p. 79.

    [51] Angus Reid Public Opinion. CUPE – Saving the Economy Poll. December 13, 2011. Available at http://www.cupe.on.ca/a4212/Media%20kit%20-%20Saving%20the%20Economy%20Poll.pdf .

    [52] Budget, p. 109.

    [53] Budget, p. 47.

    [54] Budget, p. 33.

    [55] Budget, p. 39.

    [56] Budget, p. 35.

    [57] Budget, p. 36.

    [58] Budget, p. 131.

    [59] See Jim Stanford, Out of Equilibrium: The Impact of EU-Canada Free Trade on the Real Economy. Ottawa: Canadian Centre for Policy Alternatives, 2010. Available at http://www.policyalternatives.ca/publications/reports/out-equilibrium .

    [60] See Larry Brown, “Fast Facts: What is a CETA, and why should we be worried about it?” Winnipeg: Canadian Centre for Policy Alternatives, June 24, 2011. Available at http://www.policyalternatives.ca/publications/commentary/what-ceta-and-why-should-we-be-worried-about-it .

    [61] Commission on the Reform of Ontario’s Public Services. Public Services for Ontarians: A Path to Sustainability and Excellence (Toronto: Queen’s Printer for Ontario, 2012), p. 441.

    [62] Budget, p. 69.

     

    Out of Step With Ontario

    A First Look at the Report of the Drummond Commission

    February 16, 2012
     

    Drummond reports

    Ten months after it was first announced, the Commission on the Reform of Ontario’s Public Services has finally published its report. The Commission, chaired by former bank vice-president Don Drummond, has made 362 separate recommendations. If implemented, Drummond’s plans would permanently change not only our public services, but our province itself.

    With very few exceptions, the changes Drummond suggests would not be for the better.

    This paper is called “Out of Step With Ontario” because that is what Drummond’s report is..

    In December 2011, the Angus Reid polling company conducted a survey of 2,000 Ontarians. What the survey found was that 71 per cent of Ontarians want to see spending on public services either stay the same or go up; 81 per cent support higher income taxes on corporations; 82 per cent support higher income taxes on individuals earning over $300,000 a year; and a whopping 87 per cent chose “job creation” as their preferred method of paying down the provincial deficit.[1]

    In contrast, Don Drummond wants to take an axe to public services, cutting spending more deeply and for more years than the Mike Harris government did in the 1990s. He wants more privatization, which would drive down wages for workers and increase profits for investors but not provide better services or lower costs to the public. With very few exceptions, Drummond ignores options for generating revenue to pay for public services.

    Lastly, Drummond forecasts a weak economy for years to come but proposes no ideas to make that economy stronger. Indeed, his “austerity” measures will slow down our economy, thereby cutting jobs and making the provincial budget deficit worse.

    Drummond’s plan won’t work.

    This document is a first look at what Drummond has in mind. It is not a comprehensive analysis. Instead, it provides a quick overview that looks at Drummond’s proposals from the perspective of OPSEU members. Some key points have, without a doubt, been overlooked; if so, they will be added to future editions of this document, available on the OPSEU web site.

    Economic assumptions and spending targets

    The Drummond Commission forecasts slow growth for Ontario’s economy for the foreseeable the future – roughly 2 per cent per year in real terms, i.e., after inflation is taken into account. Slower growth in the economy means slower revenue growth.

    According to Drummond, the problem is so bad that the current deficit of $16 billion will grow to $30.2 billion if left unchecked. Based on these assumptions, Drummond says that, to balance the budget, total program spending for the Ontario government must grow by only 0.8 per cent per year until 2017/18.[2]

    This is actually a cut in spending. That’s because inflation adds 2 per cent – or more – to costs every year. With population growth of about 1.1 per cent a year, an “increase” of 0.8 per cent is really a cut of 2.3 per cent per year per person in Ontario.

    Drummond recommends a different level of spending “growth” for each sector of government. The chart shows the level of growth Drummond recommends and what it means on a per capita basis in real terms:

    Sector

    Drummond growth recommendation

    Real increase per capita per year, after inflation

    Health

    2.5%

    -0.6%

    Education (Schools)

    1.0%

    -2.1%

    Education (Post-Secondary)

    1.5%

    -1.6%

    Social Services

    0.5%

    -2.6%

    All Other Programs

    -2.4%

    -5.5%

     

    In 2009, Ontario’s overall tax load was 13.2% of the economy as measured by Gross Domestic Product. This was the second lowest in Canada. According to Finance Minister Dwight Duncan, Ontario spends less per person on government programs than any other province in Canada.”

    The obvious conclusion from these two facts is that Ontario’s public services are already underfunded and it is possible to raise provincial revenues.

    Drummond, who has been a staunch supporter of corporate tax breaks for a long time, makes no recommendations to raise any tax rates to deal with the province’s evident revenue problems. The Commission identifies some revenue measures, however. These include increased enforcement around contraband tobacco and the underground economy, improved collection, the elimination of some “tax expenditures” (targeted tax breaks) to business, and additional revenue from Crown Agencies.

    Drummond also points out that although Ontario is now receiving equalization payments from the federal government, the fact still remains that the federal government takes more and returns less to Ontario than it should, based on the province’s share of the Canadian population.

    A number of facts about the provincial budget are worthy of note:

    • First, Ontario does not have a spending problem. The budget was, in fact, balanced for in 2005-06, 2006-07, and 2007-08. The real cause of the deficit was the fall in revenues from the recession, not spending.

    • Second, Drummond’s assumption that the budget must be balanced by 2017-18 is a political decision, not an economic one. That’s because it is not the size of the deficit that matters. What matters is the size of our overall debt compared to the size of our economy. In reality, the provincial debt will begin to fall in relation to the size of the economy as soon as the deficit gets down to about $8 billion a year. After that, the province’s overall financial health begins to improve – even if the books are not quite balanced.

    • Third, Ontario can afford to raise revenues. To take just one example, freezing corporate income tax rates at 11.5% instead of reducing them to 10% as currently planned would bring in an extra $300 million in the first year and $800 million every year after that.

    • Fourth, Don Drummond was in charge of budget-making when he worked under former Finance Minister Paul Martin in the 1990s. In 1997-98, he forecast a budget deficit of $17 billion. That year, the government had a surplus of $3.8 billion. In other words, Drummond’s forecast missed the mark by more than $20 billion. During the years he worked at Finance, Drummond’s budget estimates were an average of $8 billion a year too pessimistic.[3]

    Recommendations on health care

    Health care is the single biggest item paid for out of the Ontario budget, and the Drummond Commission spent a lot of its time examining this area. In the end, Drummond made 105 recommendations relating to health care.

    Spending more

    Despite his advice to hold health care spending to 2.5 per cent a year – a very tough target to achieve – Drummond actually recommends spending more in a number of areas. Presumably his idea is to restructure the way health care is delivered and somehow save money in the long run, but just how that would happen is not clear.

    Drummond recommends new spending that would:

    • enhance mental health;

    • upload public health from the municipalities and triple per capita spending on them;

    • migrate doctors from the private practice model to the family health team model, including specialists;

    • super-size the Local Health Integration Networks and pay LHIN CEOs a more “competitive” (higher) wage, comparable to hospital CEOs;

    • accelerate the implementation of e-Health;

    • enhance data collection and sharing;

    • increase enrollment in medical schools for nurses and other health professionals;

    • hire more “clerical system navigators” to co-ordinate appointments and assist patients with required forms and paperwork;

    • expand telehomecare;

    • create bodies similar to Cancer Care Ontario for mental health plus heart-and-stroke and renal disease

    • enhance the roles of the Institute for Clinical and Evaluative Sciences (ICES) and Health Quality Ontario (HQO), including making HQO a regulatory body to enforce evidence-based practice and creating a role for ICES in conducting research on efficiency;

    • get both organizations to play a bigger role in drug comparisons;

    • create an OECD-type national entity that collates and enhances evidence-based policy directions and increases collaboration between provinces;

    • provide additional resources to “integrate, co-ordinate and enhance traditional sectors” of community care;

    • focus on “assess and restore” seniors to create opportunities for them to be transferred back home from LTC facilities;

    • do better health human resources planning

    • expand Medicare to include pharmaceuticals, expanded long-term care and “aspects” of mental health; and

    • establish a Commission to guide health reforms.

    Where would the money come from?

    To pay for all this, Drummond proposes that:

    • the Ministry of Health will be gutted to provide enough staff for the super-sized LHINs;

    • (remaining) ministry staff will be responsible for drafting a 20-year plan; and

    • after 2017-18, health care funding increases will be arbitrarily capped at 5 per cent.

    Much of Drummond’s focus centers on taking services out of hospitals, and creating incentives to keep health care providers – such as the Family Health Teams – from referring patients to hospital. Drummond recommends hospitals continue to receive increases, but at a slower pace than other sectors.

    Privatization and restructuring

    Although Drummond’s mandate from the McGuinty government specifically said, “Do not recommend privatization of health care,” the Drummond report makes the following observation:

    “We interpret this to mean that health care must be kept within the public payer model. We do not interpret it as denying opportunities for private-sector delivery of services….”

    Not surprisingly, then, Drummond would like to see expanded alternate services that could include private for-profit entities. Drummond also envisions mergers:

    mergers of hospitals (on an administrative level so as not to trigger labour disruptions);

    a possible merger of the LHINs and Community Care Access Centres, given their similar roles and the need for the LHINs to take on case management (Case managers would play a larger role than assessing clients for home care and long term care, so presumably there would need to be more case managers)

    Taking democracy out of health care

    Drummond advises taking “politics” – and by implication democracy – out of health care by giving the LHINs more authority without increasing accountability beyond existing agreements with the Ministry of Health.

    More money for better CEO performance?

    Drummond offers no plan to cap CEO salaries. Instead, he would make pay more performance-based. (At present hospitals are already encouraged to do so -- up to 30 per cent of CEO compensation can be performance pay.)

    Keeping an eye on “expensive” frontline staff

    Drummond would enhance scope of care for health professionals. LHINs would provide oversight to make sure no health professional is delivering care that can be delivered by someone with lesser qualifications.

    Get ready to die

    Grimly, Drummond recommends that all doctors begin engaging their middle-aged patients in discussions about end-of-life care.

    Big plans for the Ontario Public Service


    ServiceOntario

    Don Drummond has big plans for ServiceOntario. If implemented, his recommendations would:

    • expand the services ServiceOntario delivers within the provincial government and have more service-delivery partnerships with municipal and federal levels of government.

    • integrate the delivery of 37 income-based programs including social assistance.

    • transfer call- and internet-based inquiries on employment standards and occupational health and safety from the Ministry of Labour to ServiceOntario.

    • expand the databases ServiceOntario manages to occupational health and safety inspectors to “permit more efficient management of enforcement activities.” 

    • move the focus of service delivery to the Internet, kiosks and telephone service and away from in-person service.

    • increase ServiceOntario’s capital budget and generate a “fiscal dividend” from ServiceOntario. (This despite the fact ServiceOntario is profitable as is, generating $10 of revenue for every $1 it spends.)

    • bring in public-private sector partnerships for ServiceOntario to drive expansion and deliver a fiscal dividend.

    Privatization of I & IT

    Related to public-private partnerships, Drummond is keen to shift delivery of I & IT from in-house to external resources – in other words, to privatize IT functions.  “Simply put, governments cannot afford to remain the only centres of expertise when it comes to IT service delivery if more cost-effective options are available,” Drummond says.

    Social Programs[4]

    Drummond recommends keeping spending on social programs within the annual 0.5 per cent growth cap. Social assistance accounts for 51 per cent of the province’s spending on social programs; as such, it receives a lot of Drummond’s attention.

    Drummond claims to have uncovered evidence of higher costs and reduced quality of services due to maintaining two separate social assistance programs (Ontario Works and the Ontario Disability Support Plan) delivered by two levels of government. This is incredible because the provincial government’s own figures from the Public Accounts show that only 3.6 per cent of social assistance expenditures go to administration! To “streamline” these programs – and others – Drummond would:

    • Combine Ontario Works and the Ontario Disability Support Program and have the combined program delivered at the local level.

    • Consider integrating both with Employment Ontario services.

    • Deliver “transactional services” associated with social assistance through ServiceOntario.

    • Get more people with disabilities into the labour market.

    • Get the federal government to establish a national-income support program for people with disabilities who are unlikely to enter the workforce.

    • Make eligibility for Ontario Drug Benefits solely dependent on income as opposed to age or whether the person is on social assistance.

    • Integrate the large number of programs and services provided by multiple ministries into Employment Ontario over time (being cognizant of the fact that Employment Ontario is a relatively new program).

    • Shift the responsibility for all apprenticeship administration from government to other actors (e.g., College of Trades, colleges, and union training centres).

    Closing Demonstration Schools

    In a shockingly cruel proposal, Drummond recommends closing all the provincial schools that work with children with severe learning disabilities.

    A typical child admitted to a demonstration school is about 5 grades behind the reading level of his or her peers. The schools currently educate about 800 students, of whom only 120 are in residence. These children are not in the public school system because they have never been able to meet the standards of the public school system. And since the Drummond report recommends eliminating 70 per cent of non-teaching staff and increasing class sizes in public schools, the public system never will be able to meet their needs.

    Youth justice: more closures

    Drummond would reduce excess capacity in the youth justice system through “strategic closures” of facilities: “Where excess capacity can be demonstrated and a more efficient option exists, strategic closures should occur.”

    (Not) saving the environment

    Notwithstanding the recent report of the Environmental Commissioner of Ontario (ECO), which indicated that the current budget of the Ministry of the Environment is 45 per cent lower, in real terms, than it was 20 years ago, the Drummond Commission trumps all things ECO. Drummond includes the Ministry of Environment in that category of public services that should be cut back most severely.

    Drummond would restructure the Ontario Clean Water Agency as a for-profit, wholly-owned government entity.  The report points out the wages it offers skilled water and wastewater operators are not competitive with those offered in the municipal sector.

    Drummond would accelerate the move to the risk-based approach to MOE’s environmental approvals process and move towards full-cost recovery of the approvals program.

    Expanding shared services to the Broader Public Service

    If implemented, Drummond’s recommendations would:

    • share more back-office functions (payroll, procurement) and common administrative services (printing, mail, asset management) of the OPS with agencies, boards and commissions in the Broader Public Service; and

    • centralize transfer payment and grant programs currently delivered by multiple ministries into a single “transfer payment operation centre and enterprise grant management system.”

    More industry self-regulation

    Drummond would cut costs to government by expanding industry self-regulation. Drummond would remove the province from regulatory programs having to do with public safety, worker safety, residential and commercial construction, environmental protection, and consumer protection. “In a time of fiscal constraint, there is a risk of service erosion as regulatory ministries seek to reduce costs. It is important to explore different forms of service delivery through arm’s-length bodies.”

    Drummond’s report does not comment on the potential conflicts of interest involved when industries police themselves.

    Changes for OPS Correctional Services

    Drummond knows that there will be huge pressures on Ontario’s correctional services system with the passage of new federal crime legislation and the need to replace, or at least invest in, the many aging correctional facilities.

    Private delivery of food, laundry, health care – and inmates

    Drummond wants to contract out much of the work that goes on inside – and outside – a correctional facility:

    • Even though food and laundry service workers are the lowest-paid in the corrections system, and much of the work is done by inmate labour at no cost, Drummond wants to contract out this work. It will save no money, but it will increase security risks and the potential for contraband.

    • Even though health care providers in Corrections are paid much less than their counterparts in hospitals and agencies, Drummond wants to hire agency staff. Using private delivery would actually increase costs.

    • Contracting-out of inmate transportation has moved some of these services to the Ontario Provincial Police, which costs more. If Drummond wanted to save money in this area, he would recommend having all this work be done by Correctional employees.

    • The greatest risk to the public from inmates occurs when inmates are being escorted in the community. Correctional Officers do this work currently at lower cost than OPP officers, who are sometimes called on to do it. There is no public appetite for inmate escorts to be handled by private security guards. Yet that is what Drummond recommends.

    Divert inmates with mental health issues to programs to avoid remanding them into custody

    Nineteen per cent of provincial inmates have mental health issues, and correctional staff have long argued that many do not belong in jail. Drummond recommends moving these individuals to mental health programs in the community. It would be a fine idea if they had not wound up in correctional facilities because the programs they need do not exist in the community. Drummond acknowledges that this recommendation would have large impacts on the Ministry of Health; he says discussions should take place.

    Infrastructure renewal

    Drummond acknowledges that 70 per cent of correctional facilities are aging and will need replacement or major renovations. He does not recommend closing any more facilities. Indeed, he states that a new $900 million facility may need to be built if the federal crime bill passes into law.

    He also recommends that there should be alternative (private) financing methods for new facilities, through Infrastructure Ontario.

    Moving all inmates sentenced to six months or more to the federal system

    This recommendation would give inmates better access to opportunities for rehabilitation and life skills programs in the federal system. The beds freed up could be used for the expected influx of new inmates coming into the provincial system as a result of federal crime bill.

    Privatization of corrections staff training

    Staff training of correctional staff is best done by corrections professionals, but Drummond suggests it could be delivered through a private company. Cost savings would be negligible at best – and that’s if the training was successful.

    Squeezing social programs

    The report of the Drummond Commission says that, “From 2000 to 2010, spending on social programs grew by an average of 6.0 per cent per year.” During the period, Drummond says, demand for the Ontario Disability Support Program (ODSP) increased by about five per cent per year. After the 2008-09 recession, the demand for income support through Ontario Works also went up.

    Drummond now wants to hold spending on social programs to 0.5 per cent per year. In real terms, this is a large cut that will cause real pain to the most vulnerable Ontarians – not only those living in poverty, or people with disabilities, but children and families who depend on child protection services, daycare, and other vital programs. If Drummond’s recommended funding targeted is accepted, seven years of 0.5 per cent will guarantee levels of destitution and desperation not seen in Ontario in living memory.

    Not surprisingly, then, Drummond recommends that the government renege on its 2011 commitment to increase the Ontario Child Benefit from $1,100 a year to $1,310 a year.

    Centralize and integrate

    Drummond identifies the wide variety of income-based benefit programs, each with its own criteria for eligibility, as a source of extra administrative costs that could be reduced by:

    • creating an integrated, centralized, and automated benefits system that would centralize income testing and payment delivery; automate the processing of applications, eligibility assessment and payments; automate income verification; consolidate program delivery; and standardize eligibility criteria across similar programs.

    • creating a single point of access for clients to access benefits.

    • collecting more data to measure “client outcomes.”

    Child welfare

    Funding in the children’s aid sector has grown by five per cent a year over the last five years, Drummond says, noting that keeping annual spending growth to 0.5 per cent will be “immensely challenging.” He limply proposes “more integration” with other sectors and an “outcome-based accountability structure.”

    Children’s mental health, children’s services

    Drummond recommends the government “consolidate agencies and improve service delivery and integration both within the sector itself and with other sectors such as children’s services, health, education, and youth justice.” This would be part of a general move to greater integration of children’s services. How these would be accomplished inside an environment of cuts is unclear.

    Developmental services

    Individualized funding is the core of Drummond’s plan for developmental services. Rather than provide solid funding to agencies run by trained and experienced staff, Drummond suggests giving money to individuals or their families. Given the funding constraints, this money would obviously be less than what is required to provide the service; Drummond believes that “a more competitive and market-driven approach” would cause agencies to “realign in response to this market.” What he overlooks is that workers in developmental services are already among the lowest-paid in the public sector. One very strong possibility is that many of these workers would simply leave the sector altogether, leaving the families of people with disabilities with a certain (small) amount of money but no help at all. From the point of view of a bank economist, of course, this would still be a success, as overall costs for developmental services would be lower.

    Drummond weighs in on education

    Drummond recognizes the problem of underfunding of First Nations schools, which is good, and he calls for more money for them. But that money comes out of a constrained budget. Drummond’s growth target for elementary and secondary schools is 1 per cent per year, and calls for a “rigorous performance system” to guide compensation to help achieve this goal. To cut wage costs even more, he calls for the elimination of 70 per cent of non-teaching staff (teachers’ aides, custodial staff, administrative staff, etc.) in public schools by 2017-18.

    As a further cost-saving measure, Drummond calls for the elimination of full-day kindergarten, a program that is not yet fully phased in. In addition, he calls for average class sizes to go up, with caps rising from 20 to 23 in primary school, from 24.5 to 26 in Grades 4 to 8, and from 22 to 24 in secondary school.

    Grade 12 students should not expect to get a fifth year of high school for free, Drummond says. If they want to come back to improve their marks, they can pay.

    Drummond recommends that steps be taken to get teachers to retire later to reduce benefit costs over the long term.

    Lastly, he would change the Education Act to allow the minister to sell schools and unused property owned by school boards.

    In post-secondary education, Drummond calls for spending to be held to 1.5 per cent per year. As in the schools, he wants to tackle compensation with hard bargaining. He would also create a single single pension fund administrator for all university and college pensions, while recognizing the differences in pensions.

    Students will pay more, too. Drummond supports the existing tuition fee framework, which allows fees to rise by five per cent per year, and he also has other ideas to reduce overall costs by phasing out provincial tuition and education tax credits to invest more in upfront grants, and so on.

    Drummond would also compel post-secondary institutions to examine whether they can compress some four-year degrees to three years by continuing throughout the summer.

    Government business enterprises

    Ontario’s four main Crown corporations are the Liquor Control Board of Ontario, Ontario Lottery and Gaming, Ontario Power Generation, and Hydro One. Together these four entities bring in $4.3 billion in profits for the people of Ontario and hold combined net assets worth $17.6 billion.

    Clearly, these assets are attractive money-earners for potential private investors. Yet Drummond stops short of recommending that the government sell all or part of any of these enterprises “unless the net, long-term benefit to Ontario is considerable and can be demonstrated through comprehensive analysis.” He concedes that the case for any such sale is weak: The advantage of paying down government debt faster at a time when interest rates are low is minimal, and the loss of revenue as a result of selling these assets would be permanent.

    As long as the LCBO remains public, however, Drummond sees revenue possibilities in changing the markup structure on alcohol and moving to a “more aggressive store expansion program.” Unfortunately, he overlooks the issue of agency stores, many of which could be removed from private hands and run by the LCBO at considerable benefit to the public purse. According to one consultant’s study, 90 of 216 existing agency stores could be profitably run by the LCBO and boost its income by $341 million over 10 years.

    In a recommendation sure to infuriate Ontario wine makers, Drummond also proposes making less room for Ontario wines on LCBO shelves in order to sell more high-volume products.

    At the OLG, Drummond proposes closing 1 of 2 head offices and 1 of 2 of the Niagara casinos. To bring in more money, he would allow slot machine operations at sites other than horse-racing venues.

    Labour Relations and Compensation

    Drummond’s recommendations for labour relations and compensation seem to be based on a singular principle – wage freezes, hiring freezes and elimination of performance bonuses don’t work. He has another approach. He recommends, instead:

    • a “transformation” of service delivery that will vastly reduce the number of employees (which will then reduce overall compensation);

    • dismantling and re-vamping the arbitration system; and

    • expanding management rights to more freely discipline, dismiss and move employees.

    Reducing the number of employees deemed essential

    Drummond states that Ontario has the highest percentage of Broader Public Service essential service workers on Canada. He wants to see that number reduced. He feels the best settlements are ones that are negotiated.

    Reform of the arbitration system

    Drummond feels workers are doing too well under Ontario’s current system of interest arbitration. He wants to make changes that would limit compensation increases. He recommends:

    • increased criteria forcing arbitrators to accept employer arguments about “ability to pay”;

    • an “independent” tribunal to manage a roster of arbitrators; and

    • more stringent rules under which arbitrators would operate.

    Zero budget increases for wages in the Ontario government

    Drummond believes that when employers have no budget for wage increases, it creates a “healthy tension” that will “drive out inefficiencies.” He therefore proposes that government have no budget for wage increases – but continue to bargain.

    Remove bumping rights

    Drummond believes that bumping rights – which are designed to recognize seniority rights at a time when people are losing their jobs – are a big obstacle to “progressive and efficient” public services that can be achieved (he says) by cutting jobs. He advises government to do everything in its power to get rid of bumping rights.

    Don’t worry about successor rights when transferring or merging services!

    Drummond states that inherited collective agreements don’t live forever, and can be “bargained differently” when they come up for renewal.

    Expanding the powers of the Ontario Labour Relations Board

    Drummond recommends that the OLRB should be allowed to combine bargaining units when it receives an application for a new certification or merger. This could also include combining existing units at certain employers.

    Forcing BPS employers into “best bargaining practices” model

    This recommendation would pressure BPS employers to drive harder in bargaining, and let the government set targets for BPS employers to meet in bargaining.

    Reduce the number of BPS collective agreements through central and coordinated bargaining.

    Drummond observes, correctly, that a smaller number of collective agreements cost less to bargain, and calls for more central bargaining and more coordinated bargaining. OPSEU has been saying the same thing for decades.

    Allow for and increase performance bonuses for managers and “leaders”

    In keeping with his belief in “incentives,” Drummond calls on government to make it possible to give significant bonuses to individuals deemed to be exceeding job expectations. He doesn’t mention bargaining this with the individuals’ union….

    Expand management rights

    Drummond support greater powers for management, in all cases, to move employees as they see fit and dismiss employees.

    Pensions under pressure

    For many Ontario workers, the Pension Benefits Guarantee Fund is the only thing protecting them from the total loss of their hard-earned pension entitlements in the case of a bankruptcy of their private-sector employer. Drummond notes, correctly, that the PBGF is underfunded, and has been for some time. But his solution – get rid of the fund, or hand it over to a private insurer to run – is basically that government abandon its responsibilities to Ontario workers.

    With respect to publicly-run pension plans, Drummond’s recommendation is confusing. He recognizes that “most of the public sector pension plans are jointly sponsored, which means employer sponsors and members share” responsibility for any shortfalls that may occur in a plan. Nonetheless, Drummond makes a recommendation that the government “clarify who is financially responsible for funding deficits of the public-sector pension plans….” What needs to be clarified is Drummond’s recommendation.

    Drummond’s overall goal for public sector pensions is to reduce how much government pays into them – a goal he would accomplish through bargaining. He says: “The government should accelerate work on the design of public-sector benefits and make containing the growth in the cost of benefits part of the broader public-sector compensation negotiation strategy.”

    Drummond further recommends that “The province should examine opportunities to achieve savings and better investment returns through the consolidation of the administrative functions and investment pooling of pension plans across the broader public sector.”

     


    [1] See Angus Reid Public Opinion, CUPE – Saving the Economy Poll (December 13, 2011). Available at http://cupe.on.ca/d1667/Drummond-Report .

    [2] According to Drummond, this would be the most sustained period of restraint of any government in Canadian history, with the possible exception of the Romanow government in Saskatchewan in the 1990s.

    [3] See Jim Stanford, Paul Martin, the Deficit, and the Debt: Taking Another Look (Ottawa: Canadian Centre for Policy Alternatives, 2004). Available at www.policyalternatives.ca.

    [4] See also “Squeezing social programs,” below.

    Questions and answers for supporters of good jobs, quality public services, and healthy unions in Ontario

    Second edition - Summer 2011
     

    Let’s challenge the austerity agenda – one conversation at a time

    Dear friends:

    For a while now, leading business groups and their allies have been using the recent recession as an excuse to call for big changes to the way Ontario runs. They want lower taxes for corporations, lower wages for workers, more privatization, and cuts to public services. These policies increase business profits; that’s the point. But they also weaken our communities, our province, and our country.

    This Q&A is a resource for anyone who wants to defend good jobs, quality public services, and healthy unions. Feel free to use it when you talk with friends, family, co-workers, neighbours, political candidates, or reporters.

    In solidarity,

    Warren (Smokey) Thomas
    President, Ontario Public Service Employees Union
    Download document


    1. What is the “public sector,” anyway?

    The “public sector” is the part of the economy that is paid for and controlled by government. This may mean direct government operations; it also includes public agencies like hospitals and community colleges. Most public services are not-for-profit, but some, like the LCBO, earn money that pays for other public services.

    The public sector is an important source of jobs and income. Nearly one in five working Ontarians earns a living in the local, provincial, or federal public sector.

    2. What do people in the public sector do?

    The list is long! Public sector workers are the people who:

    • restart your heart,

    • defend children from abuse and neglect,

    • ensure the security of the blood supply,

    • diagnose cancers,

    • protect your health card from fraud,

    • make Ontario’s highways the safest in North America,

    • inspect your food,

    • keep alcohol away from minors,

    • support people with disabilities so they can live with dignity,

    • provide dental care to children in school,

    • give women and families a safe haven from abuse,

    • care for your son or daughter at daycare,

    • comfort your mother or father in a nursing home,

    • make the courts work,

    • protect the public from accused murderers,

    • educate and train the workforce of the future,

    • help people overcome mental health issues,

    • protect our air and water, and

    • sustain our fish and wildlife – and that’s just a partial list!

    3. Where does the money come from to pay for public services?

    The public sector is funded by:

    • various kinds of taxes, including taxes paid by public sector workers; 

    • fees for specific services like drivers’ licences or tuition fees; and

    • profits from government enterprises like the LCBO or OLG.

    4. The recession hit the economy hard. How can the private sector keep on paying for “big government?”

    Some people think the private sector pays for government and gets little in return. This is not true. Without government, there would be no legal system to enforce contracts or protect the property rights that make business possible. Without government, we would never have built the public electricity, transportation, or water systems people and businesses depend on. Without government, there would be no education system to provide trained workers and no public health care to keep them healthy so they can work.

    The public sector does depend on the private sector. But it’s just as true to say that the private sector depends on the public sector. You can’t have one without the other. Every country in the world that has a strong economy and a strong democracy also has a strong public sector.

    5. With our budget deficit, don’t we need to get spending under control?

    Spending is under control. For the last five years, Ontario has spent less compared to the size of its economy than any other province except Alberta and Saskatchewan.1  And those two provinces have huge resource-based economies compared to their small populations.

    The McGuinty government inherited a $5.6 billion deficit from the previous Conservative government in 2003 and balanced the budget in 2005-06, 2006-07 and 2007-08.2  The recession of 2008-09 was a global recession caused entirely by people outside of Ontario. It was not caused by government spending here.

    Much of the current deficit of $16.3 billion results from the government’s ongoing effort to fund private sector construction jobs while building infrastructure Ontario needs. In 2011, the province budgeted $12.8 billion for infrastructure. That’s a lot – about $6 billion more than the average over the last 10 years.3 That money is creating jobs, and history has shown that the surest route to pay down deficits is through job creation. When the economy grows, deficits take care of themselves.

    6. Private sector workers had to cut back in the recession. Why shouldn’t public sector workers suffer, too?

    The recession was bad, but the sacrifices people made were not evenly distributed. Three-quarters of Ontarians had no one in their household who lost their job or saw their working hours, pay, or benefits reduced because of the recession.4 The majority of people who were not affected were in the private sector. So if we think the cost of the recession should be shared fairly, then it’s not just public sector workers who need to contribute.

    But it’s important to remember: Working people are not the problem. A much fairer approach to balancing the budget would be to stop giving away public money through corporate tax cuts and focus instead on creating good jobs for all.

    7. If we pay public employees less, won’t that free up money for public services?

    Wage cuts that happen at the same time as huge cuts to corporate taxes don’t do a thing to protect public services. All they do is transfer money out of the pockets of workers into the profits of corporations like the Royal Bank, Rogers, and Imperial Oil.5

    In any case, the McGuinty government is aiming to cut wages at the same time as it is cutting public services and jobs. The government aims to cut close to 5,000 jobs in the Ontario Public Service alone.

    8. The government is trying to freeze the wages of public employees, but some arbitrators are hiking wages anyway. What’s wrong with them?

    Arbitrators are paid to be fair and impartial. Since the wage freeze was announced in March 2010, only a few arbitrators have given workers wage awards that kept up to inflation. But they have not awarded zeroes, either. Arbitrators must use their judgment to weigh a range of factors – the cost of living, the wages of comparable workers, government budget decisions, and so on.

    Of course, when the McGuinty government is giving large tax cuts to profitable corporations, some arbitrators may not accept the government’s claim that wages must be cut.

    9. Some public sector workers get paid more than private sector workers who do the same work. Why should private sector workers pay those high wages?

    A1. A unionized janitor cleaning a public hospital likely earns more than an “independent” janitor cleaning a bank tower on Bay Street. The real problem is the failure of private sector employers to provide the jobs that allow people to live decently, bring their kids up the way they want to, and retire with dignity. We need better jobs in the private sector, not worse ones in the public sector.

    A2. Business groups around the world have been on a campaign to drive down wages for workers for more than 30 years. They know that good wages in some jobs make it harder to find cheap labour to do other jobs. So that’s why they want to cut wages, benefits, and pensions in the public sector. It’s not because they care about their own workers – business groups want to drive down their wages, too. That’s why so many employers fight to keep unions out of the workplace.

    A3. The public sector often pays more for administrative and service jobs that are mostly performed by women. That’s because public sector unions have enforced pay equity laws so women are not discriminated against. But in the private sector, where unionization is lower, that’s not easy. If we want public and private sector workers to be paid the same, enforcing pay equity laws is a great idea. It’s a concrete step that will reduce discrimination and bring up women’s wages in the private sector.

    A4. Even where public sector wages are higher than private sector wages, that doesn’t mean public services cost more than private services. That’s because there is no markup on public services. When you buy a private service you pay the wages of the workers plus the profits of the owners. Those profits often make private services cost more than public services.

    A5. A better question is, “Why should any worker pay for the corporate tax cuts, monster bonuses and sky-high wages of corporate CEOs?” They’re raking in millions while regular working people can’t make ends meet. Our society is becoming more and more unequal, and that’s not good.

    10. But don’t corporate tax cuts create jobs?

    Where we most often hear this is from corporate executives. But cuts to the corporate income tax rate are no-strings-attached. The money corporations get is just as likely to fund pay raises for CEOs as it is to create jobs.6

    If corporate income tax cuts were going to create jobs, they would have done so by now. We have seen corporate income tax rates fall for the last 10 years, but the rate of investment has actually gone down (see chart at right).7

     
     

    Expenditure and Tax Multipliers

    How much the economy grows

    for each $1.00 of government spending

    Measures for low-income households and the unemployed

    $1.70

    Infrastructure investment measures

    $1.60

    Housing investment measures

    $1.50

    Other spending measures (e.g., public services)

    $1.40

    Personal income tax measures

    $1.00

    Corporate income tax measures

    $0.30

    Of all the ways the government could spend $2.4 billion, corporate income tax cuts are one of the worst. The federal government says that every dollar a government spends on corporate tax cuts creates just 30 cents worth of economic growth. But we get $1.70 in economic growth when we support unemployed and low-income people, and $1.40 when we invest in public services.8

    Corporate tax rates are not preventing investment in Ontario. The KPMG consulting firm says Canada has the lowest corporate income taxes and the second-lowest overall tax costs for business of 10 competitor countries they studied. And the Toronto region has the fifth-lowest business taxes of 41 international cities studied. Taxes account for at most 14 per cent of location-specific costs for business, KPMG says.9

    11. So what’s the solution to Ontario’s economic problems?

    In Ontario, 400,000 people are forced to use food banks every month and 15 per cent of children are growing up in poverty. Entire communities don’t have safe drinking water. There are 200,000 fewer young people working in Canada today than two years ago.10 The best solution is to invest in the programs and infrastructure we need and put money in people’s pockets so they can live decently. That’s what will grow the economy and create the good jobs we need.

    There are other ways to create good jobs, too. Government could do more to match qualified workers to tens of thousands of job vacancies that go unfilled. Literacy training, better employment standards and easier unionization would help workers improve their lives and build their buying power. And that would strengthen local economies.11

    12. Can’t government save money by contracting-out or privatizing public services?

    Business groups always say that. It’s rarely true. Governments can borrow money at a lower rate than business can, and governments are big enough to benefit from economies of scale. So business has two main ways to cut costs (and earn a profit) on public services: by reducing workers’ wages, or by cutting corners on quality.

    To give one example, medical laboratory technologists in public hospitals typically earn a bit more than those in private labs. Yet a 2008 consultant’s study showed that tests by private labs in Ontario were costing the public 50 per cent more than tests done at our smallest public hospitals.12 By providing services at cost, the public sector can provide better services for less – with better jobs in our communities to boot.

    13. But don’t private companies have more of an incentive to innovate?

    Sometimes. But there’s pressure on governments to contain costs and improve services, too. Government must continually change and improve to provide services people will vote for. And it has to account publicly for every penny spent.

    Of the world’s developed countries, the one with the most expensive health care is the one with the private system. The United States, with its private system, spends 16.0 per cent of its Gross Domestic Product13 on health care. Canada, with its public system, spends just 10.1 per cent.14

    U.S. health corporations do innovate, it’s true, but their innovations are aimed at boosting profits. That’s why they raise premiums, de-insure patients, and lobby to stop governments from expanding public health care.

    14. What about these stories we hear about government waste, like at eHealth or Ontario Lottery and Gaming, for example?

    What we learn from eHealth and OLG is that problems in the public sector don’t stay hidden for long. That’s a good thing. Governments are subject to Freedom of Information laws, Question Period in the legislature, and close scrutiny from press galleries. On the other hand, things that make the news in the public sector often stay hidden in the private sector.

    The biggest private-sector story, of course, was the recent recession. Investment banks in New York and London blew up the global economy through their own greed – and mainstream news outlets ignored or downplayed the story until it was too late.

    15. Why should private sector workers pay for platinum-plated pensions for public employees when they don’t have company pensions themselves?

    Public sector pension plans are not “platinum-plated.” For example, the average pension for a retired worker in the Hospitals of Ontario Pension Plan is about $15,900 a year.15 Many, many public sector workers don’t have pensions at all.

    Company pension coverage in Ontario peaked at 40 per cent of private sector workers in 1985.16 Now, less than 35 per cent of private sector workers have a company pension. More and more private employers are refusing to fund pensions that would offer private sector workers a secure retirement. That’s because when pension costs are less, corporate profits are higher.

    We need private sector employers to see decent pensions as part of the wages they pay workers. And that’s why we need to expand the Canada Pension Plan – so all working Canadians have enough to live on when they retire.

    16. I’ve heard some business groups complain that expanding the CPP is a “payroll tax increase” for them.

    Pensions are deferred wages – wages that workers earn after they finish their time in the workforce. Additional payments to improve pensions are not a tax increase, they’re a wage increase.

    Lobby groups like the Canadian Federation of Independent Business oppose wage increases for even the poorest workers – those on minimum wage – so it is hardly surprising that they oppose better pensions for retired workers as a group.

    We need private sector employers to see decent pensions as part of the wages they pay workers.

    17. Don’t public employees get bigger raises than private sector workers because there is no competition in the public sector?

    Public employees don’t get bigger raises than workers in the private sector. Public sector wages are limited by political pressures just as much as private sector wages are limited by market competition.

    From the 1991 recession to the one in 2009, private sector wages actually went up more than those in the public sector. But that’s only compared to inflation. After you take away inflation, wages for full-time workers in both sectors have stagnated for 30 years. During that time, working people have been more productive, but the benefits of that extra productivity have gone to the profits of corporations and other businesses, not workers’ wages.17 That’s bad enough, but many jobs are now part-time, temporary, and agency temp jobs that pay less – in both the private and public sectors.

    18. I pay your wages, and I can’t afford them any more!

    We all pay each other’s wages. Public sector wages are paid by people (including public sector workers themselves, through their taxes), but so are private sector wages. A children’s aid worker buying groceries is paying the wages of the grocery store worker. We all pay each other’s wages.

    The real story in the world today is that when business profits go up, workers’ wages don’t, and the jobs people need to live a decent life are just not there. Our communities need good jobs for everybody. That should be our top priority, but for more than 30 years we’ve let big corporations make their profits, not good jobs for all, the top priority.

    19. You’re lucky to have a job!

    That’s the problem! These days, only five out of eight Canadian workers have full-time permanent jobs. That means three out of eight workers can only find part-time or temporary jobs, temp agency work, or low-paid self-employment. Employers and governments have done nothing to stop this trend. In fact, they’ve created it by pushing for ever-lower wages for workers to fund ever-higher profits for employers.

    20. If we don’t cut spending we’ll end up broke just like Greece or California!

    Around the world, news outlets have praised governments for bailing out the banks and bond traders who caused the economic crisis. But they’ve criticized regular citizens who don’t want to sacrifice their jobs, their wages, and their public services to pay for the damage.

    According to Nobel-Prize-winning economist Joseph Stiglitz, cuts and “austerity” have been tried many times before. Cutting the public sector makes economic problems worse and leads to higher unemployment and weaker economies, he says.18 And that is exactly what is happening in Greece right now.19

    Interestingly, California has a long history of cutting the taxes that pay for public services. Greece is now famous as a place where tax evasion is widespread.20 In both cases, it was just a matter of time before their governments could no longer cover their debt payments.

    21. These are tough economic times. We all have to tighten our belts.

    These tough economic times didn’t just happen.

    For more than 30 years, business and government have been telling us that right-wing economic policies would make us all better off. They said free trade would mean “jobs, jobs, jobs.” They said privatization would save money. They said corporate tax cuts would mean “jobs, jobs, jobs.” None of those promises came true. Instead, they created an economy where we lost our manufacturing jobs, wages have stagnated, more jobs are part-time and temporary, and tuition fees and student debt have skyrocketed.

    At one time, homelessness was rare in Ontario. Now it’s normal. The end result of 30 years of right-wing change is 400,000 Ontarians visiting the food bank every month. The only people doing better are rich corporations and their high-paid CEOs – their salaries have gone up and up.21

    22. Some business groups say unionized workers should be able to “opt out” of paying union dues. Why shouldn’t they?

    No business providing professional services could survive by giving them away for free. Neither could unions. In 1946, Supreme Court Justice Ivan Rand ruled that no worker has the right to enjoy the benefits of being in a unionized workplace without paying his or her share of the cost of those benefits through union dues. A “free rider” who enjoys the advantages of a unionized workplace but refuses to pay dues is like a diner who leaves a restaurant without paying the bill.

    Business groups dislike unions because they increase wages and improve working conditions for workers. Unions also pressure government to enact basic health and safety laws, protect human rights, and enforce basic standards like the minimum wage. Better jobs do increase costs to individual businesses, which they don’t like. But better jobs also grow the economy to the benefit of all businesses. They do better when their customers have good incomes. And that’s a fact.

    23. Isn’t it true that unions only protect lazy workers?

    No. A unionized worker can still be disciplined or fired. The difference is, under Ontario law, every collective agreement must have a process for handling disputes between workers and their employer. This is important: Your boss is not always right. Many workers are subject to harassment, discrimination, and intimidation on the job. The union’s role is to make sure a fair process is followed when disputes arise.

    The main thing unions do, though, is work to improve the wages and working conditions of all workers.

    24. Don’t unions drive up wage costs and prevent employers from creating jobs? Won’t that hurt our economic recovery?

    Unions typically improve the incomes of workers, and workers are customers. When customers have good incomes, they spend, and that’s good for local businesses and job creation. When workers join unions, they don’t hurt the economy, they help it.

    To hear some business leaders talk, their perfect world is one in which every worker is poor but every customer is rich. It’s not a model for a healthy economy.

    25. Unions were important 50 years ago, but we don’t need them today.

    If everyone worked in a safe, healthy, workplace, with no harassment or discrimination, with good wages, decent benefits and a pension plan, this might be true. But working people are facing more problems today than they have in decades. More and more jobs are part-time, temporary jobs; workplace discrimination is on the rise; wage growth has stalled even though workers are more productive; the number of workers with pension plans is falling. Now more than ever, working people need to come together to stand up for their rights and the rights of the generations to come. When they do, it’s called a union.

    Notes

        See RBC Economics Research, Provincial Fiscal Tables, June 6, 2011, p.5. Available at http://www.rbc.com/economics/market/pdf/prov_fiscal.pdf.


    2     Dwight Duncan, 2011 Ontario Budget: Budget Papers (Toronto: Queen’s Printer for Ontario, 2011), pp.
    230-231.


    3     Dwight Duncan, 2011 Ontario Budget: Budget Papers (Toronto: Queen’s Printer for Ontario, 2011), p. 10.


    4     In the spring of 2010, Vector Research and Development asked 500 Ontarians how the recession had affected their household. In total, 22 per cent said someone in their household had had their hours of work cut during the recession; 20 per cent said someone in their household had lost a job; 12 per cent said someone in their household had had their wages reduced; and 11 per cent said someone in their household saw their pension or benefits reduced. Source: Vector Research and Development, The Vector Poll on Public Opinion in Ontario, May 2010, p. 18.


    5    
    For a summary of the McGuinty government’s tax reductions for Ontario businesses, see Dwight Duncan, Ontario’s Tax Plan for Jobs and Growth (Toronto: Queen’s Printer for Ontario, 2009), p. 15.


    6     According to Statistics Canada,
    Canadian corporations are now sitting on close to $500 billion in cash – more than the federal and Ontario government budgets put together – which they are not investing in new ventures. See Jim Stanford, “How corporate tax cuts can actually destroy jobs,” Progressive Economics Forum, Jan. 27, 2011. Available at http://www.progressive-economics.ca .


    7     Calculated from Ontario Ministry of Finance, Ontario Economic Accounts (July 2010), “Historical Tables.”  (Figures in 2010 dollars). Special thanks to Liam McCarthy (PSAC), Toby Sanger (CUPE), Jim Stanford (CAW), and Erin Weir (USW) for the two graphs in this document.


    8    
    James M. Flaherty, Budget 2010: Leading the Way on Jobs and Growth (Ottawa: Her Majesty the Queen in Right of Canada, 2010), p. 281.


    9     See KPMG LLP, Competitive Alternatives 2010: Special Report: Focus on Tax. Available at ftp://ftp.competitivealternatives.com/2010_compalt_report_tax_en.pdf .


    10  
    CBC Radio, “The Young and the Jobless,” The Current, June 6, 2011. Available at http://www.cbc.ca/thecurrent/episode/2011/06/06/the-young-the-jobless-documentary/ .


    11  
    Progressive groups interested in jobs have done extensive work on this very issue. See the Wellesley Institute’s web site, www.talkingaboutjobs.ca , for detailed policy ideas.


    12   RPO Management Consultants, Laboratory Pilot Projects Review Final Report, March 31, 2008, p. 22.


    13  
    Gross Domestic Product is a common measure of the size of the economy – the sum total of all goods and services bought and sold in the country.


    14   Canadian Institute for Health Information, Health Care in Canada 2009: A Decade in Review. Ottawa, Canadian Institute for Health Information, 2009, p. 47.


    15   The average pension plan for an OPSEU member in the Ontario Public Service is under $17,000 a year – about $325 a week. Workers in the Colleges of Applied Arts and Technology pension plan earn an average annual pension of $22,500 (although retired college support staff earn $13,730 a year). Retirees in the Ontario Municipal Employees Retirement System (OMERS) average $14,200 a year. Source: OPSEU Research and Benefits.


    16  
    See the report of the Expert Commission on Pension Reform, A Fine Balance: Safe Pensions, Affordable Plans, Fair Rules (Toronto: Queen’s Printer for Ontario, 2008), p. 38. Available at http://www.fin.gov.on.ca/en/consultations/pension/report/Pensions_Report_Eng_web.pdf .


    17   For a full discussion of this issue, see Ellen Russell and Mathieu Dufour. Rising Profit Shares, Falling Wage Shares. Ottawa: Canadian Centre for Policy Alternatives, June 2007. Available at http://www.policyalternatives.ca/publications/reports/rising-profit-shares-falling-wage-shares . See also Statistics Canada, “2006 Census: Earnings, income and shelter costs,” The Daily, May 1, 2008. Available at http://www.statcan.gc.ca/daily-quotidien/080501/dq080501a-eng.htm .


    18  
    See Frances Schwartzkopff, “Nobel Winner Stiglitz Warns Job-Killing Austerity Measures Hurt Economies,” Bloomberg News, May 13, 2011. Available at http://www.bloomberg.com .


    19   See Lefteris Papadimas and Harry Papachristou, “Greece piles on austerity measures, economy dives.” Reuters, June 9, 2011. Available at http://uk.reuters.com .


    20   See Suzanne Daley, “Greek Wealth Is Everywhere but Tax Forms,” New York Times, May 1, 2010. Available at http://www.nytimes.com/2010/05/02/world/europe/02evasion.html . Also see Richard Walker, “The Golden State Adrift,” New Left Review, 66, November-December 2010. Available at http://www.newleftreview.org/?view=2868 .


    21    
    See Hugh Mackenzie, Recession-Proof: Canada’s 100 best paid CEOs. Ottawa: Canadian Centre for Policy Alternatives, 2011. Available at http://www.policyalternatives.ca .

     


     


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