Time to put the Canadian government on a diet

Gwyn Morgan

Gwyn Morgan

A recent article in the Economist magazine, entitled ‘Taming Leviathan, how to slim the state’ will become the great political issue of our times, quotes the late American economist Herb Stein’s famous truism ‘If something cannot go on forever, it will stop.’

Some countries headed towards national insolvency act decisively.

David Cameron’s government has embarked on the wrenching and politically volatile course of pulling Britain back from the brink. By contrast, the United States keeps running plus-trillion dollar deficits that, as Stein said, “cannot go on forever”.

Canada’s fiscal house is in much better shape than that of the United States, Britain and other OECD countries; but complacency at this juncture would surely destroy our hard earned strength.

Combined federal and provincial government revenues have not returned to pre-recession levels, and spending has grown to such an extent that a substantial portion of core program funding is debt financed.

Unfortunately, there’s no real chance of revenues catching up.

In fact, the opposite is true and Canada’s greying population is a big reason. Statistics Canada estimates that the number of senior citizens will at least double by 2031, out-numbering children for the first time in history.

The soon-to-be passed federal budget, tabled before the election, predicts that spending on senior’s benefits will grow by a whopping 30% over the next five years. That doesn’t include the promised 6% annual growth rate in federal contributions to the provinces, to be used towards upward spiraling health care costs for people now living longer and longer.

The retirement of the baby boomers means not only lower income tax revenues but lost economic growth due to the already serious inability of employers to replace these skilled workers. Add in the unfunded pension liabilities for federal government workers, which the C.D. Howe Institute warns is some $65 billion higher than noted in the public accounts, and the stark outlook is for fewer working-age taxpayers supporting mushrooming health care and pension costs for an ever-increasing numbers of seniors.

But the election of Canada’s first majority government in seven years provides an opportunity to enact the structural changes needed to prevent Canada from facing a painful and divisive crisis and forced program cuts like those now happening in Britain and which will inevitably need to occur in the U.S.

But although Canada is starting from a stronger base, implementing the changes will still be politically challenging. As the Economist in its article states, “To lose weight, governments have to do two things: learn to do more with less . . . and cut back on what they offer.”

Well before the election the Harper government began working on the “more efficient” part, through an on-going strategic review process requiring each ministry to achieve a mandatory 5% cost reduction.

But we need to do more, including moving towards the more efficient, lower cost private contractor provision of government services. It should also follow the private sector’s lead by converting public service pensions from open-ended, unfunded “defined benefit” schemes to continuously funded “defined contribution” plans that include significant employee contributions.

But what about the “smaller government” part?

For social programs, that means reducing the number of persons receiving government support. The current “universality” paradigm must be replaced to focus dollars on those who actually need help. Why insist on paying benefits to the well-to-do?

While this logic should be applied to all social programs, the first priority should to amend the Canada Health Act to allow Canadians to purchase insurance and to seek treatment either through the universal publicly-funded system or user-pay private clinics, a freedom enjoyed by citizens of every other developed country.

A recent report by Conference Board of Canada – citing patient care outcome data that ranks Canada’s health care system well back of European health care systems that allow user pay options – provides further justification for this change.

And, contrary to the rhetoric of the “no two-tier” crowd, study after study of European health care shows that private payments actually reduce waiting lists because they free up dollars for treating those needing access to publicly funded care.

These actions will be controversial. The outcries from vested interest groups will be shrill. But failure to act means that electing our strong, stable, national majority government will have done little to mend the demographic and structural fissures that are making Canada’s social programs structurally unsustainable.

Gwyn Morgan is the retired founding CEO of EnC