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A government can’t afford to keep going further into debt forever. It’s a matter of math. Governments need to live within their means or jeopardize funding for essential programs.
Prince Edward Island’s $172 million deficit forecast this year is worrying. And while the pandemic certainly hasn’t helped, the province’s deficit is not just a temporary problem.
According to the non-partisan Parliamentary Budget Officer, P.E.I.’s budget is unsustainable. This means the province can expect to keep borrowing ever more money unless it addresses its spending problem.
The longer the government waits to address the deficit, the harder it will be as debt keeps piling on and interest payments keep going up.
Already, the provincial government spends $128 million – or one-third of its income tax revenue – on interest payments every year. And that number keeps going up with every new dollar it borrows.
That leads to an inescapable reality: the provincial government needs to find ways to save money.
Most importantly, the government needs to look at Prince Edward Island’s single-biggest source of expenditure: bureaucrats’ salaries.
In the last year alone, the government of Prince Edward Island used nearly 42 cents out of every dollar it spent to pay for government employees. This represents a $839 million expense for taxpayers.
When compared to Islanders working in the private sector, bureaucrats earn a significant premium.
Employees working for the provincial government earn 16 per cent higher salaries than their private sector counterparts. That’s before we even consider the numerous benefits bureaucrats enjoy at taxpayers’ expense.
Take pensions for instance. Roughly three-quarters of all government staff in P.E.I. are covered by a generous pension. For private sector taxpayers, that number falls to one in eight.
And unlike private sector pensions, government employee pension plans help themselves to taxpayer bailouts when their pension plans underperform.
That’s how Islanders have been forced to cover $231 million in unfunded liabilities from the Civil Service Superannuation Fund and the Teachers’ Superannuation Fund between 2013 and 2022.
After these huge bailouts, the government renegotiated these pension plans. But taxpayers are still on the hook for 20 per cent of future shortfalls. Even worse, taxpayers had to hand over $396 million to government employees to compensate for those negotiated changes.
So not only are provincial government employees earning more money than private sector workers in Prince Edward Island, but they also enjoy many more benefits at the latter’s expense.
This discrepancy between bureaucrats and their private sector counterparts’ compensation represents $126 million in overpayments annually.
As the province is looking at a $172-million deficit, it needs to bring employee compensation back to a level similar to that of Islanders working in the private sector and end the bureaucrat premium.
Renaud Brossard is the interim Atlantic director for the Canadian Taxpayers Federation.