Or Why Lorne Gunter Needs No Spare Tire

Lorne Gunter recently wrote a column on the Harper government's plan to cut sick leave for federal staffers. In his typically venomous style, Gunter concludes the federal public service is too large following a report from the Parliamentary Budget Officer(pdf) showing there is little added cost to sick leave beyond a person's salary. Gunter reckons if there is not a replacement called in to backfill positions they must not be essential to the work of government and positions should be cut. This train of thought has not travelled far from the station but beyond being poorly thought out — it's destructive.

In his 2006 paper, Innovation in the public sector: spare tyres and fourth plinths, Wayne Parsons explains redundancy in government is in place to ensure the government never fails. Unlike the private sector, which allows and even encourages failure, governments don't have the option to go bankrupt, layoff all the employees, and be replaced by a better, smarter government. Imagine the chaos if all the work of government was halted and restarted as often as new start ups go bankrupt. A robust civil service is akin to driving with a spare tire. It costs a little more to have a spare but when it's needed the savings are vast.

Much of the work of government requires at least a degree of expertise and can not, and should not, be covered off by anyone not familiar with the work when a person is sick for a day or three. Were we to follow Gunter's advice and slash the number of civil servants, the work of government would be impacted. Workloads would increase and every sick day would cause delays in projects, extreme increases in cost to temporarily hire a subject matter expert, or, more likely, both. With a robust civil service, colleagues are familiar with one another's work and can carry on while a peer is absent for a short period. This allows work to stay on track and projects to be completed in a timely manner.

An even more insidious effect of a lean public service is the inability to innovate. Innovation can only occur where there is room for failure. The private sector excels at innovation precisely because it allows for failure. Civil servants are free to innovate and experiment when there are fail-safes in place to ensure work is completed even if the innovation is not successful. When these measures are removed, the public service cannot experiment and will not be able to provide increasingly sophisticated products. As technology rapidly changes delivery methods and expectations, it is more important now than ever that we encourage innovation in the public sector by ensuring a robust civil service.

March Labour Force Report

Statistics Canada has released the labour force report for March. The report is positive about job growth and we see the unemployment rate has decreased a tenth of a percent to 6.9%. The increase in employment is mainly among young Canadians aged 15-24 which is nice to see as there has been little positive to hear about youth employment throughout the recession. Overall, the report has a cautiously optimistic tone despite having very little good to report.

The good is that unemployment fell by 0.1% and there was a complementary increase in the employment rate from 61.6% to 61.7%. The job growth went primarily to the youth increasing the employment rate almost a full percent to 55.4%.  Over 40% of the new jobs were full time. Unemployment among young Canadians remained unchanged at 13% indicating the number of youth looking for jobs increased, a hopeful sign.

The rest of the report made a valiant effort to make it appear otherwise but there is only bad news contained in the remainder of the report. Though the employment rate increased, the full time employment rate decreased. The majority of new jobs were part time, which while better than not working, is hardly something to celebrate. The unemployment rate among Canadians aged 25-54, the backbone of the labour force, fell 0.2% as approximately 25000 Canadians gave up looking for jobs. Among older Canadians, over the age of 55, the employment rate fell by 0.2%, approximately 19000 fewer people working, and the same number gave up looking for work.

The slight decrease in unemployment results both from the increased number of young Canadians that got jobs but also from the large number of Canadians over the age of 25 that became discouraged and left the labour force altogether. More work obviously needs to be done to ensure job growth. Governments should focus investment rather than cutting taxes and expecting the private sector to do the heavy lifting.

We're Helping Average Canadians

The government recently released some changes to mortgages in Canada. The changes are to help the average Canadian and to prevent a housing bubble. For a government that believes in the free market it is interesting how they are willing to interfere in the market before there is truly any problem. I don't disagree with market interference but their method does seem a little strange.

To qualify for a mortgage now the borrower must be able to afford a five year fixed term mortgage which comes with a higher interest rate than the previously required three year term. The average effects of this assuming, an average mortgage of $337 000.00, is an increase in the monthly payments of about $200 dollars but to qualify for the loan at this higher rate translates into a requirement of an extra $10 000 yearly income. Hmm... that's easy. Just be rich and then you can buy a house. If you're not rich, well then, don't. Rent. If you can find a place to rent from but the government made that a little harder too.

It costs more now for investors and developers to buy property with the intent of renting rather than living in. This way only the rich can buy houses to live in and the super rich can buy the rental properties. It's an ingenious way to keep the rich rich and the poor subsidizing them. Good idea, Mr. Flaherty.

If we are worried about people not being able to pay the mortgage why don't we attack other types of debt that might be making it hard to afford a mortgage. Check out credit card rates. With an average of 19.5% and little to no requirement to receive a credit card the government could have gone a long way to reducing consumer debt by restricting credit card rates, especially as interest rates are at historic lows, and creating some solid requirements for getting a credit card. This would have had the undesirable effect of people not spending money, though.

If someone doesn't have their credit card they might not purchase that new toaster they couldn't afford and if someone doesn't purchase that toaster than the company won't make money and if the company doesn't make money then someone loses a job and has no money to buy stuff and uses a credit card instead. It's a vicious cycle. This doesn't happen if someone doesn't buy a house. They still spend money, either on rent or on stuff. Hopefully both without saving, that way they don't ever do something silly and invest in a house, everyone knows only the rich should do that.

Taxes and Death

There's two things that are certain in a person's life: Death and Taxes. Having not experienced the former for myself I will talk about the latter. Taxes are paid by everyone on nearly everything, it's just the way it is and the way it's got to be. In Alberta we happen to pay the lowest overall tax rate; it's part of our province's shortsighted addiction to resource revenue. Why have a stable source of revenue when we can rely on the business cycle?

Alberta forgoes between $10 and 20 Billion by having such a ridiculously low tax rate. This rate is defended as helping out the little guy. The 2009 budget claims that this benefits those with lower incomes. Unfortunately this isn't true. A recent study by the Parkland Institute shows that only two provinces have a higher tax rate for the lowest income bracket and all of them have a higher rate for the highest tax bracket. Who is it that we're helping here?

Alberta's tax system is not competitive, it's not even playing the same game. If it was the best system in Canada, wouldn't all the businesses and skilled workers that they are trying to attract to the province be here by now? Alberta could remain attractive and institute a progressive tax rate; it doesn't have to be ridiculous start off at about five percent for the lowest income bracket and end at fifteen percent for the highest tax bracket. Nobody is really hurt by this and it would earn Alberta at least another $10 Billion.

Moving away from income tax for a moment let's look at sales tax. Alberta does not have a provincial sales tax, the only province not to. This is all to be more competitive but it still doesn't attract all the new skilled workers that we want in this province. Let's charge a sales tax and let's make it progressive as well. For example, one needs to buy a car. They have a choice between a small cheaper car like a Honda Civic or for three times the cost a Cadillac Escalade. let's charge five percent for the cheaper purchase and fifteen percent for the more expensive purchase. Obviously, only those that are able to afford the bigger purchase will even think about buying expensive objects like yachts (maybe not in Alberta), sports cars, huge houses and we know they can afford the extra tax.

With a graduated sales tax and a progressive income tax Alberta would be able to have a hefty tax base to work with and they could afford to do all the basics that need to be done: health care, education (grade school and post secondary), infrastructure and maintenance. Even hitting a recession the government could afford to weather it with almost no problems at all because they aren't relying on the booms and the busts of the business cycle.

Part of being able to afford doing the basics is knowing what can be afforded and when. The extras that people want and things that are good to have: museums, art galleries, funds for all sorts of extras. These things would need to be funded on a basis of when the money is available. Mostly the money would be available through the royalty rates that the government collects primarily on the oil industry. With an effective and fair royalty structure Alberta would be able to collect a bunch of extra cash and use this for the extras that people want. They could even save a bunch and then when times are lean they could pull out the savings and spend their way through the recession and maybe no one would even notice that it happened.

This would take foresight and intestinal fortitude. Most people hate hearing the word taxes but they gonna happen whether you like it or not. Let's at least make it fair and tax the people who can afford to be taxed and who actually create some revenue from their taxes. Let's stop relying on oil and gas revenue and then cutting back on all the crazy spending we institute when the economy goes bust every ten years. Let's institute a plan that will benefit the most people most of the time. Let's raise taxes.