Finance minister’s plan would directly tie public sector compensation to provincial economic growth

By Vaughn Palmer, Vancouver Sun columnist November 27, 2013

   Finance Minister Mike de Jong says the provincial government wants to ‘share the benefits of (economic) growth with the people that helped us get there.’Photograph by: Adrian Wyld , THE CANADIAN PRESS

VICTORIA — Finance Minister Mike de Jong was winding up a status report on a provincial budget that remains balanced on the edge of a razor Wednesday when he got to the news about the government’s mandate for the next round of public sector wage negotiations.

Gone are “net zero” and “cooperative gainsharing,” themes of the last two rounds. Enter “economic growth-sharing,” the government’s watchword for bargaining on contracts that expire next March 31.

The Liberals, taking their lead from expectations of modest growth in the years ahead, will offer correspondingly modest increases in wages and benefits to public sector workers. Wanting long-term stability as well, they are seeking settlements in the range of five per cent over five years.

But if the economy outperforms expectations, the government is prepared to translate the resulting revenue windfall into additional raises for public sector workers.

“I’m trying to be candid about the limited means at our disposal for locked-in general wage increases, “ de Jong told reporters. “This is a mechanism by which if collectively we can do better, the government is saying we want to share the benefits of that growth with the people that helped get us there.”

The starting point for de Jong’s proposed “mechanism” would be the annual growth projection from the independent forecasting council. The council is a defined-in-law panel of economists and other experts that meets every December to set the parameters for the following year’s provincial budget.

The finishing point would be the actual rate of growth, as determined after the fact by Statistics Canada in its annual calculations of “real gross domestic product at market prices” for the country’s provinces and territories. Real GDP growth, in shorthand.

In the event the latter performance exceeds the former projection, the government is proposing to split the difference in terms of an additional wage increase for public sector workers. A rate of growth that exceeded the forecast by one percentage point, would translate into a half-point wage increase.

One public sector union, the Health Sciences Association, has already tentatively accepted the formula, albeit subject to ratification. The union’s 17,000 members, including technologists, pharmacists, radiologists, dietitians, therapists and other health care professionals, are voting this month and into the next on a deal reached Nov. 8.

If ratified, it would provide them with a basic increase of 5.5 per cent spread over five years, plus what are called “economic stability dividends” if the economy outperforms expectations in the final four years of the agreement.

As a hypothetical example, derived from the union’s briefing for its members, suppose that in December 2014 the members of the economic forecasting council project the rate of economic growth for the year ahead at 2.1 per cent, on average. The number is duly recorded and published in the provincial budget presented to the legislature in February 2015.

Then in November 2016 Statistics Canada weighs in, right on schedule, with its calculation of how much the economy actually grew in the preceding year: 3.1 per cent.

Out come the calculators and out goes a directive from the Ministry of Finance to employers in the health care sector to begin paying out an additional half a percentage point to HSA members starting in 2017.

What if the economy went in the opposite direction and underperformed the forecast? There’d be no wage cut. The Liberals want public sector workers to go along with this experiment, not run for cover from it.

If approved, the HSA deal would be the first of its kind, here or in most other Canadian jurisdictions. Also a significant step toward the Liberal goal of tying public sector compensation to overall performance of the economy. Perhaps it might dispose public sector unions and their members to be more supportive of measures to encourage resource development, investment and private sector growth.

“It’s about the partnership,” de Jong explained. “The government is in partnership with the private sector in terms of generating that economic growth and the public sector is part of that partnership, a big part.

“They are a key part of the equation and a key mechanism by which we work with the private sector to create the circumstances in which the investment occurs and the economy grows. This is a means by which we can formalize that partnership and share some of the benefits.”

Nor is the prospect purely hypothetical. The finance ministry has produced a chart showing that if the growth-sharing mechanism were in place for all public sector workers since the Liberals took office, the cumulative result would have been an additional three-per-cent increase in wages over the 12 years and a payout from the provincial treasury of almost half a billion dollars.

Still, as de Jong noted, the HSA deal is but a first step and a tentative one at that. “I’m going to be careful about prejudging the outcome of discussions,” he told reporters, not disguising that he and his colleagues hope that growth-sharing becomes the standard for this round of public sector bargaining.

A one-per-cent increase in provincial economic growth translates into an estimated $200 million to $350 million in extra government revenues. A one-per-cent wage hike for all unionized public sector workers equates to about $200 million.