Two years compensation freeze and THEN the public sector austerity starts. The official Liberal plan.

Finance Minister Dwight Duncan’s speech to public sector labour leaders proposing a compensation freeze was accompanied by a power point slide show.  And it makes for some interesting reading.

The government claims that the main period of austerity will occur, not now or next year, but in the period between 2012-13 and 2017-18.

That would mean eight years of austerity -- two for the compensation freeze and then six years of much lower funding increases.

Indeed, the austerity we are currently seeing is very modest compared with the austerity proposed for the years beginning 2012-13, when program expense increases will, allegedly, fall to less than 1/3 of the increases the Liberals set up to 2008-9.

If the austerity proposed for the years starting in 2012-13 is actually implemented, we would be in the hopper. 

For the current period the government says it has reduced program funding increases significantly -- from an average of 6.6% for the period up to 2008-9, to  4.8%.  That's why we are seeing hospital service cuts and layoffs. 

But for the period beginning 2012-13 through 2017-18, the government says it will reduce program increases to just 1.9%

Well, if the government has to implement a wage freeze in the current period (when program funding is going up  two and a half times more rapidly than the increases planned for the period beginning 2012-13) then there may be more difficult times ahead beyond the current two year time frame.

So, the government warns (slide 14 of the power point) that “Even after compensation structures have been frozen for two years, there is little room for compensation increases”. It then explains the proposed 1.9% annual increases in program expenses: 1.2% for population growth and 0.7% for growth in costs or utilization.

How seriously should we take these claims? Well it will be after the election, so, in that sense, all bets are off.

But also, even the Harris government did a major about-face on hospital funding after being pilloried for a few years on that issue.

So I take the 1.9% as a bargaining position.

Nevertheless, the measly 1.9% program expense increases starting in 2012-13 is how the government currently plans to return to a balanced budget by 2017-18. So, the current two year austerity initiative may not be the end of it, not unless there is a significant change in government policy.

The government’s claim in the power point that economic growth alone will not restore the fiscal balance is based upon claims made in the 2010 Budget, which, as I’ve suggested elsewhere, even the government now suggests are out of date, due to significant economic growth in the current period. So this may provide some hope. But I am not so sure this is likely to re-occur for the period beginning 2012-13 as the Budget estimates for growth in 2012 and 2013 were already quite high (3.2% and 3.0%).


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