Is the fiscal sky really falling over Nova Scotia? Toby Sanger, Economist CUPE National CUPE Nova Scotia Strategizing for Success October 2, 2015

Public service sustainability: “moving forward together”

“Public service sustainability” initiative Lots of positive collaborative language:  “Our shared challenge: long-term sustainability.”  “collaboration, openness and transparency”  “openness to innovation, creativity, and new ideas” Goals:  “meaningfully engage public sector employees through their unions in a collective bargaining process…”  “To protect and preserve public services … by negotiating collective agreements that are affordable to the taxpayers of the province”

Why? Oh my God!

But we can be saved….

What does this really mean?  No funding for compensation increases beyond what is in the fiscal plan.  “Net zero” funding for compensation increases beyond fiscal plan. May come from cost reduction, avoidance, service redesign or other efficiency measures. Savings must be real, measurable and achieved.  Compensation increases must not have negative impact on fiscal plan or level of services.  Agreements must be minimum of five years. Applies to all CAs that expire after March 31, 2014.

What’s in the “fiscal plan” Departmental Expenses (millions)$8,829.0$8,910.0$9,078.5$9,213.6$9,433.6 Increase0.9%1.9%1.5%2.4% Increase vs $81.0$249.5$384.6$604.6 Total Revenues$9,762.8$9,920.0$10,202.2$10,369.3$10,653.3 Projected Deficit/ Surplus-$122.5$22.6$25.3$66.1

What does this really mean? Example: proposal with NSTU Base wage increase0% 1% Consumer price inflation0.8%2.6%2.0% Annual real base wage decrease-0.8%-2.6%-2.0%-1.0% Cumulative real base wage loss -0.8%-3.4%-5.3%-6.3%-7.2%

What would this mean? CPI Inflation for NS1.9%2.9%-0.1%2.2%3.8%2.0%1.2%1.7% Base wage average settlement NS public sector3.0%3.8%2.9%1.5%1.2%2.1%2.5%2.7% After inflation – real wage incr.1.1%0.9%3.0%-0.7%-2.6%0.1%1.3%1.0% 4.1% Est CUPE NS base wage increase2.9% 2.5%1.6%1.9%2.5%2.0% After inflation – real wage incr.1.0%0.0%3.0%0.3%-2.2%-0.1%1.3%0.3% 3.6% Could erase more than a decade of real wage gains!

Does NS have a “structural deficit”? Definitions: Structural deficit: a deficit that exists when the economy is at full capacity (e.g. w/ “full employment”). Cyclical deficit: deficit resulting from economy operating below capacity (e.g. from recession).

Does NS have a “structural deficit”? Nova Scotia does not have a structural deficit.

Nova Scotia deficit one of lowest in Canada

Nova Scotia net public debt also mid-range

The NS government’s estimates of future revenue growth are low Forecasted Revenues$9,762.8$9,920.0$10,202.2$10,369.3$10,653.3 Increase 1.5%2.9%1.6%2.7% Projected Deficit/ Surplus-$122.5$22.6$25.3$66.1 Higher growth3.8% 2.4%3.0%3.2% Revenues $10,000$10,303$10,630$10,967 Resulting deficit/surplus (36) $116 $278 $372

Revenues & spending shares to decline

Real problem household debt ratios  Household debt at record ratios, almost double 1990s.  Government and corporate debt ratios in much better shape.  Low interest costs making debt more manageable.

Public sector cuts hurt economy Sources: Federal Budget 2009 (p. 240), Informetrica Ltd Macroeconomic Impacts (2009) and Centre for Spatial Economics, Economic Impacts of Early Learning and Care (2011). This chart of “economic multipliers” shows public spending yields more jobs and economic growth than tax cuts. Conversely cuts to public spending also more damaging for the economy.

Austerity budgets bad for the economy; doubly bad for working people. Majority of economists agree austerity budgets are bad for the economy: “The notion that instead of increasing government spending to fight recessions, you should slash spending instead … represents a stunning failure of policy” Paul Krugman Nobel Economics prize winner “This is the sort of foolish fiscal austerity that backfired so badly in the euro zone.” David Madani, Capital Economics

Slower wage growth bad for economy, revenues

Deficit alarmism being used for political ends NB, NS, NL, other provinces all singing similar tune to justify austerity Say public spending “unsustainable” Say need to constrain public spending to eliminate deficit and reduce debt Exaggerating size of deficit/ debt so they’ll have surpluses to use later But this hurts public services, reduces wage growth and slows down economic growth

Alternatives to Austerity  Focus on jobs, growth & reducing inequality: grow the economy.  Higher revenues, lower deficits and debt/GDP ratios.  Public services and public investments good for people, good for the economy.  Priority investments in areas that provide broad benefits: childcare, education, health care, community services  Fair taxes would make economy more equitable, stronger & generate revenues.

Summary  Net zero proposal to lead to either large real wage cuts or deep cuts to public services  Would erase more than a decade of real wage gains  NS does not have a structural deficit: finances are sustainable and will soon be in surplus  NS gov’t underestimating future revenues and exaggerating deficits so it will have larger surpluses to play with.  Squeezing wages and cutting public spending bad for the economy.