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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 openness and transparency” 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” 2014-15 2015-16 2016-17 2017-18 2018-19 $8,829.0 $8,910.0 $9,078.5 $9,213.6 $9,433.6 Increase 0.9% 1.9% 1.5% 2.4% Increase vs 2014-15 $81.0 $249.5 $384.6 $604.6 $9,920.0 $10,202.2 $10,369.3 $10,653.3 -$122.5 $22.6 $25.3 $66.1 Departmental Expenses (millions) Total Revenues Projected Deficit/ Surplus $9,762.8 What does this really mean? Example: proposal with NSTU 2015-16 2016-17 2017-18 0% 0% 0% 1% 1% Consumer price inflation 0.8% 2.6% 2.0% 2.0% 2.0% Annual real base wage decrease -0.8% -2.6% -2.0% -1.0% -1.0% Cumulative real base wage loss -0.8% -3.4% -5.3% -6.3% -7.2% Base wage increase 2018-19 201920 What would this mean? CPI Inflation for NS Base wage average settlement NS public sector 2007 2008 2009 2010 2011 2012 2013 2014 07-14 1.9% 2.9% -0.1% 2.2% 3.8% 2.0% 1.2% 1.7% 3.0% 3.8% 2.9% 1.5% 1.2% 1.1% 0.9% 3.0% -0.7% -2.6% Est CUPE NS base wage increase 2.9% 2.9% 2.9% 2.5% 1.6% After inflation – real wage incr. 1.0% 0.0% 3.0% 0.3% After inflation – real wage incr. 2.1% 2.5% 2.7% 0.1% 1.3% 1.0% 4.1% 1.9% 2.5% 2.0% -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”? $150 $100 $50 $0 -$50 -$100 -$150 9.0% 6.0% 3.0% 0.0% -3.0% -6.0% -9.0% 2014/15 2015/16 NS deficit/surplus (left axis) 2016/17 2017/18 2018/19 Unemployment rate (actual & forecast - right axis) Nova Scotia does not have a structural deficit. Nova Scotia does not have a structural deficit. Nova Scotia does not have a structural deficit. unemployment rate $millions Nova Scotia Deficit/Surplus and Unemployment Rate Nova Scotia deficit one of lowest in Canada Deficit as % of GDP 4% 3% 2% 1% 0% BC AB SK MB ON PQ NB NS PEI NL -1% RBC Canadian Federal and Provincial Fiscal Tables, September 28. Data for 2015/16. Nova Scotia net public debt also mid-range Net public debt per person $25,000 $23,304 $21,908 $21,644 $20,000 $15,000 $16,716 $15,751 $16,021 $17,172 $14,826 $10,000 $8,706 $5,000 $5,875 $0 BC -$5,000 -$932 AB SK MB ON PQ NB NS PEI NL RBC Canadian Federal and Provincial Fiscal Tables, September 28. Data for 2015/16. CA The NS government’s estimates of future revenue growth are low Forecasted Revenues 2014-15 2015-16 2016-17 2017-18 2018-19 $9,762.8 $9,920.0 $10,202.2 $10,369.3 $10,653.3 1.5% -$122.5 2.9% $22.6 1.6% $25.3 2.7% $66.1 2.4% 3.0% 3.2% 3.2% $10,000 $10,303 $10,630 $10,967 (36) $116 $278 $372 Increase Projected Deficit/ Surplus Higher growth Revenues Resulting deficit/surplus 3.8% Revenues & spending shares to decline Nova Scotia forecast revenue & spending as a share of GDP 25% 24% 23% 22% 2014 2015 Revenues/GDP 2016 2017 Spending/GDP 2018 Real problem household debt ratios Debt ratios of Canadian households, corporations and governments 200% 180% 160% Household debt to disposable income Corporate credit market debt to equity Cdn govts net debt to GDP 140% 120% 100% 80% 60% 40% 20% 0% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: Statistics Canada National Balance Sheet Cansim tables 378-0123, 378-0124 and 378-0125. 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 Public Investment Yields Strongest Economic Impact (per $1 Million invested or spent) 45 4.5 35 4 GDP 3.5 30 3 25 2.5 20 2 15 1.5 10 1 Corporate tax cut Income tax cut 0 Education 0 Public Infrastructure 0.5 Health care and social services 5 Sources: Federal Budget 2009 (p. 240), Informetrica Ltd Macroeconomic Impacts (2009) and Centre for Spatial Economics, Economic Impacts of Early Learning and Care (2011). $million GDP impact Jobs Child care Jobs Generated 40 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.